Registration No. 2-60067
As filed with the Securities and Exchange Commission on December 29, 1995
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ___
Post-Effective Amendment No. 27 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 X
Amendment No. 28 X
(Check appropriate box or boxes)
TEMPLETON FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
700 Central Avenue, P.O. Box 33030, St. Petersburg, Florida 33733-8030
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:(813) 823- 8712
Thomas M. Mistele, Esq.
700 Central Avenue
St. Petersburg, Fl 33701
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
____ immediately upon filing pursuant to paragraph (b)
X on January 1, 1996 pursuant to paragraph (b)
____ 60 days after filing pursuant to paragraph (a)
____ on (date) pursuant to paragraph (a) of Rule 485
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
* Registrant has elected to register an indefinite number of Shares of its
Common Stock, $1.00 par value per Share, pursuant to Rule 24f-2 under the
Investment Company Act of 1940. Registrant filed its most recent Notice pursuant
to Rule 24f-2 on October 30, 1995.
<PAGE>
TEMPLETON FUNDS, INC.
CROSS-REFERENCE SHEET
Item No. Caption
Part A - Foreign Fund
1 Cover Page
2 Expense Table
3 Financial Highlights
4 General Description;
Investment Techniques
5 Management of the Fund
5A See Annual Report to
Shareholders
6 General Information
7 How to Buy Shares of the Fund
8 How to Sell Shares of the Fund
9 Not Applicable
Part A - World Fund
1 Cover Page
2 Expense Table
3 Financial Highlights
4 General Description;
Investment Techniques
5 Management of the Fund
5A See Annual Report to
Shareholders
6 General Information
7 How to Buy Shares of the Fund
8 How to Sell Shares of the Fund
9 Not Applicable
<PAGE>
Part B
10 Cover Page
11 Table of Contents
12 General Information and
History
13 Investment Objectives and
Policies
14 Management of the Company
15 Principal Shareholders
16 Investment Management and
Other Services
17 Brokerage Allocation
18 Description of Shares
19 Purchase, Redemption and
Pricing of Shares
20 Tax Status
21 Principal Underwriter
22 Performance Information
23 Financial Statements
<PAGE>
TEMPLETON PROSPECTUS -- JANUARY 1, 1996
WORLD FUND
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INVESTMENT Templeton World Fund (the "Fund") seeks long-term capital
OBJECTIVE growth through a flexible policy of investing in stocks and
AND POLICIES debt obligations of companies and governments of any nation.
The Fund is a series of Templeton Funds, Inc.
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PURCHASE OF Please complete and return the Shareholder Application. If you
SHARES need assistance in completing this form, please call our
Shareholder Services Department. The Fund offers two classes to
its investors: Templeton World Fund--Class I ("Class I") and
Templeton World Fund--Class II ("Class II"). Investors can
choose between Class I Shares, which generally bear a higher
front-end sales charge and lower ongoing Rule 12b-1
distribution fees ("Rule 12b-1 fees"), and Class II Shares,
which generally have a lower front-end sales charge and higher
ongoing Rule 12b-1 fees. Investors should consider the
differences between the two classes, including the impact of
sales charges and distribution fees, in choosing the more
suitable class given their anticipated investment amount and
time horizon. See "How to Buy Shares of the Fund-- "Differences
Between Class I and Class II." The minimum initial investment
is $100 ($25 minimum for subsequent investments).
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PROSPECTUS This Prospectus sets forth concisely information about the Fund
INFORMATION that a prospective investor ought to know before investing.
Investors are advised to read and retain this Prospectus for
future reference. A Statement of Additional Information ("SAI")
dated January 1, 1996, has been filed with the Securities and
Exchange Commission (the "SEC") and is incorporated in its
entirety by reference in and made a part of this Prospectus.
This SAI is available without charge upon request to Franklin
Templeton Distributors, Inc., P.O. Box 33030, St. Petersburg,
Florida 33733-8030 or by calling the Fund Information
Department.
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FUND INFORMATION DEPARTMENT -- 1-800/DIAL BEN
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TEMPLETON "STAR" SERVICE (24 hours, seven days a week access to current prices,
shareholder account balances/values, last transaction and duplicate account
statements) -- 1-800-654-0123
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
EXPENSE TABLE....................... 2
FINANCIAL HIGHLIGHTS................ 3
GENERAL DESCRIPTION................. 4
Investment Objective and Policies... 4
INVESTMENT TECHNIQUES............... 5
Repurchase Agreements............... 5
Options on Indices.................. 5
Stock Index Futures Contracts....... 5
Loans of Portfolio Securities....... 6
Depositary Receipts................. 6
RISK FACTORS........................ 6
HOW TO BUY SHARES OF THE FUND....... 8
Differences Between Class I and
Class II........................... 8
Deciding Which Class to Purchase.... 9
Offering Price--Class I............. 9
Offering Price--Class II............ 12
Net Asset Value Purchases
(Both Classes)..................... 12
Description of Special Net Asset
Value Purchases.................... 13
Additional Dealer Compensation
(Both Classes)..................... 13
<CAPTION>
Page
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<S> <C>
Purchasing Class I and Class II
Shares............................. 14
Automatic Investment Plan........... 14
Institutional Accounts.............. 15
Account Statements.................. 15
Templeton STAR Service.............. 15
Retirement Plans.................... 15
Net Asset Value..................... 15
EXCHANGE PRIVILEGE.................. 16
Exchanges of Class I Shares......... 17
Exchanges of Class II Shares........ 17
Transfers........................... 18
Conversion Rights................... 18
Exchanges by Timing Accounts........ 18
HOW TO SELL SHARES OF THE FUND...... 18
Reinstatement Privilege............. 20
Systematic Withdrawal Plan.......... 20
Redemptions by Telephone............ 21
Contingent Deferred Sales Charge.... 22
TELEPHONE TRANSACTIONS.............. 22
Verification Procedures............. 22
Restricted Accounts................. 23
General............................. 23
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Page
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<S> <C>
MANAGEMENT OF THE FUND.............. 23
Investment Manager.................. 23
Business Manager.................... 24
Transfer Agent...................... 24
Custodian........................... 24
Plans of Distribution............... 24
Expenses............................ 25
Brokerage Commissions............... 25
GENERAL INFORMATION................. 25
Description of Shares/Share
Certificates....................... 25
Voting Rights....................... 26
Meetings of Shareholders............ 26
Dividends and Distributions......... 26
Federal Tax Information............. 27
Inquiries........................... 27
Performance Information............. 27
Statements and Reports.............. 27
WITHHOLDING INFORMATION............. 28
CORPORATE RESOLUTION................ 29
AUTHORIZATION AGREEMENT............. 30
THE FRANKLIN TEMPLETON GROUP........ 31
</TABLE>
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SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF CAPITAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
EXPENSE TABLE
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a Shareholder will bear directly or indirectly
in connection with an investment in the Fund. The figures are estimates of the
Fund's expenses for the current fiscal year, restated to reflect current sales
charges and Rule 12b-1 fees for each class.
<TABLE>
<CAPTION>
CLASS I CLASS II
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<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage
of Offering Price)....................................... 5.75% 1.00%/1/
Deferred Sales Charge..................................... None/2/ 1.00%/3/
Exchange Fee (per transaction)............................ $5.00/4/ $5.00/4/
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................................... 0.62% 0.62%
Rule 12b-1 Fees/5/........................................ 0.19% 1.00%
Other Expenses (audit, legal, business management,
transfer agent and custodian)............................ 0.24% 0.20%
Total Fund Operating Expenses............................. 1.05% 1.82%
</TABLE>
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/1/ Although Class II has a lower front-end sales charge than Class I, over time
the higher Rule 12b-1 fees for Class II may cause Shareholders to pay more
for Class II Shares than for Class I Shares. Given the maximum front-end
sales charge and the rate of Rule 12b-1 fees for each class, it is estimated
that this would take less than six years for Shareholders who maintain total
Shares valued at less than $50,000 in the Franklin Templeton Funds.
Shareholders with larger investments in the Franklin Templeton Funds will
reach the cross-over point more quickly. (See "How to Buy Shares of the
Fund.")
/2/ Class I investments of $1 million or more are not subject to a front-end
sales charge; however, a contingent deferred sales charge of 1%, is
generally imposed on certain redemptions within a "contingency period" of 12
months of the calendar month of such investments. See "How to Sell Shares of
the Fund--Contingent Deferred Sales Charge."
/3/ Class II Shares redeemed within a "contingency period" of 18 months of the
calendar month of such investments are subject to a 1% contingent deferred
sales charge. See "How to Sell Shares of the Fund--Contingent Deferred Sales
Charge."
/4/ $5.00 fee imposed only on Timing Accounts as described under "Exchange
Privilege." All other exchanges are processed without a fee.
/5/ Annual Rule 12b-1 fees may not exceed 0.25% of the Fund's average net assets
attributable to Class I Shares and 1% of the Fund's average net assets
attributable to Class II Shares. Consistent with the National Association of
Securities Dealers, Inc.'s rules, it is possible that the combination of
front-end sales charges and Rule 12b-1 fees could cause long-term
Shareholders to pay more than the economic equivalent of the maximum front-
end sales charges permitted under those same rules.
Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with an individual's own
investment in the Fund. Rather, the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. The information in this table does not reflect the charge of up to
$15 per transaction if a Shareholder requests that redemption proceeds be sent
by express mail or wired to a commercial bank account. For a more detailed
discussion of these matters, investors should refer to the appropriate
sections of this Prospectus.
EXAMPLE
As required by SEC regulations, the following example illustrates the
expenses, including the maximum front-end sales charge and applicable contingent
deferred sales charge, that apply to a $1,000 investment in the Fund over
various time periods assuming (1) a 5% annual rate of return and (2) redemption
at the end of each time period.
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Class I.......................... $68 $89 $112 $178
Class II......................... $38 $67 $108 $222
You would pay the following
expenses on the same investment
in Class II Shares, assuming no
redemption...................... $28 $67 $108 $222
</TABLE>
For the purpose of this example, it is assumed that a contingent deferred
sales charge will not apply to Class I Shares.
THIS EXAMPLE IS BASED ON THE ESTIMATED ANNUAL OPERATING EXPENSES, INCLUDING
FEES SET BY CONTRACT, SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN
THOSE SHOWN. The operating expenses are borne by the Fund and only indirectly
by Shareholders as a result of their investment in the Fund. In addition,
federal securities regulations require the example to assume an annual rate of
return of 5%, but the Fund's actual return may be more or less than 5%.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables of selected financial information have been audited by
McGladrey & Pullen, LLP, independent certified public accountants, for the
years indicated in their report which is incorporated by reference and which
appears in the Fund's 1995 Annual Report to Shareholders. These statements
should be read in conjunction with the other financial statements and notes
thereto included in the Fund's 1995 Annual Report to Shareholders, which
contains further information about the Fund's performance, and which is
available to Shareholders upon request and without charge.
<TABLE>
<CAPTION>
PER SHARE
OPERATING
PERFORMANCE CLASS I
(for a Share ----------------------------------------------------------------------------------------------------------------
outstanding YEAR ENDED AUGUST 31,
throughout ----------------------------------------------------------------------------------------------------------------
the year) 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year $ 17.06 $ 15.94 $ 14.42 $ 15.05 $ 14.70 $ 17.30 $ 14.43 $ 19.05 $ 16.59 $ 13.52
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Income from
investment
operations
Net investment
income 0.33 0.26 0.30 0.41 0.46 0.53 0.54 0.47 0.40 0.43
Net realized and
unrealized gain
(loss) 1.11 2.50 2.81 0.67 1.16 (2.04) 3.31 (2.53) 3.78 3.60
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total from
investment
operations 1.44 2.76 3.11 1.08 1.62 (1.51) 3.85 (2.06) 4.18 4.03
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Distributions:
Dividends from
net investment
income (0.28) (0.26) (0.38) (0.42) (0.52) (0.56) (0.38) (0.61) (0.44) (0.43)
Distributions
from net
realized gains (1.46) (1.38) (1.21) (1.29) (0.75) (0.53) (0.60) (1.95) (1.28) (0.53)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total
distributions (1.74) (1.64) (1.59) (1.71) (1.27) (1.09) (0.98) (2.56) (1.72) (0.96)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Change in net
asset value (0.30) 1.12 1.52 (0.63) 0.35 (2.60) 2.87 (4.62) 2.46 3.07
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Net asset value,
end of year $ 16.76 $ 17.06 $ 15.94 $ 14.42 $ 15.05 $ 14.70 $ 17.30 $ 14.43 $ 19.05 $ 16.59
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TOTAL RETURN* 9.87% 18.87% 24.71% 8.13% 12.95% (9.39)% 28.30% (8.79)% 28.54% 32.17%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end
of year (000) $5,868,967 $5,421,691 $4,621,124 $4,046,706 $4,129,635 $4,072,639 $4,728,104 $3,844,126 $4,478,488 $3,324,915
Ratio to average
net assets of:
Expenses 1.05% 1.04% 1.02% 0.86% 0.72% 0.69% 0.69% 0.68% 0.67% 0.67%
Net investment
income 2.18% 1.67% 2.13% 2.76% 3.23% 3.28% 3.54% 3.06% 2.48% 3.15%
Portfolio
turnover rate 34.05% 30.77% 25.86% 26.60% 22.90% 19.90% 15.56% 20.45% 23.37% 28.23%
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</TABLE>
* Total return does not reflect sales charges.
3
<PAGE>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
CLASS II
---------------
FOR THE PERIOD
MAY 1, 1995+
THROUGH
AUGUST 31, 1995
---------------
<S> <C>
Net asset value, beginning of period............................ $15.36
------
Income from investment operations:
Net investment income........................................... .03
Net realized and unrealized gain................................ 1.32
------
Total from investment operations................................ 1.35
------
Net asset value, end of period.................................. $16.71
======
TOTAL RETURN*................................................... 8.79%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)................................. $7,623
Ratio of expenses to average net assets......................... 1.82%**
Ratio of net investment income to average net assets............ 1.37%**
</TABLE>
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* Total return does not reflect sales commissions or the deferred contingent
sales charge. Not annualized for periods of less than one year.
** Annualized.
+ Commencement of offering of shares.
GENERAL DESCRIPTION
Templeton Funds, Inc. (the "Company") was incorporated under the laws of
Maryland on August 15, 1977 and is registered under the Investment Company Act
of 1940, as amended (the "1940 Act") as an open-end diversified investment
company. It has two series of Shares, each of which is a separate mutual fund:
Templeton World Fund and Templeton Foreign Fund. A prospectus for Templeton
Foreign Fund is available upon request and without charge from the Principal
Underwriter. The Fund has two classes of Common Shares of $1 par value per
Share: Templeton World Fund--Class I and Templeton World Fund--Class II. All
Fund Shares outstanding before May 1, 1995 have been redesignated as Class I
Shares, and will retain their previous rights and privileges, except for
legally required modifications to Shareholder voting procedures, as discussed
in "General Information--Voting Rights."
Shares of the Fund may be purchased (minimum investment of $100 initially
and $25 thereafter) at the current public Offering Price. The current public
Offering Price of the Class I Shares is equal to the net asset value per Share
(see "How to Buy Shares of the Fund--Net Asset Value"), plus a variable sales
charge not exceeding 5.75% of the Offering Price depending upon the amount
invested. The current public Offering Price of the Class II Shares is equal to
the net asset value per Share, plus a sales charge of 1% of the amount
invested. (See "How to Buy Shares of the Fund.")
INVESTMENT OBJECTIVE AND POLICIES. The Fund's investment objective is long-
term capital growth, which it seeks to achieve through a flexible policy of
investing in stocks and debt obligations of companies and governments of any
nation. Any income realized will be incidental. There can be no assurance that
the Fund's investment objective will be achieved.
Although the Fund generally invests in common stock, it may also invest in
preferred stocks and certain debt securities (which may include structured
investments, as described in the SAI under "Investment Objectives and
Policies--Structured Investments"), rated or unrated, such as convertible
bonds and bonds selling at a discount. Under normal market conditions, the
Fund will invest at least 65% of its total assets in issuers domiciled in at
least three different nations (one of which may be the United States).
Whenever, in the judgment of the Investment Manager, market or economic
conditions warrant, the Fund may, for temporary defensive purposes, invest
without limit in U.S. Government securities, bank time deposits in the
currency of any major nation and commercial paper
4
<PAGE>
meeting the quality ratings set forth under "Investment Objective and
Policies" in the SAI, and purchase from banks or broker-dealers Canadian or
U.S. Government securities with a simultaneous agreement by the seller to
repurchase them within no more than seven days at the original purchase price
plus accrued interest.
The Fund may invest no more than 5% of its total assets in securities issued
by any one company or government, exclusive of U.S. Government securities.
Although the Fund may invest up to 25% of its assets in a single industry, it
has no present intention of doing so. The Fund may not invest more than 5% of
its assets in warrants (exclusive of warrants acquired in units or attached to
securities) nor more than 10% of its assets in securities with a limited
trading market. The Investment Objective and Policies described above, as well
as most of the Investment Restrictions described in the SAI, cannot be changed
without Shareholder approval. The Fund invests for long-term growth of capital
and does not intend to place emphasis upon short-term trading profits.
Accordingly, the Fund expects to have a portfolio turnover rate of less than
50%.
The Fund may also purchase and sell stock index futures contracts up to an
aggregate amount not exceeding 20% of its total assets. In addition, in order
to increase its return or to hedge all or a portion of its portfolio
investments, the Fund may purchase and sell put and call options on securities
indices. These investment techniques are described below and under the heading
"Investment Objective and Policies" in the SAI.
INVESTMENT TECHNIQUES
The Fund is authorized to use the various investment techniques described
below. Although these strategies are regularly used by some investment
companies and other institutional investors in various markets, some of these
strategies cannot at the present time be used to a significant extent by the
Fund in some of the markets in which the Fund will invest and may not be
available for extensive use in the future.
REPURCHASE AGREEMENTS. When the Fund acquires a security from a U.S. bank or
a registered broker-dealer, it may simultaneously enter into a repurchase
agreement, wherein the seller agrees to repurchase the security at a specified
time and price. The repurchase price is in excess of the purchase price by an
amount which reflects an agreed-upon rate of return, which is not tied to the
coupon rate of the underlying security. Under the 1940 Act, repurchase
agreements are considered to be loans collateralized by the underlying
security and therefore will be fully collateralized. However, if the seller
should default on its obligation to repurchase the underlying security, the
Fund may experience delay or difficulty in exercising its rights to realize
upon the security and might incur a loss if the value of the security
declines, as well as incur disposition costs in liquidating the security.
OPTIONS ON INDICES. The Fund may purchase and write (i.e., sell) put and
call options on securities indices that are traded on United States and
foreign exchanges or in the over-the-counter markets. An option on a
securities index permits the purchaser of the option, in return for the
premium paid, the right to receive from the seller cash equal to the
difference between the closing price of the index and the exercise price of
the option. The Fund may write a put or call option only if the option is
"covered." This means that so long as the Fund is obligated as the writer of
an option, it will maintain with its custodian cash or cash equivalents equal
to the contract value (in the case of call options) or exercise price (in the
case of put options). The Fund will not purchase put or call options if the
aggregate premium paid for such options would exceed 5% of its total assets.
STOCK INDEX FUTURES CONTRACTS. For hedging purposes only, the Fund may
purchase and sell stock index futures contracts up to an aggregate amount not
exceeding 20% of its total assets. A stock index futures contract is a
bilateral agreement under which two parties agree to take or make delivery of
an amount of cash based on the difference between the value of a stock index
at the beginning and at the end of the contract period. When the Fund enters
into a stock index futures contract, it must make an initial
5
<PAGE>
deposit, known as "initial margin," as a partial guarantee of its performance
under the contract. As the value of the stock index fluctuates, either party
to the contract is required to make additional margin deposits, known as
"variation margin," to cover any additional obligation it may have under the
contract. In addition, when the Fund enters into a futures contract, it will
segregate assets or "cover" its position in accordance with the 1940 Act. See
"Investment Objective and Policies -- Stock Index Futures Contracts" in the
SAI. The Fund may not at any time commit more than 5% of its total assets to
initial margin deposits on futures contracts.
LOANS OF PORTFOLIO SECURITIES. The Fund may lend to banks and broker-dealers
portfolio securities with an aggregate market value of up to one-third of its
total assets. Such loans must be secured by collateral (consisting of any
combination of cash, U.S. Government securities or irrevocable letters of
credit) in an amount at least equal (on a daily marked-to-market basis) to the
current market value of the securities loaned. The Fund may terminate the
loans at any time and obtain the return of the securities loaned within five
business days. The Fund will continue to receive any interest or dividends
paid on the loaned securities and will continue to retain any voting rights
with respect to the securities.
DEPOSITARY RECEIPTS. The Fund may purchase sponsored or unsponsored American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and Global
Depositary Receipts ("GDRs") (collectively, "Depositary Receipts"). ADRs are
Depositary Receipts typically used by a U.S. bank or trust company which
evidence ownership of underlying securities issued by a foreign corporation.
EDRs and GDRs are typically issued by foreign banks or trust companies,
although they also may be issued by U.S. banks or trust companies, and
evidence ownership of underlying securities issued by either a foreign or a
United States corporation. Generally, Depositary Receipts in registered form
are designed for use in the U.S. securities market and Depositary Receipts in
bearer form are designed for use in securities markets outside the United
States. Depositary Receipts may not necessarily be denominated in the same
currency as the underlying securities into which they may be converted.
Depositary Receipts may be issued pursuant to 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
programs 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. Depositary Receipts also involve the risks of other
investments in foreign securities, as discussed below. For purposes of the
Fund's investment policies, the Fund's investments in Depositary Receipts will
be deemed to be investments in the underlying securities.
RISK FACTORS
Shareholders should understand that all investments involve risk and there
can be no guarantee against loss resulting from an investment in the Fund, nor
can there be any assurance that the Fund's investment objective will be
attained. As with any investment in securities, the value of, and income from,
an investment in the Fund can decrease as well as increase, depending on a
variety of factors which may affect the values and income generated by the
Fund's portfolio securities, including general economic conditions and market
factors. In addition to the factors which affect the value of individual
securities, a Shareholder may anticipate that the value of the Shares of the
Fund will fluctuate with movements in the broader equity and bond markets. A
decline in the stock market of any country in which the Fund is invested may
also be reflected in declines in the price of the Shares of the Fund. Changes
in currency valuations will also affect the price of the Shares of the Fund.
History reflects both decreases and increases in worldwide stock markets and
currency valuations, and these may reoccur unpredictably in the future. The
value of debt securities held by the Fund generally will vary inversely with
changes in prevailing interest rates. Additionally, investment decisions made
by the Investment Manager will not always be profitable or prove to have been
correct. The Fund is not intended as a complete investment program.
6
<PAGE>
Successful use of stock index futures contracts and options on securities
indices by the Fund is subject to certain special risk considerations. A
liquid stock index option or futures market may not be available when the Fund
seeks to offset adverse market movements. In addition, there may be an
imperfect correlation between movements in the securities included in the
index and movements in the securities in the Fund's portfolio. Successful use
of stock index futures contracts and options on securities indices is further
dependent on the Investment Manager's ability to predict correctly movements
in the direction of the stock markets and no assurance can be given that its
judgment in this respect will be correct. Risks in the purchase and sale of
stock index futures and options are further referred to in the SAI.
The Fund has the right to purchase securities in any foreign country,
developed or developing. Investors should consider carefully the substantial
risks involved in investing in securities issued by companies and governments
of foreign nations, which are in addition to the usual risks inherent in
domestic investments. There is the possibility of expropriation,
nationalization or confiscatory taxation, taxation of income earned in foreign
nations or other taxes imposed with respect to investments in foreign nations,
foreign exchange controls (which may include suspension of the ability to
transfer currency from a given country), foreign investment controls on daily
stock market movements, default in foreign government securities, political or
social instability, or diplomatic developments which could affect investments
in securities of issuers in foreign nations. Some countries may withhold
portions of interest and dividends at the source. In addition, in many
countries there is less publicly available information about issuers than is
available in reports about companies in the United States. Foreign companies
are not generally subject to uniform accounting, auditing and financial
reporting standards, and auditing practices and requirements may not be
comparable to those applicable to United States companies. The Fund may
encounter difficulties or be unable to vote proxies, exercise shareholder
rights, pursue legal remedies, and obtain judgments in foreign courts.
Brokerage commissions, custodial services and other costs relating to
investment in foreign countries are generally more expensive than in the
United States. Foreign securities markets also have different clearance and
settlement procedures, and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the
Fund due to subsequent declines in value of the portfolio security or, if the
Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser.
In many foreign countries, there is less government supervision and
regulation of business and industry practices, stock exchanges, brokers and
listed companies than in the United States. There is an increased risk,
therefore, of uninsured loss due to lost, stolen, or counterfeit stock
certificates. In addition, the foreign securities markets of many of the
countries in which the Fund may invest may also be smaller, less liquid, and
subject to greater price volatility than those in the United States. The Fund
may invest in Eastern European countries, which involves special risks that
are described under "Risk Factors" in the SAI.
Prior governmental approval of foreign investments may be required under
certain circumstances in some developing countries, and the extent of foreign
investment in domestic companies may be subject to limitation in other
developing countries. Foreign ownership limitations also may be imposed by the
charters of individual companies in developing countries to prevent, among
other concerns, violation of foreign investment limitations.
Repatriation of investment income, capital and proceeds of sales by foreign
investors may require governmental registration and/or approval in some
developing countries. The Fund could be adversely affected by delays in or a
refusal to grant any required governmental registration or approval for such
repatriation.
Further, the economies of developing countries generally are heavily
dependent upon international trade and, accordingly, have been and may
continue to be adversely affected by trade barriers, exchange controls,
managed adjustments in relative currency values
7
<PAGE>
and other protectionist measures imposed or negotiated by the countries with
which they trade. These economies also have been and may continue to be
adversely affected by economic conditions in the countries with which they
trade.
The Fund is authorized to invest in medium quality or high-risk, lower
quality debt securities that are rated between BBB and as low as CCC by
Standard & Poor's Corporation ("S&P") and between Baa and as low as Caa by
Moody's Investors Service, Inc. ("Moody's") or, if unrated, are of equivalent
investment quality as determined by the Investment Manager. As an operating
policy, which may be changed by the Board of Directors without Shareholder
approval, the Fund will not invest more than 5% of its total assets in debt
securities rated lower than BBB by S&P or Baa by Moody's. The Board may
consider a change in this operating policy if, in its judgment, economic
conditions change such that a higher level of investment in high-risk, lower
quality debt securities would be consistent with the interests of the Fund and
its Shareholders. High-risk, lower quality debt securities, commonly referred
to as "junk bonds," 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 obligation and may be in default. Unrated
debt securities are not necessarily of lower quality than rated securities but
they may not be attractive to as many buyers. Regardless of rating levels, all
debt securities considered for purchase (whether rated or unrated) will be
carefully analyzed by the Investment Manager to insure, to the extent
possible, that the planned investment is sound. The Fund may, from time to
time, purchase defaulted debt securities if, in the opinion of the Investment
Manager, the issuer may resume interest payments in the near future. The Fund
will not invest more than 10% of its total assets in defaulted debt
securities, which may be illiquid.
The Fund usually effects currency exchange transaction on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign exchange market.
However, some price spread on currency exchange (to cover service charges)
will be incurred when the Fund converts assets from one currency to another.
There are further risk considerations, including possible losses through the
holding of securities in domestic and foreign custodial banks and
depositories, described in the SAI.
HOW TO BUY SHARES OF THE FUND
Shares of the Fund may be purchased at the Offering Price through any broker
which has a dealer agreement with Franklin Templeton Distributors, Inc.
("FTD"), the Principal Underwriter of the Shares of the Fund, or directly from
FTD upon receipt by FTD of a completed Shareholder Application and check
payable in U.S. currency. Shares of both classes of the Fund are offered at
their respective public Offering Prices, which are determined by adding the
net asset value per Share plus a front-end sales charge, next computed (i)
after the Shareholder's securities dealer receives the order which is promptly
transmitted to the Fund or (ii) after receipt of an order by mail from the
Shareholder directly in proper form (which generally means a completed
Shareholder Application accompanied by a negotiable check). The minimum
initial investment is $100, and subsequent investments must be $25 or more.
These minimums may be waived when the Shares are being purchased through
retirement plans providing for regular periodic investments, as described
below under "Retirement Plans."
DIFFERENCES BETWEEN CLASS I AND CLASS II. The differences between Class I
and Class II Shares lie primarily in their front-end and contingent deferred
sales charges and Rule 12b-1 fees as described below.
Class I. All Fund Shares outstanding before the implementation of the
multiclass structure have been redesignated as Class I Shares, and will retain
their previous rights and privileges. Voting rights of each class will be the
same on matters affecting the Fund as a whole, but each will vote separately
on matters affecting its class. Class I Shares are generally subject to a
variable sales charge upon purchase and not subject to any sales charge upon
redemption. Class I Shares are subject to Rule 12b-1 fees of up to an annual
maximum of 0.25% of average daily net assets of such Shares. With this
multiclass structure, Class I Shares have higher front-end sales charges than
Class II Shares and comparatively lower Rule 12b-1 fees. Class I Shares may be
purchased at reduced front-end
8
<PAGE>
sales charges, or at net asset value if certain conditions are met. In most
circumstances, contingent deferred sales charges will not be assessed against
redemptions of Class I Shares. See "Management of the Fund" and "How to Sell
Shares of the Fund" for more information.
Class II. The current public Offering Price of Class II Shares is equal to
the net asset value per Share, plus a front-end sales charge of 1% of the
amount invested. Class II Shares are also subject to a contingent deferred
sales charge of 1% if Shares are redeemed within 18 months of the calendar
month of the purchase. In addition, Class II Shares are subject to Rule 12b-1
fees of up to a maximum of 1% per annum of average daily net assets of such
Shares, 0.75% of which will be retained by FTD during the first year of
investment. Class II Shares have lower front-end sales charges than Class I
Shares and comparatively higher Rule 12b-1 fees. See "How to Sell Shares of
the Fund--Contingent Deferred Sales Charge."
Purchases of Class II Shares are limited to purchases below $1 million. Any
purchases of $1 million or more will automatically be invested in Class I
Shares, since that is more beneficial to investors. Such purchases, however,
may be subject to a contingent deferred sales charge. Investors may exceed $1
million in Class II Shares by cumulative purchases over a period of time.
Investors who intend to make investments exceeding $1 million, however, should
consider purchasing Class I Shares through a Letter of Intent instead of
purchasing Class II Shares.
DECIDING WHICH CLASS TO PURCHASE. Investors should carefully evaluate their
anticipated investment amount and time horizon prior to determining which
class of Shares to purchase. Generally, an investor who expects to invest less
than $50,000 in the Franklin Templeton Funds and who expects to make
substantial redemptions within approximately six years or less of investment
should consider purchasing Class II Shares. However, the higher Rule 12b-1
fees on the Class II Shares will result in higher operating expenses, which
will accumulate over time to outweigh the difference in front-end sales
charges, and will lower income dividends for Class II Shares. For this reason,
Class I Shares may be more attractive to long-term investors even if no sales
charge reductions are available to them.
Investors who qualify to purchase Class I Shares at reduced sales charges
definitely should consider purchasing Class I Shares, especially if they
intend to hold their Shares approximately six years or more. Investors who
qualify to purchase Class I Shares at reduced sales charges but who intend to
hold their Shares less than approximately six years should evaluate whether it
is more economical to purchase Class I Shares through a Letter of Intent or
under the cumulative quantity discount rather than purchasing Class II Shares.
INVESTORS INVESTING $1 MILLION OR MORE IN A SINGLE PAYMENT AND OTHER INVESTORS
WHO QUALIFY TO PURCHASE CLASS I SHARES AT NET ASSET VALUE WILL BE PRECLUDED
FROM PURCHASING CLASS II SHARES.
Each class represents the same interest in the investment portfolio of the
Fund and has the same rights, except that each class has a different sales
charge, bears the separate expenses of its Rule 12b-1 distribution plan, and
has exclusive voting rights with respect to such plan. The two classes also
have separate exchange privileges.
Each class also has a separate schedule for compensating securities dealers
for selling Fund Shares. Investors should take all of the factors regarding an
investment in each class into account before deciding which class of Shares to
purchase.
OFFERING PRICE--CLASS I. The sales charge for Class I Shares is a variable
percentage of the Offering Price depending upon the amount of the sale. The
method of calculating net asset value per Share is described below under "Net
Asset Value."
9
<PAGE>
The price to the public on purchases of Class I Shares made by a single
purchaser, by an individual together with his or her spouse and their children
under 21 and their grandchildren under age 21, or by a single trust or
fiduciary account other than an employee benefit plan holding Shares of the
Fund on or before February 1, 1995, is the net asset value per Share plus a
sales charge not exceeding 5.75% of the Offering Price (equivalent to 6.10% of
the net asset value), which is reduced on larger sales as shown below.
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
--------------------------------------------
AS A PERCENTAGE OF AS A PERCENTAGE OF NET PORTION OF TOTAL OFFERING
AMOUNT OF SALE OFFERING PRICE OF THE ASSET VALUE OF THE PRICE
AT OFFERING PRICE SHARES PURCHASED SHARES PURCHASED RETAINED BY DEALERS/1/,/3/
- ----------------- --------------------- ---------------------- --------------------------
<S> <C> <C> <C>
Less than $50,000....... 5.75% 6.10% 5.00%
$50,000 but less than
$100,000............... 4.50% 4.71% 3.75%
$100,000 but less than
$250,000............... 3.50% 3.63% 2.80%
$250,000 but less than
$500,000............... 2.50% 2.56% 2.00%
$500,000 but less than
$1,000,000............. 2.00% 2.04% 1.60%
$1,000,000 or more...... none none (see below)/2/
</TABLE>
- -------
/1/ Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
/2/ The following commissions will be paid by FTD, from its own resources, to
securities dealers who initiate and are responsible for purchases of $1
million or more: 1% on sales of $1 million but less than $2 million, plus
0.80% on sales of $2 million but less than $3 million, plus 0.50% on sales
of $3 million but less than $50 million, plus 0.25% on sales of $50 million
but less than $100 million, plus 0.15% on sales of $100 million or more.
Dealer concession breakpoints are reset every 12 months for purposes of
additional purchases.
/3/ At the discretion of FTD, all sales charges may at times be reallowed to
the securities dealer. If 90% or more of the sales commission is reallowed,
such securities dealer may be deemed to be an underwriter as that term is
defined in the Securities Act of 1933.
No front-end sales charge applies to investments of $1 million or more, but
a contingent deferred sales charge of 1% is imposed on certain redemptions of
all or a portion of investments of $1 million or more within 12 months of the
calendar month of such investments ("contingency period"). See "How to Sell
Shares of the Fund--Contingent Deferred Sales Charge."
The size of a transaction which determines the applicable sales charge on
the purchases of Class I Shares is determined by adding the amount of the
Shareholder's current purchase plus the cost or current value (whichever is
higher) of a Shareholder's existing investment in one or more of the funds in
the Franklin Group of Funds (R) and the Templeton Family of Funds. Included
for three aggregation purposes are (i) the mutual funds in the Franklin Group
of Funds (R) except Franklin Valuemark Funds and Franklin Government
Securities Trust (the "Franklin Funds"); (ii) other investment products
underwritten by FTD or its affiliates (although certain investments may not
have the same schedule of sales charges and/or may not be subject to
reduction); and (iii) the U.S.-registered mutual funds in the Templeton Family
of Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund (the "Templeton
Funds"). (Franklin Funds and Templeton Funds are collectively referred to as
the "Franklin Templeton Funds.") Sales charge reductions based upon aggregate
holdings of (i), (ii) or (iii) above ("Franklin Templeton Investments") may be
effective only after notification to FTD that the investment qualifies for a
discount.
Other Payments to Securities Dealers. FTD, or one of its affiliates, may
make payments, from its own resources, of up to 1% of the amount purchased, to
securities dealers who initiate and are responsible for purchases made at net
asset value by certain designated retirement plans (as defined below)
(excluding IRA and IRA rollovers), certain non-designated plans (as defined
below), certain trust companies and trust departments of banks and certain
retirement plans of organizations with collective retirement plan assets of
$10 million or more. Please refer to the SAI for further information. See
definitions under "Description of Special Net Asset Value Purchases" below and
as set forth in the SAI.
A sales charge of 4% of the Offering Price (4.17% of the net asset value) is
applicable to all purchases of Shares made for any qualified or non-qualified
employee benefit plan account which is a Shareholder in the Fund on or before
February 1, 1995. Of the 4% sales charge applicable to such purchases, 3.20%
of the Offering Price will be retained by dealers.
10
<PAGE>
Cumulative Quantity Discount. The schedule of reduced sales charges also may
be applied to qualifying sales of Class I Shares on a cumulative basis. For
this purpose, the dollar amount of the sale is added to the higher of (i) the
value (calculated at the applicable Offering Price) or (ii) the purchase
price, of Franklin Templeton Investments. The cumulative quantity discount
applies to Franklin Templeton Investments owned at the time of purchase by the
purchaser, his or her spouse, their children under age 21, and their
grandchildren under age 21. In addition, the aggregate investments of a
trustee or other fiduciary account (for an account under exclusive investment
authority) may be considered in determining whether a reduced sales charge is
available, even though there may be a number of beneficiaries of the account.
For example, if the investor held Class I Shares valued at $40,000 (or, if
valued at less than $40,000, had been purchased for $40,000) and purchased an
additional $20,000 of the Fund's Class I Shares, the sales charge for the
$20,000 purchase would be at the rate of 4.50%. It is FTD's policy to give
investors the best sales charge rate possible; however, there can be no
assurance that an investor will receive the appropriate discount unless, at
the time of placing the purchase order, the investor or the dealer makes a
request for the discount and gives FTD sufficient information to determine
whether the purchase will qualify for the discount. On telephone orders from
dealers for the purchase of Class I Shares to be registered in "street name,"
FTD will accept the dealer's instructions with respect to the applicable sales
charge rate to be applied. The cumulative quantity discount may be amended or
terminated at any time.
Letter of Intent. An investor may be eligible for reduced sales charges on
all investments in Class I Shares by means of a Letter of Intent ("LOI") which
expresses the investor's intention to invest a certain amount within a 13-
month period in Class I Shares of the Fund or any other Franklin Templeton
Fund. See the Shareholder Application. Except for certain employee benefit
plans, the minimum initial investment under an LOI is 5% of the total LOI
amount. Except for Shares purchased by certain employee benefit plans, Shares
purchased with the first 5% of such amount will be held in escrow to secure
payment of the higher sales charge applicable to the Shares actually purchased
if the full amount indicated is not purchased, and such escrowed Shares will
be involuntarily redeemed to pay the additional sales charge, if necessary. A
purchase not originally made pursuant to an LOI may be included under a
subsequent LOI executed within 90 days of the purchase. Any redemptions made
by Shareholders, other than by certain employee benefit plans, during the 13-
month period will be subtracted from the amount of the purchases for purposes
of determining whether the terms of the LOI have been completed. For a further
description of the LOI, see "Purchase, Redemption and Pricing of Shares--
Letter of Intent" in the SAI.
Group Purchases. An individual who is a member of a qualified group may also
purchase Class I Shares of the Fund at the reduced sales charge applicable to
the group as a whole. The sales charge is based upon the aggregate dollar
value of Class I Shares previously purchased and still owned by the group,
plus the amount of the current purchase. For example, if members of the group
had previously invested and still held $80,000 of Class I Shares and now were
investing $25,000, the sales charge would be 3.50%. Information concerning the
current sales charge applicable to a group may be obtained by contacting FTD.
A "qualified group" is one which (i) has been in existence for more than six
months, (ii) has a purpose other than acquiring Fund Shares at a discount, and
(iii) satisfies uniform criteria which enable FTD to realize economies of
scale in its costs of distributing Shares. A qualified group must have more
than 10 members, must be available to arrange for group meetings between
representatives of the Fund or FTD and the members, must agree to include
sales and other materials related to the Fund in its publications and mailings
to members at reduced or no cost to FTD, and must seek to arrange for payroll
deduction or other bulk transmission of investments to the Fund.
If an investor selects a payroll deduction plan, subsequent investments will
be automatic and will continue until such time as the investor notifies the
Fund and the investor's employer to discontinue further investments. Due to
the varying procedures to prepare, process and forward the payroll deduction
information to the Fund, there may be a delay between the time of the payroll
deduction and the time the money reaches the Fund. The investment in the Fund
will be made at the Offering Price per Share determined on the day that both
the check and payroll deduction data are received in required form by the
Fund.
11
<PAGE>
OFFERING PRICE--CLASS II. Unlike Class I Shares, the front-end sales charges
and dealer concessions for Class II Shares do not vary depending on the amount
of purchase. The total sales charges or underwriting commissions and dealer
concessions for Class II Shares are set forth below.
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
--------------------------------------------
AS A PERCENTAGE OF AS A PERCENTAGE OF PORTION OF TOTAL
AMOUNT OF SALE OFFERING PRICE OF THE NET ASSET VALUE OF THE OFFERING PRICE
AT OFFERING PRICE SHARES PURCHASED SHARES PURCHASED RETAINED BY DEALERS*
- ----------------- --------------------- ---------------------- --------------------
<S> <C> <C> <C>
any amount (less than $1
million)............... 1.00% 1.01% 1.00%
</TABLE>
- -------
* FTD, or one of its affiliates, may make additional payments to securities
dealers, from its own resources, of up to 1% of the amount invested. During
the first year following a purchase of Class II Shares, FTD may retain a
portion of the Rule 12b-1 fees assessed on those Shares to partially recoup
fees FTD pays to securities dealers.
Class II Shares redeemed within 18 months of their purchase will be assessed
a contingent deferred sales charge of 1% on the lesser of the then-current net
asset value or the net asset value of such Shares at the time of purchase,
unless such charge is waived as described under "How to Sell Shares of the
Fund--Contingent Deferred Sales Charge."
NET ASSET VALUE PURCHASES (BOTH CLASSES). Class I Shares may be purchased
without the imposition of a front-end sales charge ("net asset value") or a
contingent deferred sales charge by (i) officers, trustees, directors, and
full-time employees of the Fund, any of the Franklin Templeton Funds, or
Franklin Resources, Inc. and its subsidiaries (the "Franklin Templeton
Group"), and their spouses and family members, including any subsequent
payments made by such parties after cessation of employment; (ii) companies
exchanging Shares with or selling assets pursuant to a merger, acquisition or
exchange offer; (iii) insurance company separate accounts for pension plan
contracts; (iv) accounts managed by the Franklin Templeton Group; (v)
shareholders of Templeton Institutional Funds, Inc. reinvesting redemption
proceeds from that fund under an employee benefit plan qualified under Section
401 of the Internal Revenue Code of 1986, as amended (the "Code"), in Shares
of the Fund; (vi) certain unit investment trusts and unit holders of such
trusts reinvesting their distributions from the trusts in the Fund; (vii)
registered securities dealers and their affiliates, for their investment
account only; and (viii) registered personnel and employees of securities
dealers and their affiliates, and by their spouses and family members, in
accordance with the internal policies and procedures of the employing
securities dealer.
For either Class I or Class II, the same class of Shares of the Fund may be
purchased at net asset value with the proceeds from (i) a redemption of Shares
of the Fund or shares of any other Franklin Templeton Fund, except any of the
Franklin Templeton money market funds (unless the redemption proceeds are from
Class I Shares of a fund with a lower initial sales charge than that charged
by the Fund and have been held in that Fund for less than six months), or (ii)
a dividend or distribution paid by any of the Franklin Templeton Funds, within
365 days after the date of the redemption or dividend or distribution. See
"How to Sell Shares of the Fund--Reinstatement Privilege." Class II
Shareholders may also invest such distributions at net asset value in a Class
I Franklin Templeton Fund.
Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by investors who have, within
the past 60 days, redeemed an investment in a mutual fund which is not part of
the Franklin Templeton Funds which was subject to a front-end sales charge or
a contingent deferred sales charge and which has investment objectives similar
to those of the Fund.
Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by broker-dealers who have
entered into a supplemental agreement with FTD, or by registered investment
advisers affiliated with such broker-dealers, on behalf of their clients who
are participating in a comprehensive fee program (also known as a wrap fee
program).
Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by anyone who has taken a
distribution from an existing retirement plan already invested in the Franklin
Templeton Funds (including former participants of the Franklin Templeton
Profit Sharing 401(k) plan), to the extent of such distribution. In order to
exercise this privilege,
12
<PAGE>
a written order for the purchase of Shares of the Fund must be received by
Franklin Templeton Trust Company ("FTTC"), the Fund, or Franklin Templeton
Investor Services, Inc. (the "Transfer Agent") within 365 days after the plan
distribution.
Class I Shares may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge by any state, county or city,
or any instrumentality, department, authority or agency thereof which has
determined that the Fund is a legally permissible investment and which is
prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
management investment company (an "eligible governmental authority"). SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISERS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any, of
various payments made by the Fund or its investment manager on arbitrage rebate
calculations. If an investment by an eligible governmental authority at net
asset value is made through a securities dealer who has executed a dealer
agreement with FTD, FTD or one of its affiliates may make a payment, out of its
own resources, to such securities dealer in an amount not to exceed 0.25% of the
amount invested. Contact Franklin Templeton Institutional Services for
additional information.
DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES. Class I Shares may also be
purchased at net asset value and without the imposition of a contingent
deferred sales charge by certain designated retirement plans, including
profit-sharing, pension, 401(k) and simplified employee pension plans
("designated plans"), subject to minimum requirements with respect to number
of employees or amount of purchase, which may be established by FTD.
Currently, those criteria require that the employer establishing the plan have
200 or more employees or that the amount invested or to be invested during the
subsequent 13-month period in the Fund or in any of the Franklin Templeton
Investments totals at least $1 million. Employee benefit plans not designated
above or qualified under Section 401 of the Code ("non-designated plans") may
be afforded the same privilege if they meet the above requirements as well as
the uniform criteria for qualified groups previously described under "Group
Purchases," which enable FTD to realize economies of scale in its sales
efforts and sales-related expenses.
Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trust companies and bank
trust departments for funds over which they exercise exclusive discretionary
investment authority and which are held in a fiduciary, agency, advisory,
custodial or similar capacity. Such purchases are subject to minimum
requirements with respect to amount of purchase, which may be established by
FTD. Currently, those criteria require that the amount invested or to be
invested during the subsequent 13-month period in the Fund or any of the
Franklin Templeton Investments must total at least $1 million. Orders for such
accounts will be accepted by mail accompanied by a check, or 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 such order.
Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trustees or other
fiduciaries purchasing securities for certain retirement plans of
organizations with collective retirement plan assets of $10 million or more,
without regard to where such assets are currently invested.
Refer to the SAI for further information regarding net asset value purchases
of Class I Shares.
ADDITIONAL DEALER COMPENSATION (BOTH CLASSES). FTD, or one of its
affiliates, from its own resources, may also provide additional compensation
to securities dealers in connection with sales of shares of the Franklin
Templeton Funds. Compensation may include financial assistance to securities
dealers in connection with conferences, sales or training programs for their
employees, seminars for the public, advertising, sales campaigns and/or
shareholder services and programs regarding one or more of the Franklin
Templeton Funds and other dealer-sponsored programs or events. In some
instances, this compensation may be made available only to certain securities
dealers whose representatives have sold or are expected to sell significant
amounts of shares of the Franklin Templeton Funds. Compensation may include
payment for travel expenses, including lodging, incurred in connection with
trips taken by invited registered representatives and members of their
families to locations within or outside of the United States for meetings or
13
<PAGE>
seminars of a business nature. Securities dealers may not use sales of the
Fund's Shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. In addition, FTD or its
affiliates may make ongoing payments to brokerage firms, financial
institutions (including banks) and others to facilitate the administration and
servicing of Shareholder accounts. None of the aforementioned additional
compensation is paid for by the Fund or its Shareholders.
Ongoing payments will be made to qualifying dealers at the annual rate of
0.25% of the average daily net asset value of Class I Shares (annual rate of
0.15% of the average daily net asset value of the Fund Shares prior to January
1, 1993), and 1% of the average daily net asset value of Class II Shares,
registered in the name of that broker-dealer as nominee or held in a
Shareholder account that designates that broker-dealer as dealer of record.
These payments are made in order to promote selling efforts and to compensate
dealers for providing certain services, including processing purchase and
redemption transactions, establishing Shareholder accounts and providing
certain information and assistance with respect to the Fund. For purchases of
Class I Shares on or after February 1, 1995 for which FTD advanced a
commission to a securities dealer, the dealer will receive ongoing payments
beginning in the thirteenth month after the date of purchase. For all
purchases of Class II Shares, the dealer will receive payments representing a
service fee (0.25% of average daily net asset value of the Shares) beginning
in the first month after the date of the purchase, and will receive additional
payments representing compensation for distribution (0.75% of average daily
net asset value of the Shares) beginning in the thirteenth month after the
date of the purchase, and beginning May 1, 1997 for exchanges from Templeton
American Trust, Inc., if the exchanged shares were purchased prior to May 1,
1995.
PURCHASING CLASS I AND CLASS II SHARES. When placing purchase orders,
investors should clearly indicate which class of Shares they intend to
purchase. A purchase order that fails to specify a class will automatically be
invested in Class I Shares. Purchases of $1 million or more in a single
payment will be invested in Class I Shares. There are no conversion features
attached to either class of Shares.
Investors who qualify to purchase Class I Shares at net asset value should
purchase Class I rather than Class II Shares. See the section "Net Asset Value
Purchases (Both Classes)" and "Description of Special Net Asset Value
Purchases" above for a discussion of when Shares may be purchased at net asset
value.
As to telephone orders placed with FTD by dealers, the dealer must receive
the investor's order before the close of the New York Stock Exchange ("NYSE")
and transmit it to FTD by 5:00 p.m., New York time, for the investor to
receive that day's Offering Price. Payment for such orders must be by check in
U.S. currency and must be promptly submitted to FTD. Orders mailed to FTD by
dealers or individual investors are effected at the net asset value of the
Fund's Shares next computed after the purchase order accompanied by payment
has been received by FTD. Such payment must be by check in U.S. currency drawn
on a commercial bank in the U.S. and, if over $100,000, may not be deemed to
have been received until the proceeds have been collected unless the check is
certified or issued by such bank. Any subscription may be rejected by FTD or
by the Fund.
The Fund may impose a $10 charge against a Shareholder account in the event
that a check or draft submitted for the purchase of Fund Shares is returned
unpaid to the Fund.
Investors should promptly check the confirmation advice that is mailed after
each purchase (or redemption) in order to insure that it has been accurately
recorded in the investor's account.
AUTOMATIC INVESTMENT PLAN. Investors may accumulate Fund Shares regularly
each month by means of automatic debits to their checking accounts ($25
minimum). Forms for this purpose are in the Shareholder Application in this
Prospectus. Such a plan is voluntary and may be discontinued by written notice
to FTD, which must be received 10 days prior to the collection date, or by FTD
upon written notice to the investor at least 30 days prior to the collection
date.
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INSTITUTIONAL ACCOUNTS. Institutional investors will likely be required to
complete an institutional account application. There may be additional methods
of opening accounts and purchasing, redeeming or exchanging Shares of the Fund
available for institutional accounts. To obtain an institutional account
application or additional information regarding institutional accounts,
contact Franklin Templeton Institutional Services at 1-800-321-8563.
ACCOUNT STATEMENTS. Shareholder accounts are opened in accordance with the
Shareholder's registration instructions. Transactions in the account, such as
additional investments and dividend reinvestments, will be reflected on
regular confirmation statements from the Transfer Agent.
TEMPLETON STAR SERVICE. From a touch-tone phone, Templeton and Franklin
shareholders may access an automated system (day or night) which offers the
following features:
By calling the Templeton STAR Service, shareholders may obtain current price
and yield information specific to a Templeton Fund, regardless of class;
obtain account information; and request duplicate confirmation or year-end
statements and money fund checks, if applicable.
By calling the Franklin TeleFACTS system, Class I shareholders may obtain
current price, yield or other performance information specific to a Class I
Franklin Fund; process an exchange into an identically registered Class I
Franklin account; obtain account information; and request duplicate
confirmation or year-end statements, money fund checks, if applicable, and
deposit slips.
Share prices and account information specific to Templeton Class I or II
shares and Franklin Class II shares may also be accessed on TeleFACTS by
Franklin and Templeton Class I and Class II shareholders.
The Templeton STAR Service is accessible by calling 1-800-654-0123. The
TeleFACTS system is accessible by calling 1-800-247-1753. Templeton Class I
and Class II Share codes for the Fund, which will be needed to access system
information, are 102 and 202, respectively. The system's automated operator
will prompt the caller with easy to follow step-by-step instructions from the
main menu. Other features may be added in the future.
RETIREMENT PLANS. Shares of the Fund may be purchased through various
retirement plans including the following plans for which FTTC or its affiliate
acts as trustee or custodian: IRAs, Simplified Employee Pensions, 403(b)
plans, qualified plans for corporations, self-employed individuals and
partnerships, and 401(k) plans. A plan document must be adopted in order for a
retirement plan to be in existence. For further information about any of the
plans, agreements, applications and annual fees, contact FTD. To determine
which retirement plan is appropriate, an investor should contact his or her
tax adviser.
NET ASSET VALUE. The net asset value per Share of each class of the Fund is
determined as of the scheduled closing time of the NYSE (generally 4:00 p.m.,
New York time) each day the NYSE is open for trading, by dividing the value of
the Fund's securities plus any cash and other assets (including accrued
interest and dividends receivable) less all liabilities (including accrued
expenses) by the number of shares outstanding, adjusted to the nearest whole
cent. A security listed or traded on a recognized stock exchange or NASDAQ is
valued at its last sale price on the principal exchange on which the security
is traded. The value of a foreign security is determined in its national
currency as of the as of the close of trading on the foreign exchange on which
it is traded or as of the scheduled closing time of the NYSE (generally 4:00
p.m., New York time), if that is earlier, and that value is then converted
into its U.S. dollar equivalent at the foreign exchange rate in effect at
noon, New York time, on the day the value of the foreign security is
determined. If no sale is reported at that time, the mean between the current
bid and asked price is used. Occasionally, events which affect the values of
such securities and such exchange rates may occur between the times at which
they are determined and the close of the NYSE, and will therefore not be
reflected in the computation of the Fund's net asset value. If events
materially affecting the value of such securities occur during such period,
then these securities will be valued at fair value as determined by the
management
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and approved in good faith by the Board of Directors. All other securities for
which over-the-counter market quotations are readily available are valued at
the mean between the current bid and asked price. Securities for which market
quotations are not readily available and other assets are valued at fair value
as determined by the management and approved in good faith by the Board of
Directors.
Each of the Fund's classes will bear, pro-rata, all of the common expenses
of the Fund. The net asset value of all outstanding Shares of each class of
the Fund will be computed on a pro-rata basis for each outstanding Share based
on the proportionate participation in the Fund represented by the value of
Shares of such classes, except that the Class I and Class II Shares will bear
the Rule 12b-1 expenses payable under their respective plans. Due to the
specific distribution expenses and other costs that will be allocable to each
class, the dividends paid to each class of the Fund may vary.
EXCHANGE PRIVILEGE
A Shareholder may exchange Shares for the same class of shares of other
Franklin Templeton Funds which are eligible for sale in the Shareholder's
state of residence and in conformity with such fund's stated eligibility
requirements and investment minimums. Some funds, however, may not offer Class
II shares. Class I Shares may be exchanged for Class I shares of any Franklin
Templeton Funds. Class II Shares may be exchanged for Class II shares of any
Franklin Templeton Funds. No exchanges between different classes of shares
will be allowed. A contingent deferred sales charge will not be imposed on
exchanges. If the exchanged Shares were subject to a contingent deferred sales
charge in the original fund purchased, and Shares are subsequently redeemed
within 12 months (Class I Shares) or 18 months (Class II Shares) of the
calendar month of the original purchase date, a contingent deferred sales
charge will be imposed. The period will be tolled (or stopped) for the period
Class I Shares are exchanged into and held in a Franklin Templeton money
market fund. See also "How to Sell Shares of the Fund -- Contingent Deferred
Sales Charge."
Exchange purchases are subject to the minimum investment requirements of the
fund purchased and no sales charge generally applies. Exchanges of the same
class of shares are made on the basis of the net asset values of the class
involved, except as set forth below. Exchanges of shares of a class which were
originally purchased without a sales charge will be charged a sales charge in
accordance with the terms of the prospectus of the fund and the class of
shares being purchased, unless the original investment on which no sales
charge was paid was transferred in from a fund on which the investor paid a
sales charge. Exchanges of shares from the Franklin Templeton money market
funds are subject to applicable sales charges on the funds being purchased,
unless the Franklin Templeton money market fund shares were acquired by an
exchange from a fund having a sales charge, or by reinvestment of dividends or
capital gain distributions. Exchanges of Class I Shares of the Fund which were
purchased with a lower sales charge to a fund which has a higher sales charge
will be charged the difference, unless the shares were held in the original
fund for at least six months prior to executing the exchange. All exchanges
are permitted only after at least 15 days have elapsed from the date of the
purchase of the Shares to be exchanged.
A Shareholder may exchange Shares by writing to the Transfer Agent (see "How
to Sell Shares of the Fund"), by contacting his or her investment dealer or--
if the Shareholder Application indicates that the Shareholder has not declined
the option--by telephoning 1-800-632-2301. Telephone exchange instructions
must be received by FTD by the scheduled closing time of the NYSE (generally
4:00 p.m., New York time). Telephonic exchanges can involve only Shares in
non-certificated form. Shares held in certificate form are not eligible, but
may be returned and qualify for these services. All accounts involved in a
telephonic exchange must have the same registration and dividend option as the
account from which the Shares are being exchanged. The Fund and the Transfer
Agent will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Please refer to "Telephone
Transactions--Verification Procedures." Forms for declining the telephone
exchange privilege and prospectuses of the other funds in the Franklin
Templeton Group may be obtained from FTD. Exchange redemptions and purchases
are processed simultaneously at the share prices next determined after the
exchange order is received. (See "How to Buy Shares of the Fund--Offering
Price.") A gain or loss for tax purposes generally will be realized upon the
exchange, depending on the tax basis of the Shares redeemed.
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This exchange privilege is available only in states where shares of the fund
being acquired may legally be sold and may be modified, limited or terminated
at any time by the Fund upon 60 days' written notice. A Shareholder who wishes
to make an exchange should first obtain and review a current prospectus of the
fund into which he or she wishes to exchange. Broker-dealers who process
exchange orders on behalf of their customers may charge a fee for their
services. Such fee may be avoided by making requests for exchange directly to
the Transfer Agent.
If a substantial portion of the Fund's Shareholders should, within a short
period, elect to redeem their Shares of the Fund pursuant to the exchange
privilege, the Fund might have to liquidate 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 should occur, it is the general policy of the
Fund to initially invest this money in short-term, interest-bearing money
market instruments, unless it is felt that attractive investment opportunities
consistent with the Fund's investment objectives exist immediately.
Subsequently, this money will be withdrawn from such short-term money market
instruments and invested in portfolio securities in as orderly a manner as is
possible when attractive investment opportunities arise.
EXCHANGES OF CLASS I SHARES. The contingency period of Class I Shares will
be tolled (or stopped) for the period such Shares are exchanged into and held
in a Franklin Templeton Class I money market fund. If a Class I account has
Shares subject to a contingent deferred sales charge, Class I Shares will be
exchanged into the new account on a "first-in, first-out" basis. See also "How
to Sell Shares of the Fund--Contingent Deferred Sales Charge."
EXCHANGES OF CLASS II SHARES. When an account is composed of Class II Shares
subject to the contingent deferred sales charge, and Shares that are not, the
Shares will be transferred proportionately into the new fund. Shares received
from reinvestment of dividends and capital gains are referred to as "free
Shares," Shares which were originally subject to a contingent deferred sales
charge but to which the contingent deferred sales charge no longer applies are
called "matured Shares," and Shares still subject to the contingent deferred
sales charge are referred to as "CDSC liable Shares." CDSC liable Shares held
for different periods of time are considered different types of CDSC liable
Shares. For instance, if a Shareholder has $1,000 in free Shares, $2,000 in
matured Shares, and $3,000 in CDSC liable Shares, and the Shareholder
exchanges $3,000 into a new fund, $500 will be exchanged from free Shares,
$1,000 from matured Shares, and $1,500 from CDSC liable Shares. Similarly, if
CDSC liable Shares have been purchased at different periods, a proportionate
amount will be taken from Shares held for each period. If, for example, the
Shareholder holds $1,000 in Shares bought three months ago, $1,000 bought six
months ago, and $1,000 bought nine months ago, and the Shareholder exchanges
$1,500 into a new fund, $500 from each of these Shares will be exchanged into
the new fund.
The only money market fund exchange option available to Class II
Shareholders is the Franklin Templeton Money Fund II ("Money Fund II"), a
series of the Franklin Templeton Money Fund Trust. No drafts (checks) may be
written on Money Fund II accounts, nor may Shareholders purchase shares of
Money Fund II directly. Class II Shares exchanged for shares of Money Fund II
will continue to age and a contingent deferred sales charge will be assessed
if CDSC liable Shares are redeemed. No other money market funds are available
for Class II Shareholders for exchange purposes. Class I Shares may be
exchanged for shares of any of the money market funds in the Franklin
Templeton Funds except Money Fund II. Draft writing privileges and direct
purchases are allowed on these money market funds as described in their
respective prospectuses.
To the extent Shares are exchanged proportionately, as opposed to another
method, such as "first-in, first-out," or free Shares followed by CDSC liable
Shares, the exchanged Shares may, in some instances, be CDSC liable even
though a redemption of such Shares, as discussed elsewhere herein, may no
longer be subject to a CDSC. The proportional method is believed by management
to more closely meet and reflect the expectations of Class II Shareholders in
the event Shares are redeemed during the contingency period. For federal
income tax purposes, the cost basis of Shares redeemed or exchanged is
determined under the Code without regard to the method of transferring Shares
chosen by the Fund for purposes of exchanging or redeeming Shares.
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TRANSFERS. Transfers between identically registered accounts in the same
fund and class are treated as non-monetary and non-taxable events, and are not
subject to a contingent deferred sales charge. The transferred Shares will
continue to age from the date of original purchase. Shares of each class will
be transferred on the same basis as described above for exchanges.
CONVERSION RIGHTS. It is not presently anticipated that Class II Shares will
be converted to Class I Shares. A Shareholder may, however, sell Class II
Shares and use the proceeds to purchase Class I Shares, subject to all
applicable sales charges.
EXCHANGES BY TIMING ACCOUNTS. In the case of market timing or allocation
services ("Timing Accounts"), FTD will deduct an administrative service fee of
$5.00 per exchange. Timing Accounts generally include accounts administered so
as to redeem or purchase Shares based upon certain predetermined market
indicators. In accordance with the terms of their respective prospectuses,
certain funds in the Franklin Templeton Group do not accept or may place
differing limitations than those described below on exchanges by Timing
Accounts.
The Fund reserves the right to temporarily or permanently terminate the
exchange privilege or reject any specific purchase order for any Timing
Account or any person whose transactions seem to follow a timing pattern who:
(i) makes an exchange request out of the Fund within two weeks of an earlier
exchange request out of the Fund, (ii) makes more than two exchanges out of
the Fund per calendar quarter, or (iii) exchanges Shares equal in value to at
least $5 million, or more than 1% of the Fund's net assets. Accounts under
common ownership or control, including accounts administered so as to redeem
or purchase Shares based upon certain predetermined market indicators, will be
aggregated for purposes of the exchange limits.
In addition, the Fund reserves the right to refuse the purchase side of
exchange requests by any Timing Account, person, or group if, in the
Investment Manager's judgment, the Fund would be unable to invest effectively
in accordance with its investment objective and policies, or would otherwise
potentially be adversely affected. A Shareholder's exchanges into the Fund may
be restricted or refused if the Fund receives or anticipates simultaneous
orders affecting significant portions of the Fund's assets. In particular, a
pattern of exchanges that coincides with a "market timing" strategy may be
disruptive to the Fund and therefore may be refused.
Finally, as indicated above, the Fund and FTD reserve the right to refuse
any order for the purchase of Shares.
HOW TO SELL SHARES OF THE FUND
Shares will be redeemed, without charge, on request of the Shareholder in
"Proper Order" to the Transfer Agent. "PROPER ORDER" MEANS THAT THE REQUEST TO
REDEEM MUST MEET ALL THE FOLLOWING REQUIREMENTS:
1. Except as provided below under "Redemptions by Telephone," it must be in
writing, signed by the Shareholder(s) exactly in the manner as the Shares are
registered, and must specify either the number of Shares, or the dollar amount
of Shares, to be redeemed and sent to Franklin Templeton Investor Services,
Inc., P.O. Box 33030, St. Petersburg, Florida 33733-8030;
2. The signature(s) of the redeeming Shareholder(s) must be guaranteed by an
"eligible guarantor," including (a) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (b) national securities
exchanges, registered securities associations and clearing agencies; (c)
securities broker-dealers which are members of a national securities exchange
or a clearing agency or which have minimum net capital of $100,000; or (d)
institutions that participate in the Securities Transfer Agent Medallion
Program ("STAMP") or other recognized signature medallion program. A notarized
signature will not be sufficient for the request to be in Proper Order. If the
Shares are registered in more than one name, the signature of each of the
redeeming Shareholders must be guaranteed. A signature guarantee is not
required for redemptions of $50,000 or less, requested by and payable to all
Shareholders of record, to be sent to the address of record for that account.
However, the Fund reserves the right to require signature guarantees on all
redemptions. A signature guarantee is required in connection with
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any written request for transfer of Shares. Also, a signature guarantee is
required if the Fund or the Transfer Agent believes that a signature guarantee
would protect against potential claims based on the transfer instructions,
including, for example, when (i) the current address of one or more joint
owners of an account cannot be confirmed; (ii) multiple owners have a dispute
or give inconsistent instructions to the Fund; (iii) the Fund has been
notified of an adverse claim; (iv) the instructions received by the Fund are
given by an agent, not the actual registered owner; (v) the Fund determines
that joint owners who are married to each other are separated or may be the
subject of divorce proceedings; or (vi) the authority of a representative of a
corporation, partnership, association, or other entity has not been
established to the satisfaction of the Fund;
3. Any outstanding certificates must accompany the request together with a
stock power signed by the Shareholder(s), with signature(s) guaranteed as
described in Item 2 above;
4. Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction, require the following
documentation to be in proper form:
. Corporation--(i) Signature guaranteed letter of instruction from the
authorized officer(s) of the corporation, and (ii) a corporate resolution
in a form satisfactory to the Transfer Agent;
. Partnership--(i) Signature guaranteed letter of instruction from a general
partner and, if necessary, (ii) pertinent pages from the partnership
agreement identifying the general partners or other documentation in a
form satisfactory to the Transfer Agent;
. Trust--(i) Signature guaranteed letter of instruction from the trustee(s),
and (ii) a copy of the pertinent pages of the trust document listing the
trustee(s) or a certificate of incumbency if the trustee(s) are not listed
on the account registration;
. Custodial (other than a retirement account)--Signature guaranteed letter
of instruction from the custodian;
. Accounts under court jurisdiction--Check court documents and the
applicable state law since these accounts have varying requirements,
depending upon the state of residence; and
5. Redemption of Shares held in a retirement plan for which FTTC or its
affiliate acts as trustee or custodian must conform to the distribution
requirements of the plan and the Fund's redemption requirements above.
Distributions from such plans are subject to additional requirements under the
Code, and certain documents (available from the Transfer Agent) must be
completed before the distribution may be made. For example, distributions from
retirement plans are subject to withholding requirements under the Code, and
the IRS Form W-4P (available from the Transfer Agent) may be required to be
submitted to the Transfer Agent with the distribution request, or the
distribution will be delayed. Franklin Templeton Investor Services, Inc. and
its affiliates assume no responsibility to determine whether a distribution
satisfies the conditions of applicable tax laws and will not be responsible
for any penalties assessed.
To avoid delay in redemption or transfer, Shareholders having questions
about these requirements should contact the Shareholder Services Department by
calling 1-800-632-2301.
The redemption price will be the net asset value of the Shares next computed
after the redemption request in Proper Order is received by the Transfer
Agent. A gain or loss for tax purposes generally will be realized upon the
redemption, depending on the tax basis of the Shares redeemed. Payment of the
redemption price ordinarily will be made by check (or by wire at the sole
discretion of the Transfer Agent if wire transfer is requested including name
and address of the bank and the Shareholder's account number to which payment
of the redemption proceeds is to be wired) within seven days after receipt of
the redemption request in Proper Order. However, if Shares have been purchased
by check, the Fund will make redemption proceeds available when a
Shareholder's check received for the Shares purchased has been cleared for
payment by the Shareholder's bank, which, depending upon the location of the
Shareholder's bank, could take up to 15 days or more. The check will be mailed
by first-class mail to the Shareholder's registered address (or as otherwise
directed). Remittance by wire (to a commercial bank account in the same
name(s) as the Shares are registered) or express mail, if requested, are
subject to a handling charge of up to $15, which will be deducted from the
redemption proceeds.
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The Fund, through FTD, also repurchases Shares (whether in certificate or
book-entry form) through securities dealers. The Fund normally will accept
orders to repurchase such Shares by wire or telephone from dealers for their
customers at the net asset value next computed after the dealer has received
the Shareholder's request for repurchase, if the dealer received such request
before closing time of the NYSE on that day. Dealers have the responsibility
of submitting such repurchase requests by calling not later than 5:00 p.m.,
New York time, on such day in order to obtain that day's applicable redemption
price. Repurchase of Shares is for the convenience of Shareholders and does
not involve a charge by the Fund; however, securities dealers may impose a
charge on the Shareholder for transmitting the notice of repurchase to the
Fund. The Fund reserves the right to reject any order for repurchase, which
right of rejection might adversely affect Shareholders seeking redemption
through the repurchase procedure. Ordinarily, payment will be made to the
securities dealer within seven days after receipt of a repurchase order and
Share certificate (if any) in "Proper Order" as set forth above. The Fund will
also accept, from member firms of the NYSE, orders to repurchase Shares for
which no certificates have been issued by wire or telephone without a
redemption request signed by the Shareholder, provided the member firm
indemnifies the Fund and FTD from any liability resulting from the absence of
the Shareholder's signature. Forms for such indemnity agreement can be
obtained from FTD.
The Fund may involuntarily redeem an investor's Shares if the net asset
value of such Shares is less than $100, except that involuntary redemptions
will not result from fluctuations in the value of an investor's Shares. In
addition, the Fund may involuntarily redeem the Shares of any investor who has
failed to provide the Fund with a certified taxpayer identification number or
such other tax-related certifications as the Fund may require. A notice of
redemption, sent by first-class mail to the investor's address of record, will
fix a date not less than 30 days after the mailing date and Shares will be
redeemed at net asset value at the close of business on that date, unless
sufficient additional Shares are purchased to bring the aggregate account
value up to $100 or more, or unless a certified taxpayer identification number
(or such other information as the Fund has requested) has been provided, as
the case may be. A check for the redemption proceeds will be mailed to the
investor at the address of record.
REINSTATEMENT PRIVILEGE. For either Class I or Class II, the same class of
Shares of the Fund may be purchased at net asset value with the proceeds from
(i) a redemption of Shares of the Fund or shares of any other Franklin
Templeton Fund except any of the Franklin Templeton money market funds (unless
the redemption proceeds are from Class I shares of a fund with a lower initial
sales charge than that charged by the Fund and have been held in that fund for
less than six months), or (ii) a dividend or distribution paid by any of the
Franklin Templeton Funds, within 365 days after the date of the redemption or
dividend or distribution. Class II Shareholders may also invest such
distributions at net asset value in a Class I Franklin Templeton Fund.
However, if a Shareholder's original investment was in Class I shares of a
fund with a lower sales charge, or no sales charge, the Shareholder must pay
the difference. An investor may reinvest an amount not exceeding the proceeds
of the redemption or the dividend or distribution. While credit will be given
for any contingent deferred sales charge paid on the Shares redeemed, a new
contingency period will begin. Matured Shares will be reinvested at net asset
value and will not be subject to a new contingent deferred sales charge.
Shares of the Fund redeemed in connection with an exchange into another fund
(see "Exchange Privilege") are not considered "redeemed" for this privilege.
In order to exercise this privilege, a written order for the purchase of
Shares of the Fund must be received by the Fund or the Fund's Transfer Agent
within 365 days after the redemption or the payment date of the distribution.
The 365 days, however, do not begin to run on redemption proceeds placed
immediately after redemption in a Franklin Bank Certificate of Deposit ("CD")
until the CD (including any rollover) matures. Reinvestment at net asset value
may also be handled by a securities dealer or other financial institution, who
may charge the Shareholder a fee for this service. The redemption is a taxable
transaction but reinvestment without a sales charge may affect the tax basis
of the Shares reinvested, and the amount of gain or loss resulting from a
redemption may be affected by exercise of the reinstatement privilege if the
Shares redeemed were held for 90 days or less, or if a Shareholder reinvests
in the same fund within 30 days. Reinvestment will be at the next calculated
net asset value after receipt.
SYSTEMATIC WITHDRAWAL PLAN. A Shareholder may establish a Systematic
Withdrawal Plan ("Plan") and receive periodic payments from the account
provided that the net asset value of the Shares held by the Shareholder is at
least $5,000. There are no service charges for establishing or maintaining a
Plan. The minimum amount which the Shareholder may withdraw is $50 per
withdrawal
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transaction although this is merely the minimum amount allowed under the Plan
and should not be mistaken for a recommended amount. Retirement plans subject
to mandatory distribution requirements are not subject to the $50 minimum. The
Plan may be established on a monthly, quarterly, semiannual or annual basis.
If the Shareholder establishes a Plan, any capital gain distributions and
income dividends paid by the Fund to the Shareholder's account must be
reinvested for the Shareholder's account in additional Shares at net asset
value. Payments are then made from the liquidation of Shares at net asset
value on the day of the liquidation (which is generally on or about the 25th
of the month) to meet the specified withdrawals. Payments are generally
received three to five days after the date of liquidation. By completing the
"Special Payment Instructions for Distributions" section of the Shareholder
Application included with this Prospectus, a Shareholder may direct the
selected withdrawals to another of the Franklin Templeton Funds, to another
person, or directly to a checking account. Liquidation of Shares may reduce or
possibly exhaust the Shares in the Shareholder's account, to the extent
withdrawals exceed Shares earned through dividends and distributions,
particularly in the event of a market decline. If the withdrawal amount
exceeds the total Plan balance, the account will be closed and the remaining
balance will be sent to the Shareholder. As with other redemptions, a
liquidation to make a withdrawal payment is a sale for federal income tax
purposes. Because the amount withdrawn under the Plan may be more than the
Shareholder's actual yield or income, part of such a Plan payment may be a
return of the Shareholder's investment.
Maintaining a Plan concurrently with purchases of additional Shares of the
Fund would be disadvantageous because of the sales charge on the additional
purchases. Also, redemptions of Class I Shares and Class II Shares may be
subject to a contingent deferred sales charge if the Shares are redeemed
within 12 months (Class I Shares) or 18 months (Class II Shares) of the
calendar month of the original purchase date. The Shareholder should
ordinarily not make additional investments of less than $5,000 or three times
the annual withdrawals under the Plan during the time such a Plan is in
effect.
With respect to Class I Shares, the contingent deferred sales charge is
waived for redemptions through a Systematic Withdrawal Plan set up prior to
February 1, 1995. With respect to Systematic Withdrawal Plans set up on or
after February 1, 1995, the applicable contingent deferred sales charge is
waived for Class I and Class II Share redemptions of up to 1% monthly of an
account's net asset value (12% annually, 6% semiannually, 3% quarterly). For
example, if a Class I account maintained an annual balance of $1,000,000, only
$120,000 could be withdrawn through a once-yearly Systematic Withdrawal Plan
free of charge; any amount over that $120,000 would be assessed a 1% (or
applicable) contingent deferred sales charge. Likewise, if a Class II account
maintained an annual balance of $10,000, only $1,200 could be withdrawn
through a once-yearly Systematic Withdrawal Plan free of charge.
A Plan may be terminated on written notice by the Shareholder or the Fund,
and it will terminate automatically if all Shares are liquidated or withdrawn
from the account, or upon the Fund's receipt of notification of the death or
incapacity of the Shareholder. Shareholders may change the amount (but not
below $50) and schedule of withdrawal payments or suspend one such payment by
giving written notice to the Transfer Agent at least seven business days prior
to the end of the month preceding a scheduled payment. Share certificates may
not be issued while a Plan is in effect.
REDEMPTIONS BY TELEPHONE. Shareholders who file a Telephone Redemption
Authorization Agreement (the "Agreement") (a copy of which is included in this
Prospectus) may redeem Shares of the Fund by telephone, subject to the
Restricted Account exception noted under "Telephone Transactions--Restricted
Accounts." The Fund and the Transfer Agent will employ reasonable procedures
to confirm that instructions given by telephone are genuine. Shareholders,
however, bear the risk of loss in certain cases as described under "Telephone
Transactions--Verification Procedures."
For Shareholder accounts with a completed Agreement on file, redemptions of
uncertificated Shares or Shares which have previously been deposited with the
Fund or the Transfer Agent may be made for up to $50,000 per day per Fund
account. Telephone redemption requests received before the scheduled closing
time of the NYSE (generally 4:00 p.m., New York time) on any business day will
be processed that same day. The redemption check will be sent within seven
days, made payable to all the registered owners
21
<PAGE>
on the account, and will be sent only to the address of record. Redemption
requests by telephone will not be accepted within 30 days following an address
change by telephone. In that case, a Shareholder should follow the other
redemption procedures set forth in this Prospectus. Institutional accounts
which wish to execute redemptions in excess of $50,000 must complete an
Institutional Telephone Privileges Agreement which is available from Franklin
Templeton Institutional Services by telephoning 1-800-321-8563.
CONTINGENT DEFERRED SALES CHARGE. In order to recover commissions paid to
securities dealers, Class I investments of $1 million or more, and any Class
II investments, redeemed within the contingency period of 12 months (Class I)
or 18 months (Class II) of the calendar month of their purchase will be
assessed a contingent deferred sales charge, unless one of the exceptions
described below applies. The charge is 1% of the lesser of the net asset value
of the Shares redeemed (exclusive of reinvested dividends and capital gain
distributions) or the net asset value at the time of purchase of such Shares,
and is retained by FTD. The contingent deferred sales charge is waived in
certain instances. See below.
In determining if a contingent deferred sales charge applies, Shares not
subject to a contingent deferred sales charge are deemed to be redeemed first,
in the following order: (i) a calculated number of Shares representing amounts
attributable to capital appreciation of those Shares held less than the
contingency period (12 months in the case of Class I Shares and 18 months in
the case of Class II Shares); (ii) Shares purchased with reinvested dividends
and capital gain distributions; and (iii) other Shares held longer than the
contingency period, and followed by any Shares held less than the contingency
period, on a "first in, first out" basis. For tax purposes, a contingent
deferred sales charge is treated as either a reduction in redemption proceeds
or an adjustment to the cost basis of the Shares redeemed.
The contingent deferred sales charge on each class of Shares is waived, as
applicable, for: exchanges; any account fees; distributions from an individual
retirement plan account due to death or disability, or upon periodic
distributions based on life expectancy; tax-free returns of excess
contributions from employee benefit plans; distributions from employee benefit
plans, including those due to plan termination or plan transfer; redemptions
through a Systematic Withdrawal Plan set up for Shares prior to February 1,
1995 and, for Systematic Withdrawal Plans set up thereafter, redemptions of up
to 1% monthly of an account's net asset value (3% quarterly, 6% semiannually
or 12% annually); redemptions initiated by the Fund due to a Shareholder's
account falling below the minimum specified account size; and redemptions
following the death of the Shareholder or the beneficial owner.
All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that
month and each subsequent month.
Requests for redemptions for a SPECIFIED DOLLAR amount, unless otherwise
specified, will result in additional Shares being redeemed to cover any
applicable contingent deferred sales charge, while requests for redemption of
a SPECIFIC NUMBER of Shares will result in the applicable contingent deferred
sales charge being deducted from the total dollar amount redeemed.
TELEPHONE TRANSACTIONS
Shareholders of the Fund and their investment representative of record, if
any, may be able to execute various transactions by calling Shareholder
Services at 1-800-632-2301.
All Shareholders will be able to: (i) effect a change in address; (ii)
change a dividend option (see "Restricted Accounts" below); (iii) transfer
Fund Shares in one account to another identically registered account in the
Fund; (iv) request the issuance of certificates (to be sent to the address of
record only); and (v) exchange Fund Shares by telephone as described in this
Prospectus. In addition, Shareholders who complete and file an Agreement as
described under "How to Sell Shares of the Fund--Redemptions by Telephone"
will be able to redeem Shares of the Fund.
VERIFICATION PROCEDURES. The Fund and the Transfer Agent will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine. These will include: recording all telephone calls requesting
account activity by telephone,
22
<PAGE>
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the
purpose of establishing the caller's identification, and sending a
confirmation statement on redemptions to the address of record each time
account activity is initiated by telephone. So long as the Fund and the
Transfer Agent follow instructions communicated by telephone which were
reasonably believed to be genuine at the time of their receipt, neither they
nor their affiliates will be liable for any loss to the Shareholder caused by
an unauthorized transaction. The Fund and the Transfer Agent may be liable for
any losses due to unauthorized or fraudulent instructions in the event such
reasonable procedures are not followed. Shareholders are, of course, under no
obligation to apply for or accept telephone transaction privileges. In any
instance where the Fund or the Transfer Agent is not reasonably satisfied that
instructions received by telephone are genuine, the requested transaction will
not be executed, and neither the Fund, the Transfer Agent, nor their
affiliates will be liable for any losses which may occur because of a delay in
implementing a transaction.
RESTRICTED ACCOUNTS. Telephone redemptions and dividend option changes may
not be accepted on Franklin Templeton retirement accounts. To assure
compliance with all applicable regulations, special forms are required for any
distribution, redemption, or dividend payment. While the telephone exchange
privilege is extended to Franklin Templeton IRA and 403(b) retirement
accounts, certain restrictions may apply to other types of retirement plans.
Changes to dividend options must also be made in writing.
To obtain further information regarding distribution or transfer procedures,
including any required forms, retirement account Shareholders may call to
speak to a Retirement Plan Specialist at 1-800-527-2020.
GENERAL. During periods of drastic economic or market changes, it is
possible that the telephone transaction privileges will be difficult to
execute because of heavy telephone volume. In such situations, Shareholders
may wish to contact their dealer for assistance, or to send written
instructions to the Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor the Transfer Agent will be liable for any losses
resulting from the inability of a Shareholder to execute a telephone
transaction. The telephone transaction privilege may be modified or
discontinued by the Fund at any time upon 60 days' written notice to
Shareholders.
MANAGEMENT OF THE FUND
The Company is managed by its Board of Directors and all powers of the
Company are exercised by or under authority of the Board. Information relating
to the Directors and Executive Officers is set forth under the heading
"Management of the Company" in the SAI.
The Board has carefully reviewed the multiclass structure to ensure that no
material conflict exists between the two classes of Shares. Although the Board
does not expect to encounter material conflicts in the future, the Board will
continue to monitor the Fund and will take appropriate action to resolve such
conflicts if any should later arise.
In developing the multiclass structure, the Fund has retained the authority
to establish additional classes of Shares. It is the Fund's present intention
to offer only two classes of Shares, but new classes may be offered in the
future.
INVESTMENT MANAGER. The Investment Manager of the Fund is Templeton, Global
Advisors Limited, Nassau, Bahamas. The Investment Manager manages the
investment and reinvestment of the Fund's assets. The Investment Manager is an
indirect wholly owned subsidiary of Franklin Resources, Inc. ("Franklin").
Through its subsidiaries, Franklin is engaged in various aspects of the
financial services industry. The Investment Manager and its affiliates serve
as advisers for a wide variety of public investment mutual funds and private
clients in many nations. The Templeton organization has been investing
globally over the past 52 years and, with its
23
<PAGE>
affiliates, provides investment management and advisory services to a
worldwide client base, including over 4.3 million mutual fund shareholders,
foundations, endowments, employee benefit plans and individuals. The
Investment Manager and its affiliates have approximately 4,100 employees in
the United States, Australia, Scotland, Germany, Hong Kong, Luxembourg,
Bahamas, Singapore, Canada and Russia.
The Investment Manager uses a disciplined, long-term approach to value-
oriented global and international investing. It has an extensive global
network of investment research sources. Securities are selected for the Fund's
portfolio on the basis of fundamental company-by-company analysis. Many
different selection methods are used for different funds and clients and these
methods are changed and improved by the Investment Manager's research on
superior selection methods.
The Investment Manager performs similar services for other funds and
accounts and there may be times when the actions taken with respect to the
Fund's portfolio will differ from those taken by the Investment Manager on
behalf of other funds and accounts. Neither the Investment Manager and its
affiliates, its officers, directors or employees, nor the officers or
Directors of the Company are prohibited from investing in securities held by
the Fund or other funds and accounts which are managed or administered by the
Investment Manager to the extent such transactions comply with the Company's
Code of Ethics. Please see "Investment Management and Other Services--
Investment Management Agreement" in the SAI for further information on
securities transactions and a summary of the Company's Code of Ethics.
The Investment Manager does not furnish any other services or facilities for
the Fund, although such expenses are paid by some investment advisers of other
investment companies. As compensation for its services, the Fund pays the
Investment Manager a fee which, during the most recent fiscal year,
represented 0.62% of its average daily net assets.
The lead portfolio manager for the Fund is Mark G. Holowesko. Mr. Holowesko
holds a BA from the College of Holy Cross and an MBA from Babson College. He
joined the Templeton organization in 1985, and is responsible for coordinating
equity research worldwide for the Investment Manager. Prior to joining the
Templeton organization, Mr. Holowesko worked with Roy West Trust Corporation
(Bahamas) Limited as an investment administrator. His duties at Roy West
included managing trust and individual accounts, as well as conducting
research of worldwide equity markets. Dorian B. Foyil and Sean Farrington
exercise secondary portfolio management responsibilities with respect to the
Fund. Mr. Foyil holds a BBA in Accounting and Computer Science from Temple
University and an MBA in Finance from the Wharton School of Business. He is
Vice President of the Investment Manager and head of the Investment Manager's
research technology group. Prior to joining the Templeton organization, Mr.
Foyil was a research analyst for four years with UBS Phillips & Drew in
London, England. Mr. Farrington holds an AB in Economics from Harvard
University. He is a member of the Investment Manager's research technology
group responsible for the maintenance of the internal research database.
Further information concerning the Investment Manager is included under the
heading "Investment Management and Other Services" in the SAI.
BUSINESS MANAGER. Templeton Global Investors, Inc. provides certain
administrative facilities and services for the Fund, including payment of
salaries of officers, preparation and maintenance of books and records,
preparation of tax returns and financial reports, monitoring compliance with
regulatory requirements and monitoring tax-deferred retirement plans. For its
services, the Business Manager receives a fee equivalent on an annual basis to
0.15% of the combined average daily net assets of the Funds included in the
Company (the Fund and Templeton Foreign Fund), reduced to 0.135% of such
combined net assets in excess of $200 million, to 0.10% of such assets in
excess of $700 million, and to 0.075% of such assets in excess of $1,200
million.
TRANSFER AGENT. Franklin Templeton Investor Services, Inc. serves as
transfer agent and dividend disbursing agent for the Fund.
CUSTODIAN. The Chase Manhattan Bank, N.A. serves as custodian of the Fund's
assets.
PLANS OF DISTRIBUTION. A separate Plan of Distribution has been approved and
adopted for each class ("Class I Plan" and "Class II Plan," respectively, or
"Plans") pursuant to Rule 12b-1 under the 1940 Act. The Rule 12b-1 fees
charged to each class will be based solely on the distribution and servicing
fees attributable to that particular class. Any portion of fees remaining from
either Plan after
24
<PAGE>
distribution to securities dealers of up to the maximum amount permitted under
each Plan may be used by the class to reimburse FTD for routine ongoing
promotion and distribution expenses incurred with respect to such class. Such
expenses may include, but are not limited to, the printing of prospectuses and
reports used for sales purposes, expenses of preparing and distributing sales
literature and related expenses, advertisements, and other distribution-
related expenses, including a prorated portion of FTD's overhead expenses
attributable to the distribution of Fund Shares, as well as any distribution
or service fees paid to securities dealers or their firms or others who have
executed a servicing agreement with the Fund, FTD or its affiliates.
The maximum amount which the Fund may pay to FTD or others under the Class I
Plan for such distribution expenses is 0.25% per annum of Class I's average
daily net assets, payable on a quarterly basis. All expenses of distribution
and marketing in excess of 0.25% per annum will be borne by FTD, or others who
have incurred them, without reimbursement from the Fund. Under the Class I
Plan, costs and expenses not reimbursed in any one given quarter (including
costs and expenses not reimbursed because they exceed the applicable limit
under the Plan) may be reimbursed in subsequent quarters or years, subject to
applicable law. FTD has informed the Fund that it had no unreimbursed expenses
under the Class I Plan at August 31, 1995.
Under the Class II Plan, the maximum amount which the Fund is permitted to
pay to FTD or others for distribution expenses and related expenses is 0.75%
per annum of Class II's average daily net assets, payable quarterly. All
expenses of distribution, marketing and related services over that amount will
be borne by FTD, or others who have incurred them, without reimbursement by
the Fund. In addition, the Class II Plan provides for an additional payment by
the Fund of up to 0.25% per annum of Class II's average daily net assets as a
servicing fee, payable quarterly. This fee will be used to pay securities
dealers or other for, among other things, assisting in establishing and
maintaining customer accounts and records; assisting with purchase and
redemption requests; receiving and answering correspondence; monitoring
dividend payments from the Fund on behalf of the customers; or similar
activities related to furnishing personal services and/or maintaining
Shareholder accounts.
During the first year following the purchase of Class II Shares, FTD will
retain 0.75% per annum of Class II's average daily net assets to partially
recoup fees FTD pays to securities dealers. FTD, or its affiliates, may pay,
from its own resources, a commission of up to 1% of the amount invested to
securities dealers who initiate and are responsible for purchases of Class II
Shares.
Both Plans also cover any payments to or by the Fund, the Investment
Manager, FTD, or other parties on behalf of the Fund, the Investment Manager
or FTD, to the extent such payments are deemed to be for the financing of any
activity primarily intended to result in the sale of Shares issued by the Fund
within the context of Rule 12b-1. The payments under the Plans are included in
the maximum operating expenses which may be borne by each class of the Fund.
For more information including a discussion of the Board's policies with
regard to the amount of each Plan's fees, please see the SAI.
EXPENSES. For the fiscal year ended August 31, 1995, expenses borne by Class
I Shares of the Fund amounted to 1.05% of the average net assets of such class
and expenses borne by Class II Shares of the Fund amounted to 1.82%
(annualized) of the average net assets of such class. See the Expense Table
for information regarding estimated expenses for both classes of Shares for
the current fiscal year.
BROKERAGE COMMISSIONS. The Fund's brokerage policies are described under the
heading "Brokerage Allocation" in the SAI. The Fund's brokerage policies
provide that the receipt of research services from a broker and the sale of
Shares by a broker are factors which may be taken into account in allocating
securities transactions, so long as the prices and execution provided by the
broker equal the best available within the scope of the Fund's brokerage
policies.
GENERAL INFORMATION
DESCRIPTION OF SHARES/SHARE CERTIFICATES. The Company's authorized capital
consists of 3,200,000,000 Common Shares of $1 par value per Share, of which
800,000,000 Shares are classified as Templeton World Fund Class I Shares,
400,000,000 Shares
25
<PAGE>
are classified as Templeton World Fund Class II Shares, 1,500,000,000 Shares
are classified as Templeton Foreign Fund Class I Shares, and 500,000,000
Shares are classified as Templeton Foreign Fund Class II Shares. The Board of
Directors may, at its discretion, classify and allocate Shares to additional
Funds within the Company without further action by the Shareholders. Each
Share outstanding entitles the holder to one vote.
Shares for an initial investment, as well as subsequent investments,
including the reinvestment of dividends and capital gain distributions, are
generally credited to an account in the name of an investor on the books of
the Fund, without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss
or theft of a share certificate. No charge is made for the issuance of one
certificate for all or some of the Shares purchased in a single order. A lost,
stolen or destroyed certificate cannot be replaced without obtaining a
sufficient indemnity bond. The cost of such a bond, which is generally borne
by the shareholder, can be 2% or more of the value of the lost, stolen or
destroyed certificate. A certificate will be issued if requested by the
shareholder or by the securities dealer.
VOTING RIGHTS. Shares of each class represent proportionate interests in the
assets of the Fund and have the same voting and other rights and preferences
as the other class of the Fund for matters that affect the Fund as a whole.
For matters that only affect a certain class of the Fund's Shares, however,
only Shareholders of that class will be entitled to vote. Therefore, each
class of Shares will vote separately on matters (1) affecting only that class,
(2) expressly required to be voted on separately by state law, or (3) required
to be voted on separately by the 1940 Act or the rules adopted thereunder. For
instance, if a change to the Rule 12b-1 plan relating to Class I Shares
requires Shareholder approval, only Shareholders of Class I may vote on
changes to the Rule 12b-1 plan affecting that class. Similarly, if a change to
the Rule 12b-1 plan relating to Class II Shares requires Shareholder approval,
only Shareholders of Class II may vote on the change to such plan. On the
other hand, if there is a proposed change to the investment objective of the
Fund, this affects all Shareholders, regardless of which class of Shares they
hold, and therefore, each Share has the same voting rights.
MEETINGS OF SHAREHOLDERS. The Company is not required to hold annual
meetings of Shareholders and may elect not to do so. The Company will call a
special meeting of Shareholders when requested to do so by Shareholders
holding at least 10% of the Company's outstanding Shares. In addition, the
Company is required to assist Shareholder communications in connection with
the calling of Shareholder meetings to consider removal of a Director or
Directors.
DIVIDENDS AND DISTRIBUTIONS. The Fund intends to pay a dividend at least
annually representing substantially all of its net investment income and any
net realized capital gains. According to the requirements of the Code,
dividends and capital gains will be calculated and distributed in the same
manner for Class I and Class II Shares. The per share amount of any income
dividends will generally differ only to the extent that each class is subject
to different Rule 12b-1 fees. Unless otherwise requested, income dividends and
capital gain distributions paid by the Fund, other than on those Shares whose
owners keep them registered in the name of a broker-dealer, are automatically
reinvested on the payment date in whole or fractional Shares at net asset
value as of the ex-dividend date, unless a Shareholder makes a written or
telephonic request for payments in cash. By completing the "Special Payment
Instructions for Distributions" section of the Shareholder Application, Class
I Shareholders may direct that their dividends and/or capital gain
distributions be reinvested in Class I Shares of the Fund or Class I Shares of
any other Franklin Templeton Fund, and Class II Shareholders may direct that
their dividends and/or capital gains distributions be reinvested in either
Class I or Class II Shares of the Fund or any other Franklin Templeton Fund.
Shareholders may also direct the payment of their dividends or capital gain
distributions to another person. The processing date for the reinvestment of
dividends may vary from time to time, and does not affect the amount or value
of the Shares acquired. Income dividends and capital gain distributions will
be paid in cash on Shares during the time that their owners keep them
registered in the name of a broker-dealer, unless the broker-dealer has made
arrangements with the Transfer Agent for reinvestment.
Prior to purchasing Shares of the Fund, the impact of dividends or capital
gain distributions which have been declared but not yet paid should be
carefully considered. Any dividend or capital gain distribution paid shortly
after a purchase by a Shareholder prior to
26
<PAGE>
the record date will have the effect of reducing the per Share net asset value
of the Shares by the amount of the dividend or distribution. All or a portion
of such dividend or distribution, although in effect a return of capital,
generally will be subject to tax.
Checks are forwarded by first-class mail to the address of record. The
proceeds of any such checks which are not accepted by the addressee and
returned to the Fund will be reinvested in the Shareholder's account in whole
or fractional Shares at net asset value next computed after the check has been
received by the Transfer Agent. Subsequent distributions automatically will be
reinvested at net asset value as of the ex-dividend date in additional whole
or fractional Shares.
FEDERAL TAX INFORMATION. The Fund intends to elect to be treated and to
qualify each year as a regulated investment company under Subchapter M of the
Code. See the SAI for a summary of the requirements that must be satisfied to
so qualify. A regulated investment company generally is not subject to federal
income tax on income and gains distributed in a timely manner to its
shareholders. The Fund intends to distribute to Shareholders substantially all
of its net investment income and net realized capital gains, which generally
will be taxable income or capital gains in their hands. Distributions declared
in October, November or December to Shareholders of record on a date in such
month and paid during the following January will be treated as having been
received by Shareholders on December 31 in the year such distributions were
declared. The Fund will inform Shareholders each year of the amount and nature
of such income or gains. Sales or other dispositions of Fund Shares generally
will give rise to taxable gain or loss. A more detailed description of tax
consequences to Shareholders is contained in the SAI under the heading "Tax
Status."
The Fund may be required to withhold federal income tax at the rate of 31%
of all taxable distributions (including redemptions) paid to Shareholders who
fail to provide the Fund with their correct taxpayer identification number or
to make required certifications or where the Fund or the Shareholder has been
notified by the Internal Revenue Service that the Shareholder is subject to
backup withholding. Corporate Shareholders and certain other Shareholders
specified in the Code are exempt from backup withholding. Backup withholding
is not an additional tax. Any amounts withheld may be credited against the
Shareholder's federal income tax liability.
INQUIRIES. Shareholders' inquiries will be answered promptly. They should be
addressed to Franklin Templeton Investor Services, Inc., P.O. Box 33030, St.
Petersburg, Florida 33733-8030 -- telephone 1-800-632-2301. Transcripts of
Shareholder accounts less than three-years old are provided on request without
charge; requests for transcripts going back more than three years from the
date the request is received by the Transfer Agent are subject to a fee of up
to $15 per account.
PERFORMANCE INFORMATION. The Fund may include its total return in
advertisements or reports to Shareholders or prospective investors. Quotations
of average annual total return will be expressed in terms of the average
annual compounded rate of return on a hypothetical investment in the Fund over
a period of 1, 5 and 10 years (or up to the life of the Fund), will reflect
the deduction of the maximum initial sales charge and deduction of a
proportional share of Fund expenses (on an annual basis), and will assume that
all dividends and distributions are reinvested when paid. Total return may be
expressed in terms of the cumulative value of an investment in the Fund at the
end of a defined period of time. For a description of the methods used to
determine total return for the Fund, see the SAI.
Because Class II Shares were not offered prior to May 1, 1995, no
performance data is available for these Shares. After a sufficient period of
time has passed, Class II performance data will be available.
STATEMENTS AND REPORTS. The Fund's fiscal year ends on August 31. Annual
reports (containing financial statements audited by independent auditors and
additional information regarding the Fund's performance) and semiannual
reports (containing unaudited financial statements) are sent to Shareholders
each year. To reduce the volume of mail sent to one household as well as to
reduce Fund expenses, the Transfer Agent will attempt to identify related
Shareholders within a household and send only one copy of the report.
Additional copies may be obtained, without charge, upon request to the Fund
Information Department--telephone 1-800/DIAL BEN. The Fund also sends to each
Shareholder a confirmation statement after every transaction that affects the
Shareholder's account and a year-end historical confirmation statement.
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<PAGE>
INSTRUCTIONS AND IMPORTANT NOTICE
SUBSTITUTE W-9 INSTRUCTIONS INFORMATION
GENERAL. Backup withholding is not an additional tax. Rather, the tax
liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the Internal Revenue Service ("IRS").
OBTAINING A NUMBER. If you do not have a Social Security Number/Taxpayer
Identification Number ("SSN/TIN"), you must obtain Form SS-5 or Form SS-4 from
your local Social Security or IRS office and apply for one. If you have
checked the "Awaiting TIN" box and signed the certification, withholding will
apply to payments relating to your account unless you provide a certified TIN
within 60 days.
WHAT SSN/TIN TO GIVE. Please refer to the following guidelines:
<TABLE>
<CAPTION>
ACCOUNT TYPE GIVE SSN OF ACCOUNT TYPE GIVE TAXPAYER ID # OF
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
. Individual Individual . Trust, Estate, or Trust, Estate, or
Pension Plan Trust Pension Plan Trust
- -----------------------------------------------------------------------------------
. Joint Actual owner of . Corporation, Corporation,
Individual account, or if Partnership, or other Partnership, or other
combined funds, the organization organization
first-named
individual
- -----------------------------------------------------------------------------------
. Unif. Minor . Broker nominee Broker nominee
Gift/Transfer
to Minor
- -----------------------------------------------------------------------------------
. Sole Owner of business
Proprietor
- -----------------------------------------------------------------------------------
. Legal Ward, Minor, or
Guardian Incompetent
- -----------------------------------------------------------------------------------
</TABLE>
EXEMPT RECIPIENTS. Please provide your TIN and check the "Exempt Recipient"
box if you are an exempt recipient. Exempt recipients generally include:
A corporation A real estate investment trust
A common trust fund operated by a bank
A financial institution under section 584(a)
An entity registered at all times
An organization exempt from tax under the Investment Company
under section 501(a), or an Act of 1940
individual retirement plan
A registered dealer in securities or
commodities registered in the U.S.
or a U.S. possession
IRS PENALTIES. If you do not supply us with your SSN/TIN, you will be subject
to an IRS $50 penalty unless your failure is due to reasonable cause and not
willful neglect. If you fail to report certain income on your Federal income
tax return, you will be treated as negligent and subject to an IRS 20% penalty
on any underpayment of tax attributable to such negligence, unless there was
reasonable cause for the resulting underpayment and you acted in good faith.
If you falsify information on this form or make any other false statement
resulting in no backup withholding on an account which should be subject to
backup withholding, you may be subject to an IRS $500 penalty and certain
criminal penalties including fines and imprisonment.
SUBSTITUTE W-8 INSTRUCTIONS INFORMATION
EXEMPT FOREIGN PERSON. Check the "Exempt Foreign Person" box if you qualify as
a non-resident alien or foreign entity that is not subject to certain U.S.
information return reporting or to backup withholding rules. Dividends paid to
your account may be subject to withholding of up to 30%. Generally, you are an
"Exempt Foreign Person" if you are not (1) a citizen or resident of the U.S.,
or (2) a U.S. corporation, partnership, estate, or trust. In the case of an
individual, an "Exempt Foreign Person" is one who has been physically present
in the U.S. for less than 31 days during the current calendar year. An
individual who is physically present in the U.S. for at least 31 days during
the current calendar year will still be treated as an "Exempt Foreign Person,"
provided that the total number of days physically present in the current
calendar year and the two preceding calendar years does not equal or exceed
183 days (counting all of the days in the current calendar year, only one-
third of the days in the first preceding calendar year and only one-sixth of
the days in the second preceding calendar year). In addition, lawful permanent
residents or green card holders may not be treated as "Exempt Foreign
Persons." If you are an individual or an entity, you must not now be, or at
this time expect to be, engaged in a U.S. trade or business with respect to
which any gain derived from transactions effected by the Fund/Payer during the
calendar year is effectively connected to the U.S.
PERMANENT ADDRESS. The Shareholder Application must contain your permanent
address if you are an "Exempt Foreign Person." If you are an individual,
provide your permanent address. If you are a partnership or corporation,
provide the address of your principal office. If you are an estate or trust,
provide the address of your permanent residence or the principal office of any
fiduciary.
NOTICE OF CHANGE IN STATUS. If you become a U.S. citizen or resident after you
have provided certification of your foreign status, or if you cease to be an
"Exempt Foreign Person," you must notify the Fund/Payer within 30 days of your
change in status. Reporting will then begin on the account(s) listed, and
backup withholding may also begin unless you certify to the Fund/Payer that
(1) the taxpayer identification number you have given is correct, and (2) the
IRS has not notified you that you are subject to backup withholding because
you failed to report certain interest or dividend income. You may use Form W-
9, "Payer's Request for Taxpayer Identification Number and Certification," to
make these certifications. If an account is no longer active, you do not have
to notify a Fund/Payer or broker of your change in status unless you also have
another account with the same Fund/Payer that is still active. If you receive
interest from more than one Fund/Payer or have dealings with more than one
broker or barter exchange, file a certificate with each. If you have more than
one account with the same Fund/Payer, the Fund/Payer may require you to file a
separate certificate for each account.
WHEN TO FILE. File these certifications with the Fund before a payment is made
to you, unless you have already done this in either of the two preceding
calendar years. Only certifications that are in proper order will be treated
as having been filed with the Fund.
HOW OFTEN YOU MUST FILE. This certificate generally remains in effect for
three calendar years. A Fund/Payer or broker, however, may require that a new
certificate be filed each time a payment is made. On joint accounts for which
each joint owner is a foreign person, each must provide a certification of
foreign status.
28
<PAGE>
FOR CORPORATE SHAREHOLDERS--FORM OF RESOLUTION
It will be necessary for corporate shareholders to provide a certified copy of
a resolution or other certificate of authority to authorize the purchase as
well as sale (redemption) of shares and withdrawals by checks or drafts. You
may use the following form of resolution or you may prefer to use your own. It
is understood that the Fund, Franklin Templeton Distributors, Inc., Franklin
Templeton Investor Services, Inc., the custodian bank and their affiliates may
rely upon these authorizations until revoked or amended by written notice
delivered by registered or certified mail to the Fund.
CERTIFIED COPY OF RESOLUTION (Corporation or Association)
The undersigned hereby certifies and affirms that he/she is the duly elected
_____________________ of __________________________ a _________________________
TITLE CORPORATE NAME TYPE OF ORGANIZATION
organized under the laws of the State of _________________ and that the
STATE
following is a true and correct copy of a resolution adopted by the Board of
Directors at a meeting duly called and held on _______________
DATE
RESOLVED, that the _________________________________________________ of this
OFFICERS' TITLES
Corporation or Association are authorized to open an account in the name of
the Corporation or Association with one or more of the Franklin Group of Funds
(R) or Templeton Family of Funds (collectively, the "Funds") and to deposit
such funds of this Corporation or Association in this account as they deem
necessary or desirable; that the persons authorized below may endorse checks
and other instruments for deposit to said account or accounts; and
FURTHER RESOLVED, that any of the following _________________ officers are
NUMBER
authorized to sign any share assignment on behalf of this Corporation or
Association and to take any other actions as may be necessary to sell or
redeem its shares in the Funds or to sign checks or drafts withdrawing funds
from the account; and
FURTHER RESOLVED, that this Corporation or Association shall hold harmless,
indemnify, and defend the Funds, their custodian bank, Franklin Templeton
Distributors, Inc., Franklin Templeton Investor Services, Inc., and their
affiliates, from any claim, loss or liability resulting in whole or in
part, directly or indirectly, from their reliance from time to time upon
any certifications by the secretary or any assistant secretary of this
Corporation or Association as to the names of the individuals occupying
such offices and their acting in reliance upon these resolutions until
actual receipt by them of a certified copy of a resolution of the Board of
Directors of the Corporation or Association modifying or revoking any or
all such resolutions.
The undersigned further certifies that the below named persons, whose
signatures appear opposite their names and office titles, are duly elected
officers of the Corporation or Association. (Attach additional list if
necessary.)
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME OF CORPORATION OR ASSOCIATION DATE
Certified from minutes ________________________________________________________
NAME AND TITLE
CORPORATE SEAL (if appropriate)
29
<PAGE>
THE FRANKLIN TEMPLETON TELEPHONE REDEMPTION AUTHORIZATION AGREEMENT
You may use Franklin Templeton's telephone redemption privilege to redeem
uncertificated Franklin Templeton Fund shares for up to $50,000 (or your
Shareholder account balance, whichever is less) per day, per fund account in
accordance with the terms of the Fund's Prospectus.
The telephone redemption privilege is available only to Shareholders who
specifically request it. If you would like to add this redemption privilege to
the other telephone transaction privileges automatically available to Franklin
Templeton Fund shareholders, please sign and return this authorization to
Franklin Templeton Investor Services, Inc. ("Services"), transfer agent and
shareholder servicing agent for the Franklin Templeton Funds.
SHAREHOLDER AUTHORIZATION: I/We request the telephone redemption privilege
under the terms described below and in the prospectus for each investment
company in the Franklin Templeton Group of Funds (a "Franklin Templeton Fund"
or a "Fund"), now opened or opened at a later date, holding shares registered
as follows:
- ------------------------------------- ---------------------------------------
PRINT NAME(S) AS SHOWN IN YOUR ACCOUNT REGISTRATION ("SHAREHOLDER")
- ------------------------------------- ---------------------------------------
ACCOUNT NUMBER(S)
I/We authorize each Fund and Services to honor and act upon telephone requests
given as provided in this agreement to redeem shares from any
Shareholder account:
- ------------------------------------- ---------------------------------------
SIGNATURE(S) AND DATE
- ------------------------------------- ---------------------------------------
PRINT NAME(S) (AND TITLE/CAPACITY, IF APPLICABLE)
VERIFICATION PROCEDURES: I/We understand and agree that: (1) each Fund and
Services will employ reasonable procedures to confirm that redemption
instructions communicated by telephone are genuine and that if these
confirmation procedures are not followed, the Fund or Services may be liable
for any losses due to unauthorized or fraudulent telephone instructions; (2)
the confirmation procedures will include the recording of telephone calls
requesting redemptions, requiring that the caller provide certain personal
and/or account information requested by the telephone service agent at the
time of the call for the purpose of establishing the caller's identification,
and the sending of confirmation statements to the address of record each time
a redemption is initiated by telephone; and (3) so long as the Fund and
Services follow the confirmation procedures in acting on instructions
communicated by telephone which were reasonably believed to be genuine at the
time of receipt, neither they, nor their parent or affiliates, will be liable
for any loss, damages or expenses caused by an unauthorized or fraudulent
redemption request.
JOINTLY OWNED/CO-TRUSTEE ACCOUNTS: Each of us signing this agreement as either
joint owners or co-trustees authorizes each Fund and Services to honor
telephone redemption requests given by ANY ONE of the signers, or our
investment representative of record, if any, ACTING ALONE.
APPOINTMENT OF ATTORNEY-IN-FACT: In order to issue telephone redemption
requests acting alone, each of us individually makes the following
appointment: I hereby appoint the other joint owner(s)/co-trustee(s) as my
agent(s) (attorney[s]-in-fact) with full power and authority to individually
act for me in any lawful way with respect to the issuance of instructions to a
Fund or Services in accordance with the telephone redemption privilege we have
requested by signing this agreement. This appointment shall not be affected by
my subsequent disability or incompetency and shall remain in effect until it
is revoked by either written notice from any one of us delivered to a Fund or
Services by registered mail, return receipt requested or by a Fund or Services
upon receipt of any information that causes a Fund or Services to believe in
good faith that there is or that there may be a dispute among any of us with
respect to the Franklin Templeton Fund account(s) covered by this agreement.
Each of us agrees to notify the Fund or Services immediately upon the death of
any of the signers.
CORPORATE/PARTNERSHIP/TRUST/RETIREMENT ACCOUNTS: The Shareholder and each of
us signing this agreement on behalf of the Shareholder represent and warrant
to each Franklin Templeton Fund and Services that the Shareholder has the
authority to enter into this agreement and that each of us is duly authorized
to execute this agreement on behalf of the Shareholder. The Shareholder agrees
that its election of the telephone redemption privilege means that a Fund or
Services may honor a telephone redemption request given by ANY
officer/partner/member/administrator/or agent of the Shareholder ACTING ALONE.
RESTRICTED ACCOUNTS: Telephone redemptions may not be accepted on Franklin
Templeton Trust Company retirement accounts.
PLEASE RETURN THIS FORM TO:
Franklin Templeton Investor Services, Inc., Attn.: Telephone Redemptions
Dept., 700 Central Avenue, St. Petersburg, Florida 33701-3628.
30
<PAGE>
The Franklin Templeton Group
Literature Request -- Call today for a free descriptive brochure and
prospectus on any of the funds listed below. The prospectus contains more
complete information, including fees, charges and expenses, and should be read
carefully before investing or sending money.
<TABLE>
<S> <C> <C>
TEMPLETON FUNDS Maryland FRANKLIN FUNDS SEEKING
American Trust Massachusetts*** HIGH CURRENT INCOME
Americas Government Securities Fund Michigan*** AGE High Income Fund
Developing Markets Trust Minnesota*** German Government Bond Fund
Foreign Fund Missouri Global Government Income Fund
Global Infrastructure Fund New Jersey Investment Grade Income Fund
Global Opportunities Trust New York* U.S. Government Securities Fund
Greater European Fund North Carolina
Growth Fund Ohio*** FRANKLIN FUNDS SEEKING HIGH CURRENT
Growth and Income Fund Oregon INCOME AND STABILITY OF PRINCIPAL
Income Fund Pennsylvania Adjustable Rate Securities Fund
Japan Fund Tennessee** Adjustable U.S. Government Securities Fund
Latin America Fund Texas Short-Intermediate U.S. Government Securities Fund
Money Fund Virginia
Real Estate Securities Fund Washington** FRANKLIN FUNDS FOR NON-U.S. INVESTORS
Smaller Companies Growth Fund Tax-Advantaged High Yield Securities Fund
World Fund FRANKLIN FUNDS Tax-Advantaged International Bond Fund
SEEKING CAPITAL GROWTH Tax-Advantaged U.S. Government Securities Fund
FRANKLIN FUNDS California Growth Fund
SEEKING TAX-FREE INCOME DynaTech Fund FRANKLIN TEMPLETON INTERNATIONAL
Federal Intermediate Term Equity Fund CURRENCY FUNDS
Tax-Free Income Fund Global Health Care Fund Global Currency Fund
Federal Tax-Free Income Fund Gold Fund Hard Currency Fund
High Yield Tax-Free Income Growth Fund High Income Currency Fund
Fund International Equity Fund
Insured Tax-Free Income Fund*** Pacific Growth Fund FRANKLIN MONEY MARKET FUNDS
Puerto Rico Tax-Free Income Fund Real Estate Securities Fund California Tax-Exempt Money Fund
FRANKLIN STATE-SPECIFIC FUNDS Small Cap Growth Fund Federal Money Fund
SEEKING TAX-FREE INCOME IFT U.S. Treasury Money Market Portfolio
Alabama FRANKLIN FUNDS SEEKING Money Fund
Arizona* GROWTH AND INCOME New York Tax-Exempt Money Fund
Arkansas** Balance Sheet Investment Fund Tax-Exempt Money Fund
California* Convertible Securities Fund
Colorado Equity Income Fund FRANKLIN FUND FOR CORPORATIONS
Connecticut Global Utilities Fund Corporate Qualified Dividend Fund
Florida* Income Fund
Georgia Premier Return Fund FRANKLIN TEMPLETON VARIABLE ANNUITIES
Hawaii** Rising Dividends Fund Franklin Valuemark
Indiana Strategic Income Fund Franklin Templeton Valuemark Income
Kentucky Utilities Fund Plus (an immediate annuity)
Louisiana
</TABLE>
Toll-free 1-800-DIAL BEN (1-800-342-5236)
* Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of municipal securities, and a high yield portfolio
(CA).
** The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
*** Portfolio of insured municipal securities.
31
<PAGE>
NOTES
32
<PAGE>
- --------------------------------------------------------------------------------
TEMPLETON WORLD FUND
PRINCIPAL UNDERWRITER:
Franklin Templeton
Distributors, Inc.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Shareholder Services
1-800-632-2301
Fund Information
1-800/DIAL BEN
Institutional Services
1-800-321-8563
Dealer Services
1-800-524-4040
Retirement Plan Services
1-800-527-2020
This Prospectus is not an offering of the securities herein described in any
state in which the offering is not authorized. No sales representative,
dealer, or other person is authorized to give any information or make any
representations other than those contained in this Prospectus. Further
information may be obtained from the Principal Underwriter.
- --------------------------------------------------------------------------------
[RECYCLING LOGO APPEARS HERE] TL102 P 01/96
TEMPLETON
WORLD
FUND
Prospectus
January 1, 1996
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
<PAGE>
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
Mail to: FRANKLIN TEMPLETON
P.O. Box 33031 St. Petersburg, Florida 33733-8031 (800) 393-3001
Please do not use this form for any Retirement Plan for which Franklin Templeton
Trust Company serves as custodian or trustee, or for Templeton Money Fund,
Templeton Institutional Funds or Templeton Capital Accumulator Fund. Request
separate Applications and/or Prospectuses.
- --------------------------------------------------------------------------------
SHAREHOLDER APPLICATION OR REVISION
[_] Please check the box if this is a revision and see Section 8
- --------------------------------------------------------------------------------
Please check Class I or Class II, if applicable, next to your Fund selection.
Class I and Class II shares have different sales charges and operating expenses,
among other differences, as described in each Fund's prospectus.
Date __________________
<TABLE>
<CAPTION>
CLASS CLASS
I II TEMPLETON I II TEMPLETON
<S> <C> <C> <C>
[_] [_]$______ AMERICAN TRUST [_] [_]$______ GLOBAL OPPORTUNITIES TRUST
[_] ______ AMERICAS GOVERNMENT SECURITIES FUND [_] [_] ______ GREATER EUROPEAN FUND
[_] [_] ______ DEVELOPING MARKETS TRUST [_] [_] ______ GROWTH FUND
[_] [_] ______ FOREIGN FUND [_] [_] ______ GROWTH AND INCOME FUND
[_] [_] ______ GLOBAL INFRASTRUCTURE FUND [_] [_] ______ INCOME FUND
<CAPTION>
CLASS CLASS
I II TEMPLETON I II
<S> <C> <C>
[_] $______ JAPAN FUND [_] [_] OTHER: $___________
[_] [_] ______ LATIN AMERICA FUND (Except for Class II Money Fund)
[_] [_] ______ REAL ESTATE SECURITIES FUND _______________________________
[_] [_] ______ SMALLER COMPANIES GROWTH FUND _______________________________
[_] [_] ______ WORLD FUND _______________________________
</TABLE>
- --------------------------------------------------------------------------------
1 ACCOUNT REGISTRATION (PLEASE PRINT)
- --------------------------------------------------------------------------------
[_] INDIVIDUAL OR JOINT ACCOUNT
_ _
__________________________________________________ ____________________________
First Name Middle Initial Last Name Social Security Number (SSN)
_ _
__________________________________________________ ____________________________
Joint Owner(s) (Joint ownership means "Joint Social Security Number (SSN)
Tenants With Rights of Survivorship" unless
otherwise specified) All owners must sign Section 4.
- --------------------------------------------------------------------------------
[_] GIFT/TRANSFER TO A MINOR
_______________________________ As Custodian For________________________________
Name of Custodian (one only) Minor's Name (one only)
_ _
_____________Uniform Gifts/Transfers to Minors Act______________________________
State of Residence Minor's Social Security Number
Please Note: Custodian's Signature, not Minor's, is required in Section 4.
- --------------------------------------------------------------------------------
[_] TRUST, CORPORATION, PARTNERSHIP, RETIREMENT PLAN, OR OTHER ENTITY
_
__________________________________________ ___________________________________
Name Taxpayer Identification Number (TIN)
__________________________________________ ____________________________________
Name of Beneficiary (if to be included in Date of Trust Document (must be
the Registration) completed for registration)
________________________________________________________________________________
Name of Each Trustee (if to be included in the Registration)
- --------------------------------------------------------------------------------
2 ADDRESS
- --------------------------------------------------------------------------------
___________________________________________ Daytime Phone (___)________________
Street Address Area Code
_
___________________________________________ Evening Phone (___)________________
City State Zip Code Area Code
I am a Citizen of: [_] U.S. or [_]______________________________
Country of Residence
- --------------------------------------------------------------------------------
3 INITIAL INVESTMENT ($100 minimum initial investment)
- --------------------------------------------------------------------------------
Check(s) enclosed for $___________________ . (Payable to the Fund(s)
indicated above.)
- --------------------------------------------------------------------------------
4 SIGNATURE AND TAX CERTIFICATIONS
(All registered owners must sign application)
- --------------------------------------------------------------------------------
See "Important Notice Regarding Taxpayer IRS Certifications" in back of
prospectus. The Fund reserves the right to refuse to open an account without
either a certified Taxpayer Identification Number ("TIN") or a certification of
foreign status. Failure to provide tax certifications in this section may result
in backup withholding on payments relating to your account and/or in your
inability to qualify for treaty withholding rates.
I am(We are) not subject to backup withholding because I(we) have not been
notified by the IRS that I am(we are) subject to backup withholding as a result
of a failure to report all interest or dividends or because the IRS has notified
me(us) that I am(we are) no longer subject to backup withholding. (If you are
currently subject to backup withholding as a result of a failure to report all
interest or dividends, please cross out the preceding statement.)
[_] The number shown above is my(our) correct TIN, or that of the Minor named in
Section 1.
[_] AWAITING TIN. I am(We are) waiting for a number to be issued to me(us).
I(We) understand that if I(we) do not provide a TIN to the Fund within 60
days, the Fund is required to commence 31% backup withholding until I(we)
provide a certified TIN.
[_] EXEMPT RECIPIENT. Individuals cannot be exempt. Check this box only after
reading the instructions to see whether you qualify as an exempt recipient.
(You should still provide a TIN.)
[_] EXEMPT FOREIGN PERSON. Check this box only if the following statement
applies: "I am(we are) neither a citizen nor a resident of the United
States. I(we) certify to the best of my(our) knowledge and belief, I(we)
qualify as an exempt foreign person and/or entity as described in the
instructions."
Permanent address for tax purposes:
________________________________________________________________________________
Street Address City State Country Postal Code
PLEASE NOTE: The IRS only allows one TIN to be listed on an account. On joint
accounts, it is preferred that the primary account owner (or person listed first
on the account) list his/her number as requested above.
CERTIFICATION - Under the penalties of perjury, I(we) certify that (1) the
information provided on this application is true, correct and complete, (2)
I(we) have read the prospectus(es) for the Fund(s) in which I am(we are)
investing and agree to the terms thereof, and (3) I am(we are) of legal age or
an emancipated minor. I (we) acknowledge that Shares of the Fund(s) are not
insured or guaranteed by any agency or institution and that an investment in the
Shares involves risks, including the possible loss of principal.
X X
- ---------------------------------------- ---------------------------------------
Signature Signature
X X
- ---------------------------------------- ---------------------------------------
- --------------------------------------------------------------------------------
5 BROKER/DEALER USE ONLY (PLEASE PRINT)
- --------------------------------------------------------------------------------
-----------------------
We hereby submit this application for the purchase of Templeton Dealer Number
shares of the Fund indicated above in accordance with
the terms of our selling agreement with Franklin -----------------------
Templeton Distributors, Inc. ("FTD"), and with the
Prospectus for the Fund. We agree to notify FTD of any
purchases of Class I shares which may be eligible for
reduced or eliminated sales charges.
-----------------------------------------------------------------------------
WIRE ORDER ONLY: The attached check for $_______ should be applied against
Wire Order
Confirmation Number ___________ Dated___________ For__________ Shares
-----------------------------------------------------------------------------
Securities Dealer Name__________________________________________________________
Main Office Address________________ Main Office Telephone Number (___)__________
Branch Number________ Representative Number ________ Representative Name________
Branch Address_________________________ Branch Telephone Number (___)___________
Authorized Signature, Securities Dealer______________________ Title_____________
- --------------------------------------------------------------------------------
ACCEPTED: Franklin Templeton Distributors, Inc. By___________ Date______________
- --------------------------------------------------------------------------------
Please see reverse side for Shareholder Account Privileges:
[_] Distribution Options [_] Special Instructions for Distributions
[_] Systematic Withdrawal Plan [_] Automatic Investment Plan
[_] Telephone Exchange Service [_] Letter of Intent
[_] Cumulative Quantity Discount
This application must be preceded or accompanied by a prospectus for
the Fund(s) being purchased.
<PAGE>
- --------------------------------------------------------------------------------
6 DISTRIBUTION OPTIONS (Check one)
- --------------------------------------------------------------------------------
Check one - if no box is checked, all dividends and capital gains will be
reinvested in additional shares of the Fund.
[_] Reinvest all dividends [_] Pay all dividends in cash
and capital gains. and reinvest capital gains.
[_] Pay capital gains in cash [_] Pay all dividends and
and reinvest dividends. capital gains in cash.
- --------------------------------------------------------------------------------
7 OPTIONAL SHAREHOLDER PRIVILEGES
- --------------------------------------------------------------------------------
A. SPECIAL PAYMENT INSTRUCTIONS FOR DISTRIBUTIONS (Check one box)
[_] Invest Distributions, as noted in Section 6, or [_] withdrawals, as noted
in section 7(B), in another Franklin or Templeton Fund.
Restrictions may apply to purchases of shares of a different class. See
the prospectus for details.
Fund Name______________________ Existing Account Number___________________
[_] Send my Distributions to the person, named below, instead of as registered
and addressed in Sections 1 and 2.
Name___________________________ Street Address____________________________
City___________________________ State____________________Zip Code_________
- --------------------------------------------------------------------------------
B. SYSTEMATIC WITHDRAWAL PLAN
Please withdraw from my Franklin Templeton account $_____($50 minimum)
[_]Monthly [_]Quarterly [_]Semi-Annually or [_]Annually as set forth in the
Prospectus, starting in ______________(Month). The net asset value of the
shares held must be at least $5,000 at the time the plan is established.
Additional restrictions may apply to Class II or other shares subject to
contingent deferred sales charge, as described in the prospectus. Send the
withdrawals to: [_]Address of Record OR [_]the Franklin Templeton Fund or
person specified in Section 7(A) - Special Payment Instructions for
Distributions.
- --------------------------------------------------------------------------------
C. TELEPHONE TRANSACTIONS
TELEPHONE EXCHANGE PRIVILEGE: If the Fund does not receive specific
-----------------------------
instructions from the shareholder, either in writing or by telephone, the
Telephone Exchange Privilege (see the prospectus) is automatically extended
to each account. The shareholder should understand, however, that the Fund
and Franklin Templeton Investor Services, Inc. ("FTI") or Franklin Templeton
Trust Company and their agents will not be liable for any loss, injury,
damage or expense as a result of acting upon instructions communicated by
telephone reasonably believed to be genuine. The shareholder agrees to hold
the Fund and its agents harmless from any loss, claims, or liability arising
from its or their compliance with such instructions. The shareholder
understands that this option is subject to the terms and conditions set forth
in the prospectus of the fund to be acquired.
[_]No, I do NOT wish to participate in the Telephone Exchange Privilege or
authorize the Fund or its agents, including FTI or Templeton Funds Trust
Company, to act upon instructions received by telephone to exchange shares
for shares of any other account(s) within the Franklin Templeton Group of
Funds.
Telephone Redemption Privilege: This is available to shareholders who
-------------------------------
specifically request it and who complete the Franklin Templeton Telephone
Redemption Authorization Agreement in the back of the Fund's prospectus.
- --------------------------------------------------------------------------------
D. AUTOMATIC INVESTMENT PLAN
IMPORTANT: ATTACH AN UNSIGNED, VOIDED CHECK (FOR CHECKING ACCOUNTS) OR A
SAVINGS ACCOUNT DEPOSIT SLIP HERE, AND COMPLETE THE INFORMATION BELOW. I(We)
would like to establish an Automatic Investment Plan (the "Plan") as
described in the Prospectus. I(We) agree to reimburse FTI and/or FTD for any
expenses or losses that they may incur in connection with my(our) plan,
including any caused by my(our) bank's failure to act in accordance with
my(our) request. If my(our) bank makes any erroneous payment or fails to make
a payment after shares are purchased on my(our) behalf, any such purchase may
be cancelled and I(we) hereby authorize redemptions and/or deductions from
my(our) account for that purpose.
Debit my (circle one) savings, checking, other ________ account monthly for
$__________($25 minimum) on or about the [_]1st [_]5th [_]15th or [_]20th day
starting_______(month), to be invested in (name of
Fund)___________________Account Number (if known)_______
INSTRUCTIONS TO BANK - AUTOMATIC INVESTMENT PLAN AUTHORIZATION
To:__________________________________ ______________________________________
Name of Your Bank ABA Number
___________________________ _________________ ____________ ______________
Street Address City State Zip Code
I(We) authorize you to charge my(our) Checking/Savings Account and to make
payment to FTD, upon instructions from FTD. I(We) agree that in making payment
for such charges your rights shall be the same as if each were a charge made and
signed personally by me(us). This authority shall remain in effect until you
receive written notice from me(us) changing its terms or revoking it. Until you
actually receive such notice, I(we) agree that you shall be fully protected in
paying any charge under this authority. I(we) further agree that if any such
charge is not made, whether with or without cause and whether intentionally or
inadvertently, you shall be under no liability whatsoever.
X_________________________________________________ ___________________________
Signature(s) EXACTLY as shown on your bank records Date
______________________________________ _______________________________________
Print Name(s) Account Number
______________________________ _________________ ____________ ______________
Your Street Address City State Zip Code
- --------------------------------------------------------------------------------
E. LETTER OF INTENT (LOI) -- Not Applicable to Purchases of Class II
[_]I(We) agree to the terms of the LOI and provisions for reservations of
Class I shares and grant FTD the security interest set forth in the
Prospectus. Although I am(we are) not obligated to do so, it is my(our)
intention to invest over a 13 month period in Class I and/or Class II shares
of one or more Franklin or Templeton Funds (including all money market funds
in the Franklin Templeton Group) an aggregate amount at least equal to that
which is checked below. I understand that reduced sales charges will apply
only to purchases of Class I shares.
<TABLE>
<S> <C> <C> <C> <C>
[_]$50,000-99,999 (except for Income Fund [_]$100,000-249,999 [_]$250,000-499,999 [_]$500,000-999,999 [_]$1,000,0000 or more
and Americas Government Securities Fund)
</TABLE>
Purchases of Class I Shares under LOI of $1,000,000 or more are made at net
asset value and may be subject to a contingent deferred sales charge as
described in the prospectus.
Purchases made within the last 90 days will be included as part of your LOI.
Please write in your Account Number(s)____________ ____________ ____________
- --------------------------------------------------------------------------------
F. CUMULATIVE QUANTITY DISCOUNT -- Not Applicable to Purchases of Class II
Class I shares may be purchased at the offering price applicable to the total
of (a) the dollar amount then being purchased plus (b) the amount equal to
the cost or current value (whichever is higher) of the combined holdings of
the purchaser, his or her spouse, and their children or grandchildren under
age 21, of Class I and/or Class II shares of funds in the Franklin Templeton
Group, as well as other holdings of Franklin Templeton Investments, as that
term is defined in the prospectus. In order for this cumulative quantity
discount to be made available, the shareholder or his or her securities
dealer must notify FTI or FTD of the total holdings in the Franklin Templeton
Group each time an order is placed. I understand that reduced sales charges
will apply only to purchases of Class I shares.
[_]I(We) own shares of more than one Fund in the Franklin Templeton Group and
qualify for the Cumulative Quantity Discount described above and in the
Prospectus.
My(Our) other Account Number(s) are ___________ ___________ _______________
- --------------------------------------------------------------------------------
8 ACCOUNT REVISION (If Applicable)
- --------------------------------------------------------------------------------
If you are using this application to revise your Account Registration, or wish
to have Distributions sent to an address other than the address on your existing
Account's Registration, a Signature Guarantee is required. Signatures of all
registered owners must be guaranteed by an "eligible guarantor" as defined in
the "How to Sell Shares of the Fund" section in the Fund's Prospectus. A Notary
Public is not an acceptable guarantor.
X________________________________________ ____________________________________
Signature(s) of Registered Account Owners Account Number(s)
X________________________________________ ____________________________________
X________________________________________
X________________________________________ ____________________________________
Signature Guarantee Stamp
NOTE: For any change in registration, please send us any outstanding
Certificates by Registered Mail.
- --------------------------------------------------------------------------------
TLGOF APP 12/95
<PAGE>
TEMPLETON FOREIGN FUND
PROSPECTUS -- JANUARY 1, 1996
- -------------------------------------------------------------------------------
INVESTMENT Templeton Foreign Fund (the "Fund") seeks long-term capital
OBJECTIVE growth through a flexible policy of investing in stocks and
AND POLICIES debt obligations of companies and governments outside the
United States. The Fund is a series of Templeton Funds, Inc.
- -------------------------------------------------------------------------------
PURCHASE OF Please complete and return the Shareholder Application. If you
SHARES need assistance in completing this form, please call our
Shareholder Services Department. The Fund offers two classes
to its investors: Templeton Foreign Fund--Class I ("Class I")
and Templeton Foreign Fund--Class II ("Class II"). Investors
can choose between Class I Shares, which generally bear a
higher front-end sales charge and lower ongoing Rule 12b-1
distribution fees ("Rule 12b-1 fees"), and Class II Shares,
which generally have a lower front-end sales charge and higher
ongoing Rule 12b-1 fees. Investors should consider the
differences between the two classes, including the impact of
sales charges and distribution fees, in choosing the more
suitable class given their anticipated investment amount and
time horizon. See "How to Buy Shares of the Fund--Differences
Between Class I and Class II ." The minimum initial investment
is $100 ($25 minimum for subsequent investments).
- -------------------------------------------------------------------------------
PROSPECTUS
INFORMATION This Prospectus sets forth concisely information about the
Fund that a prospective investor ought to know before
investing. Investors are advised to read and retain this
Prospectus for future reference. A Statement of Additional
Information ("SAI") dated January 1, 1996, has been filed with
the Securities and Exchange Commission (the "SEC") and is
incorporated in its entirety by reference in and made a part
of this Prospectus. This SAI is available without charge upon
request to Franklin Templeton Distributors, Inc., P.O. Box
33030, St. Petersburg, Florida 33733-8030 or by calling the
Fund Information Department.
- -------------------------------------------------------------------------------
FUND INFORMATION DEPARTMENT -- 1-800/DIAL BEN
- -------------------------------------------------------------------------------
TEMPLETON "STAR" SERVICE (24 hours, seven days a week access to current
prices, shareholder account balances/values, last transaction and duplicate
account statements) -- 1-800-654-0123
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
EXPENSE TABLE......... 2
FINANCIAL HIGHLIGHTS . 3
GENERAL DESCRIPTION... 4
Investment Objective
and Policies......... 4
RISK FACTORS.......... 5
HOW TO BUY SHARES OF
THE FUND............. 7
Differences Between
Class I and
Class II............. 7
Deciding Which Class
to Purchase.......... 7
Offering Price--Class
I.................... 8
Offering Price--Class
II................... 10
Net Asset Value
Purchases
(Both Classes)....... 10
Description of Special
Net Asset Value
Purchases............ 11
Additional Dealer
Compensation
(Both Classes)....... 12
Purchasing Class I and
Class II Shares...... 12
Automatic Investment
Plan................. 13
Institutional
Accounts............. 13
Account Statements.... 13
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Templeton STAR
Service.............. 13
Retirement Plans...... 14
Net Asset Value....... 14
EXCHANGE PRIVILEGE.... 14
Exchanges of Class I
Shares............... 15
Exchanges of Class II
Shares............... 15
Transfers............. 16
Conversion Rights..... 16
Exchanges by Timing
Accounts............. 16
HOW TO SELL SHARES OF
THE FUND............. 17
Reinstatement
Privilege............ 19
Systematic Withdrawal
Plan................. 19
Redemptions by
Telephone............ 20
Contingent Deferred
Sales Charge......... 20
TELEPHONE
TRANSACTIONS......... 21
Verification
Procedures........... 21
Restricted Accounts... 21
General............... 22
MANAGEMENT OF THE
FUND................. 22
Investment Manager.... 22
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business Manager...... 23
Transfer Agent........ 23
Custodian............. 23
Plans of Distribution. 23
Expenses.............. 24
Brokerage Commissions. 24
GENERAL INFORMATION... 24
Description of
Shares/Share
Certificates......... 24
Voting Rights......... 24
Meetings of
Shareholders......... 24
Dividends and
Distributions........ 25
Federal Tax
Information.......... 25
Inquiries............. 26
Performance
Information.......... 26
Statements and
Reports.............. 26
WITHHOLDING
INFORMATION.......... 27
CORPORATE RESOLUTION.. 28
AUTHORIZATION
AGREEMENT............ 29
THE FRANKLIN TEMPLETON
GROUP................ 30
</TABLE>
- -------------------------------------------------------------------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF CAPITAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
EXPENSE TABLE
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a Shareholder will bear directly or indirectly
in connection with an investment in the Fund. The figures are estimates of the
Fund's expenses for the current fiscal year, restated to reflect current sales
charges and Rule 12b-1 fees for each class.
<TABLE>
<CAPTION>
CLASS I CLASS II
------- --------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage
of Offering Price)....................................... 5.75% 1.00%/1/
Deferred Sales Charge..................................... None/2/ 1.00%/3/
Exchange Fee (per transaction)............................ $5.00/4/ $5.00/4/
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................................... 0.63% 0.63%
12b-1 Fees/5/............................................. 0.25% 1.00%
Other Expenses (audit, legal, business management,
transfer agent and custodian)............................ 0.27% 0.27%
Total Fund Operating Expenses............................. 1.15% 1.90%
</TABLE>
- -------
/1/ Although/Class II has a lower front-end sales charge than Class I, over time
the higher Rule 12b-1 fees for Class II may cause Shareholders to pay more
for Class II Shares than for Class I Shares. Given the maximum front-end
sales charge and the rate of Rule 12b-1 fees for each class, it is estimated
that this would take less than six years for Shareholders who maintain total
Shares valued at less than $50,000 in the Franklin Templeton Funds.
Shareholders with larger investments in the Franklin Templeton Funds will
reach the cross-over point more quickly. (See "How to Buy Shares of the
Fund.")
/2/ Class/I investments of $1 million or more are not subject to a front-end
sales charge; however, a contingent deferred sales charge of 1% is generally
imposed on certain redemptions within a "contingency period" of 12 months of
the calendar month of such investments. See "How to Sell Shares of the
Fund--Contingent Deferred Sales Charge."
/3/ Class/II Shares redeemed within a "contingency period" of 18 months of the
calendar month of such investments are subject to a 1% contingent deferred
sales charge. See "How to Sell Shares of the Fund--Contingent Deferred Sales
Charge."
/4/ $5.00/fee imposed only on Timing Accounts as described under "Exchange
Privilege." All other exchanges are processed without a fee.
/5/ Annual/Rule 12b-1 fees may not exceed 0.25% of the Fund's average net assets
attributable to Class I Shares and 1% of the Fund's average net assets
attributable to Class II Shares. Consistent with the National Association of
Securities Dealers, Inc.'s rules, it is possible that the combination of
front-end sales charges and Rule 12b-1 fees could cause long-term
Shareholders to pay more than the economic equivalent of the maximum front-
end sales charges permitted under those same rules.
Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with an individual's own
investment in the Fund. Rather, the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. The information in this table does not reflect the charge of up to
$15 per transaction if a Shareholder requests that redemption proceeds be sent
by express mail or wired to a commercial bank account. For a more detailed
discussion of these matters, investors should refer to the appropriate
sections of this Prospectus.
EXAMPLE
As required by SEC regulations, the following example illustrates the
expenses, including the maximum front-end sales charge and applicable
contingent deferred sales charge, that apply to a $1,000 investment in the
Fund over various time periods assuming (1) a 5% annual rate of return and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Class I........................ $69 $92 $117 $189
Class II....................... $39 $69 $112 $230
You would pay the following
expenses on the same
investment in Class II Shares,
assuming no redemption........ $29 $69 $112 $230
</TABLE>
For the purpose of this example, it is assumed that a contingent deferred
sales charge will not apply to Class I Shares.
THIS EXAMPLE IS BASED ON THE ESTIMATED ANNUAL OPERATING EXPENSES, INCLUDING
FEES SET BY CONTRACT, SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN
THOSE SHOWN. The operating expenses are borne by the Fund and only indirectly
by Shareholders as a result of their investment in the Fund. In addition,
federal securities regulations require the example to assume an annual rate of
return of 5%, but the Fund's actual return may be more or less than 5%.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables of selected financial information have been audited by
McGladrey & Pullen, LLP, independent certified public accountants, for the
years indicated in their report which is incorporated by reference and which
appears in the Fund's 1995 Annual Report to Shareholders. These statements
should be read in conjunction with the other financial statements and notes
thereto included in the Fund's 1995 Annual Report to Shareholders, which
contains further information about the Fund's performance, and which is
available to shareholders upon request and without charge.
<TABLE>
<CAPTION>
CLASS I
-------------------------------------------------------------------------------------------------------------
PER SHARE
OPERATING YEAR ENDED AUGUST 31,
PERFORMANCE+ -------------------------------------------------------------------------------------------------------------
(for a Share
outstanding
throughout the
year) 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 10.01 $ 8.74 $ 7.92 $ 7.91 $ 8.19 $ 7.60 $ 6.37 $ 7.73 $ 5.34 $ 4.10
- -----------------------------------------------------------------------------------------------------------------------------------
Income from
investment
operations
Net investment
income .23 .14 .14 .20 .25 .25 .22 .21 .16 .12
Net realized and
unrealized gain
(loss) .05 1.39 1.21 .43 .03 .92 1.60 (.97) 2.71 1.25
---------- ---------- ---------- ---------- ---------- -------- -------- -------- -------- --------
Total from
investment
operations .28 1.53 1.35 .63 .28 1.17 1.82 (.76) 2.87 1.37
---------- ---------- ---------- ---------- ---------- -------- -------- -------- -------- --------
Distributions
Dividends from net
investment income (.16) (.13) (.19) (.23) (.26) (.25) (.21) (.19) (.13) (.12)
Distributions from
net realized
gains (.51) (.13) (.34) (.39) (.30) (.33) (.38) (.41) (.35) (.01)
---------- ---------- ---------- ---------- ---------- -------- -------- -------- -------- --------
Total
distributions (.67) (.26) (.53) (.62) (.56) (.58) (.59) .60 (.48) (.13)
---------- ---------- ---------- ---------- ---------- -------- -------- -------- -------- --------
Change in net
asset value (.39) 1.27 .82 .01 (.28) .59 1.23 (1.36) 2.39 1.24
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of year $ 9.62 $ 10.01 $ 8.74 $ 7.92 $ 7.91 $ 8.19 $ 7.60 $ 6.37 $ 7.73 $ 5.34
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 3.14% 17.94% 18.65% 8.52% 4.17% 16.35% 30.99% (8.78)% 59.23% 34.39%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
year (000) $6,941,238 $5,014,438 $2,667,771 $1,672,161 $1,211,525 $932,995 $438,571 $292,679 $319,649 $185,752
Ratio to average
net assets of:
Expenses 1.15% 1.14% 1.12% 0.94% 0.80% 0.77% 0.81% 0.81% 0.77% 0.79%
Net investment
income 2.81% 1.84% 2.11% 2.92% 3.59% 3.95% 3.65% 3.29% 2.89% 2.99%
Portfolio turnover
rate 21.78% 36.75% 21.29% 22.00% 19.24% 11.49% 16.62% 20.37% 14.49% 20.97%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total return does not reflect sales charges.
+ Per share amounts for years ended prior to August 31, 1994 have been
restated to reflect a 3-for-1 stock split effective February 25, 1994.
3
<PAGE>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
CLASS II
---------------
FOR THE PERIOD
MAY 1, 1995+
THROUGH
AUGUST 31, 1995
---------------
<S> <C>
Net asset value, beginning of period............................ $ 9.16
-------
Income from investment operations:
Net investment income........................................... .03
Net realized and unrealized gain................................ .40
-------
Total from investment operations................................ .43
-------
Net asset value, end of period.................................. $ 9.59
=======
TOTAL RETURN* 4.81%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)................................. $63,428
Ratio of expenses to average net assets......................... 1.90%**
Ratio of net investment income to average net assets............ 1.86%**
</TABLE>
- -------
* Total return does not reflect sales commissions or the deferred contingent
sales charge. Not annualized for periods of less than one year.
** Annualized.
+ Commencement of offering of shares.
GENERAL DESCRIPTION
Templeton Funds, Inc. (the "Company") was incorporated under the laws of
Maryland on August 15, 1977 and is registered under the Investment Company Act
of 1940, as amended (the "1940 Act") as an open-end diversified investment
company. It has two series of Shares, each of which is a separate mutual fund:
Templeton Foreign Fund (the "Fund") and Templeton World Fund. A prospectus for
Templeton World Fund is available upon request and without charge from the
Principal Underwriter. The Fund has two classes of Common Shares of $1 par
value per Share: Templeton Foreign Fund--Class I and Templeton Foreign Fund--
Class II. All Fund Shares outstanding before May 1, 1995 have been
redesignated as Class I Shares, and will retain their previous rights and
privileges, except for legally required modifications to Shareholder voting
procedures, as discussed in "General Information--Voting Rights."
Shares of the Fund may be purchased (minimum investment of $100 initially
and $25 thereafter) at the current Public Offering Price. The current public
Offering Price of the Class I Shares is equal to the net asset value per Share
(see "How to Buy Shares of the Fund--Net Asset Value"), plus a variable sales
charge not exceeding 5.75% of the Offering Price depending upon the amount
invested. The current public Offering Price of the Class II Shares is equal to
the net asset value per Share, plus a sales charge of 1% of the amount
invested. (See "How to Buy Shares of the Fund.")
INVESTMENT OBJECTIVE AND POLICIES. The Fund's investment objective is long-
term capital growth, which it seeks to achieve through a flexible policy of
investing in stocks and debt obligations of companies and governments outside
the United States. Any income realized will be incidental. There can be no
assurance that the Fund's investment objective will be achieved.
Although the Fund generally invests in common stock, it may also invest in
preferred stocks and certain debt securities (which may include structured
investments, as described in the SAI under "Investment Objectives and
Policies--Structured Investments"), rated or unrated, such as convertible
bonds and bonds selling at a discount. Whenever, in the judgment of the
Investment Manager, market or economic conditions warrant, the Fund may, for
temporary defensive purposes, invest without limit in U.S. Government
4
<PAGE>
securities, bank time deposits in the currency of any major nation and
commercial paper meeting the quality ratings set forth under "Investment
Objective and Policies" in the SAI, and purchase from banks or broker-dealers
Canadian or U.S. Government securities with a simultaneous agreement by the
seller to repurchase them within no more than seven days at the original
purchase price plus accrued interest.
The Fund may purchase sponsored or unsponsored American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") and Global Depositary Receipts
("GDRs") (collectively, "Depositary Receipts"). The Fund may invest no more
than 5% of its total assets in securities issued by any one company or
government, exclusive of U.S. Government securities. Although the Fund may
invest up to 25% of its assets in a single industry, it has no present
intention of doing so. The Fund may not invest more than 5% of its assets in
warrants (exclusive of warrants acquired in units or attached to securities)
nor more than 10% of its assets in securities with a limited trading market.
The Investment Objective and Policies described above, as well as most of the
Investment Restrictions described in the SAI, cannot be changed without
Shareholder approval. The Fund invests for long-term growth of capital and
does not intend to place emphasis upon short-term trading profits.
Accordingly, the Fund expects to have a portfolio turnover rate of less than
50%.
RISK FACTORS
Shareholders should understand that all investments involve risk and there
can be no guarantee against loss resulting from an investment in the Fund, nor
can there be any assurance that the Fund's investment objective will be
attained. As with any investment in securities, the value of, and income from,
an investment in the Fund can decrease as well as increase, depending on a
variety of factors which may affect the values and income generated by the
Fund's portfolio securities, including general economic conditions and market
factors. In addition to the factors which affect the value of individual
securities, a Shareholder may anticipate that the value of the Shares of the
Fund will fluctuate with movements in the broader equity and bond markets. A
decline in the stock market of any country in which the Fund is invested may
also be reflected in declines in the price of the Shares of the Fund. Changes
in currency valuations will also affect the price of the Shares of the Fund.
History reflects both decreases and increases in worldwide stock markets and
currency valuations, and these may reoccur unpredictably in the future. The
value of debt securities held by the Fund generally will vary inversely with
changes in prevailing interest rates. Additionally, investment decisions made
by the Investment Manager will not always be profitable or prove to have been
correct. The Fund is not intended as a complete investment program.
The Fund has the right to purchase securities in any foreign country,
developed or developing. Investors should consider carefully the substantial
risks involved in investing in securities issued by companies and governments
of foreign nations, which are in addition to the usual risks inherent in
domestic investments. There is the possibility of expropriation,
nationalization or confiscatory taxation, taxation of income earned in foreign
nations or other taxes imposed with respect to investments in foreign nations,
foreign exchange controls (which may include suspension of the ability to
transfer currency from a given country), foreign investment controls on daily
stock market movements, default in foreign government securities, political or
social instability, or diplomatic developments which could affect investments
in securities of issuers in foreign nations. Some countries may withhold
portions of interest and dividends at the source. In addition, in many
countries there is less publicly available information about issuers than is
available in reports about companies in the United States. Foreign companies
are not generally subject to uniform accounting, auditing and financial
reporting standards, and auditing practices and requirements may not be
comparable to those applicable to United States companies. The Fund may
encounter difficulties or be unable to vote proxies, exercise shareholder
rights, pursue legal remedies, and obtain judgments in foreign courts.
Brokerage commissions, custodial services, and other costs relating to
investment in foreign countries are generally more expensive than in the
United States. Foreign securities markets also have different clearance and
settlement procedures, and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested
5
<PAGE>
and no return is earned thereon. The inability of the Fund to make intended
security purchases due to settlement problems could cause the Fund to miss
attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the
Fund due to subsequent declines in value of the portfolio security or, if the
Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser.
In many foreign countries, there is less government supervision and
regulation of business and industry practices, stock exchanges, brokers and
listed companies than in the United States. There is an increased risk,
therefore, of uninsured loss due to lost, stolen, or counterfeit stock
certificates. In addition, the foreign securities markets of many of the
countries in which the Fund may invest may also be smaller, less liquid, and
subject to greater price volatility than those in the United States. The Fund
may invest in Eastern European countries, which involves special risks that
are described under "Risk Factors" in the SAI.
Prior governmental approval of foreign investments may be required under
certain circumstances in some developing countries, and the extent of foreign
investment in domestic companies may be subject to limitation in other
developing countries. Foreign ownership limitations also may be imposed by the
charters of individual companies in developing countries to prevent, among
other concerns, violation of foreign investment limitations.
Repatriation of investment income, capital and proceeds of sales by foreign
investors may require governmental registration and/or approval in some
developing countries. The Fund could be adversely affected by delays in or a
refusal to grant any required governmental registration or approval for such
repatriation.
Further, the economies of developing countries generally are heavily
dependent upon international trade and, accordingly, have been and may
continue to be adversely affected by trade barriers, exchange controls,
managed adjustments in relative currency values and other protectionist
measures imposed or negotiated by the countries with which they trade. These
economies also have been and may continue to be adversely affected by economic
conditions in the countries with which they trade.
Depositary Receipts may not necessarily be denominated in the same currency
as the underlying securities into which they may be converted. In addition,
the issuers of the securities underlying unsponsored Depositary Receipts are
not obligated to disclose material information in the United States and,
therefore, there may be less information available regarding such issuers and
there may not be a correlation between such information and the market value
of the Depositary Receipts. Depositary Receipts also involve the risks of
other investments in foreign securities, as discussed above.
The Fund is authorized to invest in medium quality or high-risk, lower
quality debt securities that are rated between BBB and as low as CCC by
Standard & Poor's Corporation ("S&P") and between Baa and as low as Caa by
Moody's Investors Service, Inc. ("Moody's") or, if unrated, are of equivalent
investment quality as determined by the Investment Manager. As an operating
policy, which may be changed by the Board of Directors without Shareholder
approval, the Fund will not invest more than 5% of its total assets in debt
securities rated lower than BBB by S&P or Baa by Moody's. See "Investment
Objectives and Policies--Debt Securities" in the SAI for descriptions of debt
securities rated BBB by S&P and Baa by Moody's. The Board may consider a
change in this operating policy if, in its judgment, economic conditions
change such that a higher level of investment in high-risk, lower quality debt
securities would be consistent with the interests of the Fund and its
Shareholders. High-risk, lower quality debt securities, commonly referred to
as "junk bonds," 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 obligation and may be in default. Unrated
debt securities are not necessarily of lower quality than rated securities but
they may not be attractive to as many buyers. Regardless of rating levels, all
debt securities considered for purchase (whether rated or unrated) will be
carefully analyzed by the Investment Manager to insure, to the extent
possible, that the planned investment is sound. The Fund may, from time to
time, purchase defaulted debt securities if, in the opinion of the Investment
Manager, the issuer may resume interest payments in the near future. The Fund
will not invest more than 10% of its total assets in defaulted debt
securities, which may be illiquid.
6
<PAGE>
The Fund usually effects currency exchange transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign exchange market.
However, some price spread on currency exchange (to cover service charges)
will be incurred when the Fund converts assets from one currency to another.
There are further risk considerations, including possible losses through the
holding of securities in domestic and foreign custodial banks and
depositories, described in the SAI.
HOW TO BUY SHARES OF THE FUND
Shares of the Fund may be purchased at the Offering Price through any broker
which has a dealer agreement with Franklin Templeton Distributors, Inc.
("FTD"), the Principal Underwriter for the Shares of the Fund, or directly
from FTD upon receipt by FTD of a completed Shareholder Application and check.
Shares of both classes of the Fund are offered at their respective public
Offering Prices, which are determined by adding the net asset value per Share
plus a front-end sales charge, next computed (i) after the Shareholder's
securities dealer receives the order which is promptly transmitted to the Fund
or (ii) after receipt of an order by mail from the Shareholder directly in
proper form (which generally means a completed Shareholder Application
accompanied by negotiable check). The minimum initial investment is $100, and
subsequent investments must be $25 or more. These minimums may be waived when
the Shares are being purchased through retirement plans providing for regular
periodic investments, as described below under "Retirement Plans."
DIFFERENCES BETWEEN CLASS I AND CLASS II. The differences between Class I
and Class II Shares lie primarily in their front-end and contingent deferred
sales charges and Rule 12b-1 fees as described below.
Class I. All Fund Shares outstanding before the implementation of the
multiclass structure have been redesignated as Class I Shares, and will retain
their previous rights and privileges. Voting rights of each class will be the
same on matters affecting the Fund as a whole, but each will vote separately
on matters affecting its class. Class I Shares are generally subject to a
variable sales charge upon purchase and not subject to any sales charge upon
redemption. Class I Shares are subject to Rule 12b-1 fees of up to an annual
maximum of 0.25% of average daily net assets of such Shares. With this
multiclass structure, Class I Shares have higher front-end sales charges than
Class II Shares and comparatively lower Rule 12b-1 fees. Class I Shares may be
purchased at reduced front-end sales charges, or at net asset value if certain
conditions are met. In most circumstances, contingent deferred sales charges
will not be assessed against redemptions of Class I Shares. See "Management of
the Fund" and "How to Sell Shares of the Fund" for more information.
Class II. The current public Offering Price of Class II Shares is equal to
the net asset value per Share, plus a front-end sales charge of 1% of the
amount invested. Class II Shares are also subject to a contingent deferred
sales charge of 1% if Shares are redeemed within 18 months of the calendar
month of the purchase. In addition, Class II Shares are subject to Rule 12b-1
fees of up to a maximum of 1% per annum of average daily net assets of such
Shares, 0.75% of which will be retained by FTD during the first year of
investment. Class II Shares have lower front-end sales charges than Class I
Shares and comparatively higher Rule 12b-1 fees. See "How to Sell Shares of
the Fund--Contingent Deferred Sales Charge."
Purchases of Class II Shares are limited to purchases below $1 million. Any
purchases of $1 million or more will automatically be invested in Class I
Shares, since that is more beneficial to investors. Such purchases, however,
may be subject to a contingent deferred sales charge. Investors may exceed $1
million in Class II Shares by cumulative purchases over a period of time.
Investors who intend to make investments exceeding $1 million, however, should
consider purchasing Class I Shares through a Letter of Intent instead of
purchasing Class II Shares.
DECIDING WHICH CLASS TO PURCHASE. Investors should carefully evaluate their
anticipated investment amount and time horizon prior to determining which
class of Shares to purchase. Generally, an investor who expects to invest less
than $50,000 in the Franklin
7
<PAGE>
Templeton Funds and who expects to make substantial redemptions within
approximately six years or less of investment should consider purchasing Class
II Shares. However, the higher Rule 12b-1 fees on the Class II Shares will
result in higher operating expenses, which will accumulate over time to
outweigh the difference in front-end sales charges, and will lower income
dividends for Class II Shares. For this reason, Class I Shares may be more
attractive to long-term investors even if no sales charge reductions are
available to them.
Investors who qualify to purchase Class I Shares at reduced sales charges
definitely should consider purchasing Class I Shares, especially if they
intend to hold their Shares approximately six years or more. Investors who
qualify to purchase Class I Shares at reduced sales charges but who intend to
hold their Shares less than approximately six years should evaluate whether it
is more economical to purchase Class I Shares through a Letter of Intent or
under the cumulative quantity discount rather than purchasing Class II Shares.
INVESTORS INVESTING $1 MILLION OR MORE IN A SINGLE PAYMENT AND OTHER INVESTORS
WHO QUALIFY TO PURCHASE CLASS I SHARES AT NET ASSET VALUE WILL BE PRECLUDED
FROM PURCHASING CLASS II SHARES.
Each class represents the same interest in the investment portfolio of the
Fund and has the same rights, except that each class has a different sales
charge, bears the separate expenses of its Rule 12b-1 distribution plan, and
has exclusive voting rights with respect to such plan. The two classes also
have separate exchange privileges.
Each class also has a separate schedule for compensating securities dealers
for selling Fund Shares. Investors should take all of the factors regarding an
investment in each class into account before deciding which class of Shares to
purchase.
OFFERING PRICE--CLASS I. The sales charge for Class I Shares is a variable
percentage of the Offering Price depending upon the amount of the sale. The
method of calculating net asset value per Share is described below under "Net
Asset Value."
The price to the public on purchases of Class I Shares made by a single
purchaser, by an individual together with his or her spouse and their children
under age 21 and their grandchildren under age 21, or by a single trust or
fiduciary account other than an employee benefit plan holding Shares of the
Fund on or before February 1, 1995, is the net asset value per Share plus a
sales charge not exceeding 5.75% of the Offering Price (equivalent to 6.10% of
the net asset value), which is reduced on larger sales as shown below.
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
--------------------------------------------
AS A PERCENTAGE OF AS A PERCENTAGE OF NET PORTION OF TOTAL
AMOUNT OF SALE OFFERING PRICE OF THE ASSET VALUE OF THE OFFERING PRICE
AT OFFERING PRICE SHARES PURCHASED SHARES PURCHASED RETAINED BY DEALERS/1/,/3/
- ----------------- --------------------- ---------------------- --------------------------
<S> <C> <C> <C>
Less than $50,000............................. 5.75% 6.10% 5.00%
$50,000 but less than $100,000................ 4.50% 4.71% 3.75%
$100,000 but less than $250,000............... 3.50% 3.63% 2.80%
$250,000 but less than $500,000............... 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000............. 2.00% 2.04% 1.60%
$1,000,000 or more............................ none none (see below)/2/
</TABLE>
- -------
/1/Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
/2/The following commissions will be paid by FTD, from its own resources, to
securities dealers who initiate and are responsible for purchases of $1
million or more: 1% on sales of $1 million but less than $2 million, plus
0.80% on sales of $2 million but less than $3 million, plus 0.50% on sales
of $3 million but less than $50 million, plus 0.25% on sales of $50 million
but less than $100 million, plus 0.15% on sales of $100 million or more.
Dealer concession breakpoints are reset every 12 months for purposes for
additional purchases.
/3/At the discretion of FTD, all sales charges may at times be reallowed to the
securities dealer. If 90% or more of the sales commission is reallowed, such
securities dealer may be deemed to be an underwriter as that term is defined
in the Securities Act of 1933.
8
<PAGE>
No front-end sales charge applies to investments of $1 million or more, but
a contingent deferred sales charge of 1% is imposed on certain redemptions of
all or a portion of investments of $1 million or more within 12 months of the
calendar month of such investments ("contingency period"). See "How to Sell
Shares of the Fund--Contingent Deferred Sales Charge."
The size of a transaction which determines the applicable sales charge on
the purchase of Class I Shares is determined by adding the amount of the
Shareholder's current purchase plus the cost or current value (whichever is
higher) of a Shareholder's existing investment in one or more of the funds in
the Franklin Group of Funds (R) and the Templeton Family of Funds. Included
for these aggregation purposes are (i) the mutual funds in the Franklin Group
of Funds (R) except Franklin Valuemark Funds and Franklin Government
Securities Trust (the "Franklin Funds"); (ii) other investment products
underwritten by FTD or its affiliates (although certain investments may not
have the same schedule of sales charges and/or may not be subject to
reduction); and (iii) the U.S.-registered mutual funds in the Templeton Family
of Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund (the "Templeton
Funds"). (Franklin Funds and Templeton Funds are collectively referred to as
the "Franklin Templeton Funds.") Sales charge reductions based upon aggregate
holdings of (i), (ii) and (iii) above ("Franklin Templeton Investments") may
be effective only after notification to FTD that the investment qualifies for
a discount.
Other Payments to Securities Dealers. FTD, or one of its affiliates, may
make payments, from its own resources, of up to 1% of the amount purchased, to
securities dealers who initiate and are responsible for purchases made at net
asset value by certain designated retirement plans (as defined below)
(excluding IRA and IRA rollovers), certain non-designated plans (as defined
below), certain trust companies and trust departments of banks and certain
retirement plans of organizations with collective retirement plan assets of
$10 million or more. See definitions under "Description of Special Net Asset
Value Purchases" below and as set forth in the SAI.
A sales charge of 4% of the Offering Price (4.17% of the net asset value) is
applicable to all purchases of Shares made for any qualified or non-qualified
employee benefit plan account which is a Shareholder in the Fund on or before
February 1, 1995. Of the 4% sales charge applicable to such purchases, 3.20%
of the Offering Price will be retained by dealers.
Cumulative Quantity Discount. The schedule of reduced sales charges also may
be applied to qualifying sales of Class I Shares on a cumulative basis. For
this purpose, the dollar amount of the sale is added to the higher of (i) the
value (calculated at the applicable Offering Price) or (ii) the purchase
price, of Franklin Templeton Investments. The cumulative quantity discount
applies to Franklin Templeton Investments owned at the time of purchase by the
purchaser, his or her spouse, their children under age 21, and their
grandchildren under age 21. In addition, the aggregate investments of a
trustee or other fiduciary account (for an account under exclusive investment
authority) may be considered in determining whether a reduced sales charge is
available, even though there may be a number of beneficiaries of the account.
For example, if the investor held Class I Shares valued at $40,000 (or, if
valued at less than $40,000, had been purchased for $40,000) and purchased an
additional $20,000 of the Fund's Class I Shares, the sales charge for the
$20,000 purchase would be at the rate of 4.50%. It is FTD's policy to give
investors the best sales charge rate possible; however, there can be no
assurance than an investor will receive the appropriate discount unless, at
the time of placing the purchase order, the investor or the dealer makes a
request for the discount and gives FTD sufficient information to determine
whether the purchase will qualify for the discount. On telephone orders from
dealers for the purchase of Class I Shares to be registered in "street name,"
FTD will accept the dealer's instructions with respect to the applicable sales
charge rate to be applied. The cumulative quantity discount may be amended or
terminated at any time.
Letter of Intent. An Investor may be eligible for reduced sales charges on
all investments in Class I Shares by means of a Letter of Intent ("LOI") which
expresses the investor's intention to invest a certain amount within a 13-
month period in Class I Shares of the Fund or any other Franklin Templeton
Fund. See the Shareholder Application. Except for certain employee benefit
plans, the minimum initial investment under an LOI is 5% of the total LOI
amount. Except for Shares purchased by certain employee benefit plans, Shares
purchased with the first 5% of such amount will be held in escrow to secure
payment of the higher sales charge applicable to the Shares actually purchased
if the full amount indicated is not purchased, and such escrowed Shares will
be involuntarily redeemed
9
<PAGE>
to pay the additional sales charge, if necessary. A purchase not originally
made pursuant to an LOI may be included under a subsequent LOI executed within
90 days of the purchase. Any redemptions made by Shareholders, other than by
certain employee benefit plans, during the 13-month period will be subtracted
from the amount of the purchases for purposes of determining whether the terms
of the LOI have been completed. For a further description of the LOI, see
"Purchase, Redemption and Pricing of Shares -- Letter of Intent" in the SAI.
Group Purchases. An individual who is a member of a qualified group may also
purchase Class I Shares of the Fund at the reduced sales charge applicable to
the group as a whole. The sales charge is based upon the aggregate dollar
value of Class I Shares previously purchased and still owned by the group,
plus the amount of the current purchase. For example, if members of the group
had previously invested and still held $80,000 of Class I Shares and now were
investing $25,000, the sales charge would be 3.50%. Information concerning the
current sales charge applicable to a group may be obtained by contacting FTD.
A "qualified group" is one which (i) has been in existence for more than six
months, (ii) has a purpose other than acquiring Fund Shares at a discount, and
(iii) satisfies uniform criteria which enable FTD to realize economies of
scale in its costs of distributing Shares. A qualified group must have more
than 10 members, must be available to arrange for group meetings between
representatives of the Fund or FTD and the members, must agree to include
sales and other materials related to the Fund in its publications and mailings
to members at reduced or no cost to FTD, and must seek to arrange for payroll
deduction or other bulk transmission of investments to the Fund.
If an investor selects a payroll deduction plan, subsequent investments will
be automatic and will continue until such time as the investor notifies the
Fund and the investor's employer to discontinue further investments. Due to
the varying procedures to prepare, process and forward the payroll deduction
information to the Fund, there may be a delay between the time of the payroll
deduction and the time the money reaches the Fund. The investment in the Fund
will be made at the Offering Price per Share determined on the day that both
the check and payroll deduction data are received in required form by the
Fund.
OFFERING PRICE--CLASS II. Unlike Class I Shares, the front-end sales charges
and dealer concessions for Class II Shares do not vary depending on the amount
of purchase. The total sales charges or underwriting commissions and dealer
concessions for Class II Shares are set forth below.
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
--------------------------------------------
AS A PERCENTAGE OF AS A PERCENTAGE OF PORTION OF TOTAL
AMOUNT OF SALE OFFERING PRICE OF THE NET ASSET VALUE OF THE OFFERING PRICE
AT OFFERING PRICE SHARES PURCHASED SHARES PURCHASED RETAINED BY DEALERS*
- ----------------- --------------------- ---------------------- --------------------
<S> <C> <C> <C>
any amount (less than $1
million)............... 1.00% 1.01% 1.00%
</TABLE>
- -------
* FTD, or one of its affiliates, may make additional payments to securities
dealers, from its own resources, of up to 1% of the amount invested. During
the first year following a purchase of Class II Shares, FTD will keep a
portion of the Rule 12b-1 fees assessed on those Shares to partially recoup
fees FTD pays to securities dealers.
Class II Shares redeemed within 18 months of their purchase will be assessed
a contingent deferred sales charge of 1% on the lesser of the then-current net
asset value or the net asset value of such Shares at the time of purchase,
unless such charge is waived as described under "How To Sell Shares of the
Fund--Contingent Deferred Sales Charge."
NET ASSET VALUE PURCHASES (BOTH CLASSES). Class I Shares may be purchased
without the imposition of a front-end sales charge ("net asset value") or a
contingent deferred sales charge by (i) officers, trustees, directors, and
full-time employees of the Fund, any of the Franklin Templeton Funds, or
Franklin Resources, Inc. and its subsidiaries (the "Franklin Templeton
Group"), and their spouses and family members, including any subsequent
payments made by such parties after cessation of employment; (ii) companies
exchanging Shares with or selling assets pursuant to a merger, acquisition or
exchange offer; (iii) insurance company separate accounts for pension plan
contracts; (iv) accounts managed by the Franklin Templeton Group; (v)
shareholders of Templeton
10
<PAGE>
Institutional Funds, Inc. reinvesting redemption proceeds from that fund under
an employee benefit plan qualified under Section 401 of the Internal Revenue
Code of 1986, as amended (the "Code"), in Shares of the Fund; (vi) certain
unit investment trusts and unit holders of such trusts reinvesting their
distributions from the trusts in the Fund; (vii) registered securities dealers
and their affiliates, for their investment account only; and (viii) registered
personnel and employees of securities dealers and their affiliates, and by
their spouses and family members, in accordance with the internal policies and
procedures of the employing securities dealer.
For either Class I or Class II, the same class of Shares of the Fund may be
purchased at net asset value with the proceeds from (i) a redemption of Shares
of the Fund or shares of any other Franklin Templeton Fund, except any of the
Franklin Templeton money market funds (unless the redemption proceeds are from
Class I shares of a fund with a lower initial sales charge than that charged
by the Fund and have been held in that Fund for less than six months), or
(ii) a dividend or distribution paid by any of the Franklin Templeton Funds,
within 365 days after the date of the redemption or dividend or distribution.
See "How to Sell Shares of the Fund--Reinstatement Privilege." Class II
Shareholders may also invest such distributions at net asset value in a Class
I Franklin Templeton Fund.
Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by investors who have, within
the past 60 days, redeemed an investment in a mutual fund which is not part of
the Franklin Templeton Funds, which was subject to a front-end sales charge or
a contingent deferred sales charge and which has investment objectives similar
to those of the Fund.
Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by broker-dealers who have
entered into a supplemental agreement with FTD, or by registered investment
advisers affiliated with such broker-dealers, on behalf of their clients who
are participating in a comprehensive fee program (also known as a wrap fee
program).
Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by anyone who has taken a
distribution from an existing retirement plan already invested in the Franklin
Templeton Funds (including former participants of the Franklin Templeton
Profit Sharing 401(k) plan), to the extent of such distribution. In order to
exercise this privilege, a written order for the purchase of Shares of the
Fund must be received by Franklin Templeton Trust Company ("FTTC"), the Fund,
or Franklin Templeton Investor Services, Inc. (the "Transfer Agent") within
365 days after the plan distribution.
Class I Shares may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge by any state, county or city,
or any instrumentality, department, authority or agency thereof which has
determined that the Fund is a legally permissible investment and which is
prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
management investment company (an "eligible governmental authority"). SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISERS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any,
of various payments made by the Fund or its investment manager on arbitrage
rebate calculations. If an investment by an eligible governmental authority at
net asset value is made through a securities dealer who has executed a dealer
agreement with FTD, FTD or one of its affiliates may make a payment, out of
its own resources, to such securities dealer in an amount not to exceed 0.25%
of the amount invested. Contact Franklin Templeton Institutional Services for
additional information.
DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES. Class I Shares may also be
purchased at net asset value and without the imposition of a contingent
deferred sales charge by certain designated retirement plans, including
profit-sharing, pension, 401(k) and simplified employee pension plans
("designated plans"), subject to minimum requirements with respect to number
of employees or amount of purchase, which may be established by FTD.
Currently, those criteria require that the employer establishing the plan have
200 or more employees or that the amount invested or to be invested during the
subsequent 13-month period in the Fund or in any of the Franklin Templeton
Investments totals at least $1 million. Employee benefit plans not designated
above or qualified under Section 401 of the Code ("non-designated plans") may
be afforded the same privilege if they meet the above requirements as well as
11
<PAGE>
the uniform criteria for qualified groups previously described under "Group
Purchases," which enable FTD to realize economies of scale in its sales
efforts and sales-related expenses.
Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trust companies and bank
trust departments for funds over which they exercise exclusive discretionary
investment authority and which are held in a fiduciary, agency, advisory,
custodial or similar capacity. Such purchases are subject to minimum
requirements with respect to amount of purchase, which may be established by
FTD. Currently, those criteria require that the amount invested or to be
invested during the subsequent 13-month period in the Fund or any of the
Franklin Templeton Investments must total at least $1 million. Orders for such
accounts will be accepted by mail accompanied by a check, or 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 such order.
Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trustees or other
fiduciaries purchasing securities for certain retirement plans of
organizations with collective retirement plan assets of $10 million or more,
without regard to where such assets are currently invested.
Refer to the SAI for further information regarding net asset value purchases
of Class I Shares.
ADDITIONAL DEALER COMPENSATION (BOTH CLASSES). FTD, or one of its
affiliates, from its own resources, may also provide additional compensation
to securities dealers in connection with sales of shares of the Franklin
Templeton Funds. Compensation may include financial assistance to securities
dealers in connection with conferences, sales or training programs for their
employees, seminars for the public, advertising, sales campaigns and/or
shareholder services and programs regarding one or more of the Franklin
Templeton Funds and other dealer-sponsored programs or events. In some
instances, this compensation may be made available only to certain securities
dealers whose representatives have sold or are expected to sell significant
amounts of shares of the Franklin Templeton Funds. Compensation may include
payment for travel expenses, including lodging, incurred in connection with
trips taken by invited registered representatives and members of their
families to locations within or outside of the United States for meetings or
seminars of a business nature. Securities dealers may not use sales of the
Fund's Shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. In addition, FTD or its
affiliates may make ongoing payments to brokerage firms, financial
institutions (including banks) and others to facilitate the administration and
servicing of shareholder accounts. None of the aforementioned additional
compensation is paid for by the Fund or its Shareholders.
Ongoing payments will be made to qualifying dealers at the annual rate of
0.25% of the average daily net asset value of Class I Shares (annual rate of
0.15% of the average daily net asset value of the Fund Shares prior to January
1, 1993), and 1% of the average daily net asset value of Class II Shares,
registered in the name of that broker-dealer as nominee or held in a
Shareholder account that designates that broker-dealer as dealer of record.
These payments are made in order to promote selling efforts and to compensate
dealers for providing certain services, including processing purchase and
redemption transactions, establishing Shareholder accounts and providing
certain information and assistance with respect to the Fund. For purchases of
Class I Shares on or after February 1, 1995 for which FTD advanced a
commission to a securities dealer, the dealer will receive ongoing payments
beginning in the thirteenth month after the date of purchase. For all
purchases of Class II Shares, the dealer will receive payments representing a
service fee (0.25% of average daily net asset value of the Shares) beginning
in the first month after the date of the purchase, and will receive additional
payments representing compensation for distribution (0.75% of average daily
net asset value of the Shares) beginning in the thirteenth month after the
date of the purchase, and beginning May 1, 1997 for exchanges from Templeton
American Trust, Inc. if the exchanged shares were purchased prior to May 1,
1995.
PURCHASING CLASS I AND CLASS II SHARES. When placing purchase orders,
investors should clearly indicate which class of Shares they intend to
purchase. A purchase order that fails to specify a class will automatically be
invested in Class I Shares. Purchases of $1 million or more in a single
payment will be invested in Class I Shares. There are no conversion features
attached to either class of Shares.
12
<PAGE>
Investors who qualify to purchase Class I Shares at net asset value should
purchase Class I rather than Class II Shares. See the section "Net Asset Value
Purchases (Both Classes)" and "Description of Special Net Asset Value
Purchases" above for a discussion of when Shares may be purchased at net asset
value.
As to telephone orders placed with FTD by dealers, the dealer must receive
the investor's order before the close of the New York Stock Exchange ("NYSE")
and transmit it to FTD by 5:00 p.m., New York time, for the investor to
receive that day's Offering Price. Payment for such orders must be by check in
U.S. currency and must be promptly submitted to FTD. Orders mailed to FTD by
dealers or individual investors are effected at the net asset value of the
Fund's Shares next computed after the purchase order accompanied by payment
has been received by FTD. Such payment must be by check in U.S. currency drawn
on a commercial bank in the U.S. and, if over $100,000, may not be deemed to
have been received until the proceeds have been collected unless the check is
certified or issued by such bank. Any subscription may be rejected by FTD or
by the Fund.
The Fund may impose a $10 charge against a Shareholder account in the event
that a check or draft submitted for the purchase of Fund Shares is returned
unpaid to the Fund.
Investors should promptly check the confirmation advice that is mailed after
each purchase (or redemption) in order to insure that it has been accurately
recorded in the investor's account.
AUTOMATIC INVESTMENT PLAN. Investors may accumulate Fund Shares regularly
each month by means of automatic debits to their checking accounts ($25
minimum). Forms for this purpose are in the Shareholder Application in this
Prospectus. Such a plan is voluntary and may be discontinued by written notice
to FTD, which must be received 10 days prior to the collection date, or by FTD
upon written notice to the investor at least 30 days prior to the collection
date.
INSTITUTIONAL ACCOUNTS. Institutional investors will likely be required to
complete an institutional account application. There may be additional methods
of opening accounts and purchasing, redeeming or exchanging Shares of the Fund
available for institutional accounts. To obtain an institutional account
application or additional information regarding institutional accounts,
contact Franklin Templeton Institutional Services at 1-800-321-8563.
ACCOUNT STATEMENTS. Shareholder accounts are opened in accordance with the
Shareholder's registration instructions. Transactions in the account, such as
additional investments and dividend reinvestments, will be reflected on
regular confirmation statements from the Transfer Agent.
TEMPLETON STAR SERVICE. From a touch-tone phone, Templeton and Franklin
shareholders may access an automated system (day or night) which offers the
following features:
By calling the Templeton STAR Service, shareholders may obtain current price
and yield information specific to a Templeton Fund, regardless of class;
obtain account information; and request duplicate confirmation or year-end
statements and money fund checks, if applicable.
By calling the Franklin TeleFACTS system, Class I shareholders may obtain
current price, yield or other performance information specific to a Class I
Franklin Fund; process an exchange into an identically registered Class I
Franklin account; obtain account information; and request duplicate
confirmation or year-end statements, money fund checks, if applicable, and
deposit slips.
Share prices and account information specific to Templeton Class I or II
shares and Franklin Class II shares may also be accessed on TeleFACTS by
Franklin and Templeton Class I and Class II shareholders.
The Templeton STAR Service is accessible by calling 1-800-654-0123. The
TeleFACTS system is accessible by calling 1-800-247-1753. Templeton Class I
and Class II Share codes for the Fund, which will be needed to access system
information, are 104 and 204,
13
<PAGE>
respectively. The system's automated operator will prompt the caller with easy
to follow step-by-step instructions from the main menu. Other features may be
added in the future.
RETIREMENT PLANS. Shares of the Fund may be purchased through various
retirement plans including the following plans for which FTTC or its affiliate
acts as trustee or custodian: IRAs, Simplified Employee Pensions, 403(b)
plans, qualified plans for corporations, self-employed individuals and
partnerships, and 401(k) plans. A plan document must be adopted in order for a
retirement plan to be in existence. For further information about any of the
plans, agreements, applications and annual fees, contact FTD. To determine
which retirement plan is appropriate, an investor should contact his or her
tax adviser.
NET ASSET VALUE. The net asset value per Share of each class of the Fund is
determined as of the scheduled closing time of the NYSE (generally 4:00 p.m.
New York time) each day that the NYSE is open for trading, by dividing the
value of the Fund's securities plus any cash and other assets (including
accrued interest and dividends receivable) less all liabilities (including
accrued expenses) by the number of Shares outstanding, adjusted to the nearest
whole cent. A security listed or traded on a recognized stock exchange or
NASDAQ is valued at its last sale price on the principal exchange on which the
security is traded. The value of a foreign security is determined in its
national currency as of the close of trading on the foreign exchange on which
it is traded or as of the scheduled closing time of the NYSE (generally 4:00
p.m., New York time), if that is earlier, and that value is then converted
into its U.S. dollar equivalent at the foreign exchange rate in effect at
noon, New York time, on the day the value of the foreign security is
determined. If no sale is reported at that time, the mean between the current
bid and asked price is used. Occasionally, events which affect the values of
such securities and such exchange rates may occur between the times at which
they are determined and the close of the NYSE, and will therefore not be
reflected in the computation of the Fund's net asset value. If events
materially affecting the value of such securities occur during such period,
then these securities will be valued at fair value as determined by the
management and approved in good faith by the Board of Directors. All other
securities for which over-the-counter market quotations are readily available
are valued at the mean between the current bid and asked price. Securities for
which market quotations are not readily available and other assets are valued
at fair value as determined by the management and approved in good faith by
the Board of Directors.
Each of the Fund's classes will bear, pro-rata, all of the common expenses
of the Fund. The net asset value of all outstanding Shares of each class of
the Fund will be computed on a pro-rata basis for each outstanding Share based
on the proportionate participation in the Fund represented by the value of
Shares of such classes, except that the Class I and Class II Shares will bear
the Rule 12b-1 expenses payable under their respective plans. Due to the
specific distribution expenses and other costs that will be allocable to each
class, the dividends paid to each class of the Fund may vary.
EXCHANGE PRIVILEGE
A Shareholder may exchange Shares for the same class of shares of other
Franklin Templeton Funds which are eligible for sale in the Shareholder's
state of residence and in conformity with such fund's stated eligibility
requirements and investment minimums. Some funds, however, may not offer Class
II shares. Class I Shares may be exchanged for Class I shares of any Franklin
Templeton Funds. Class II Shares may be exchanged for Class II shares of any
Franklin Templeton Funds. No exchanges between different classes of shares
will be allowed. A contingent deferred sales charge will not be imposed on
exchanges. If the exchanged Shares were subject to a contingent deferred sales
charge in the original fund purchased, and Shares are subsequently redeemed
within 12 months (Class I Shares) or 18 months (Class II Shares) of the
calendar month of the original purchase date, a contingent deferred sales
charge will be imposed. The period will be tolled (or stopped) for the period
Class I Shares are exchanged into and held in a Franklin Templeton money
market fund. See also "How to Sell Shares of the Fund--Contingent Deferred
Sales Charge."
Exchange purchases are subject to the minimum investment requirements of the
fund purchased and no sales charge generally applies. Exchanges of the same
class of shares are made on the basis of the net asset values of the class
involved, except as set
14
<PAGE>
forth below. Exchanges of shares of a class which were originally purchased
without a sales charge will be charged a sales charge in accordance with the
terms of the prospectus of the fund and the class of shares being purchased,
unless the original investment on which no sales charge was paid was
transferred in from a fund on which the investor paid a sales charge.
Exchanges of shares from the Franklin Templeton money market funds are subject
to applicable sales charges on the funds being purchased, unless the Franklin
Templeton money market fund shares were acquired by an exchange from a fund
having a sales charge, or by reinvestment of dividends or capital gain
distributions. Exchanges of Class I shares of the Fund which were purchased
with a lower sales charge to a fund which has a higher sales charge will be
charged the difference, unless the shares were held in the original fund for
at least six months prior to executing the exchange. All exchanges are
permitted only after at least 15 days have elapsed from the date of the
purchase of the Shares to be exchanged.
A Shareholder may exchange Shares by writing to the Transfer Agent (see "How
to Sell Shares of the Fund"), by contacting his or her investment dealer or--
if the Shareholder Application indicates that the Shareholder has not declined
the option--by telephoning 1-800-632-2301. Telephone exchange instructions
must be received by FTD by the scheduled closing time of the NYSE (generally
4:00 p.m., New York time). Telephonic exchanges can involve only Shares in
non-certificated form. Shares held in certificate form are not eligible, but
may be returned and qualify for these services. All accounts involved in a
telephonic exchange must have the same registration and dividend option as the
account from which the Shares are being exchanged. The Fund and the Transfer
Agent will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Please refer to "Telephone
Transactions--Verification Procedures." Forms for declining the telephone
exchange privilege and prospectuses of the other funds in the Franklin
Templeton Group may be obtained from FTD. Exchange redemptions and purchases
are processed simultaneously at the share prices next determined after the
exchange order is received. (See "How to Buy Shares of the Fund--Offering
Price.") A gain or loss for tax purposes generally will be realized upon the
exchange, depending on the tax basis of the Shares redeemed.
This exchange privilege is available only in states where shares of the fund
being acquired may legally be sold and may be modified, limited or terminated
at any time by the Fund upon 60 days' written notice. A Shareholder who wishes
to make an exchange should first obtain and review a current prospectus of the
fund into which he or she wishes to exchange. Broker-dealers who process
exchange orders on behalf of their customers may charge a fee for their
services. Such fee may be avoided by making requests for exchange directly to
the Transfer Agent.
If a substantial portion of the Fund's Shareholders should, within a short
period, elect to redeem their Shares of the Fund pursuant to the exchange
privilege, the Fund might have to liquidate 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 should occur, it is the general policy of the
Fund to initially invest this money in short-term, interest-bearing money
market instruments, unless it is felt that attractive investment opportunities
consistent with the Fund's investment objective exist immediately.
Subsequently, this money will be withdrawn from such short-term money market
instruments and invested in portfolio securities in as orderly a manner as is
possible when attrractive investment opportunities arise.
EXCHANGES OF CLASS I SHARES. The contingency period of Class I Shares will
be tolled (or stopped) for the period such Shares are exchanged into and held
in a Franklin Templeton Class I money market fund. If a Class I account has
Shares subject to a contingent deferred sales charge, Class I Shares will be
exchanged into the new account on a "first-in, first-out" basis. See also "How
to Sell Shares of the Fund--Contingent Deferred Sales Charge."
EXCHANGES OF CLASS II SHARES. When an account is composed of Class II Shares
subject to the contingent deferred sales charge, and Shares that are not, the
Shares will be transferred proportionately into the new fund. Shares received
from reinvestment of dividends and capital gains are referred to as "free
Shares," Shares which were originally subject to a contingent deferred sales
charge but to which the contingent deferred sales charge no longer applies are
called "matured Shares," and Shares still subject to the contingent deferred
sales charge are referred to as "CDSC liable Shares." CDSC liable Shares held
for different periods of time are
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considered different types of CDSC liable Shares. For instance, if a
Shareholder has $1,000 in free Shares, $2,000 in matured Shares, and $3,000 in
CDSC liable Shares, and the Shareholder exchanges $3,000 into a new fund, $500
will be exchanged from free Shares, $1,000 from matured Shares, and $1,500
from CDSC liable Shares. Similarly, if CDSC liable Shares have been purchased
at different periods, a proportionate amount will be taken from Shares held
for each period. If, for example, the Shareholder holds $1,000 in Shares
bought three months ago, $1,000 bought six months ago, and $1,000 bought nine
months ago, and the Shareholder exchanges $1,500 into a new fund, $500 from
each of these Shares will be exchanged into the new fund.
The only money market fund exchange option available to Class II
Shareholders is the Franklin Templeton Money Fund II ("Money Fund II"), a
series of the Franklin Templeton Money Fund Trust. No drafts (checks) may be
written on Money Fund II accounts, nor may Shareholders purchase shares of
Money Fund II directly. Class II Shares exchanged for shares of Money Fund II
will continue to age and a contingent deferred sales charge will be assessed
if CDSC liable Shares are redeemed. No other money market funds are available
for Class II Shareholders for exchange purposes. Class I Shares may be
exchanged for shares of any of the money market funds in the Franklin
Templeton Funds except Money Fund II. Draft writing privileges and direct
purchases are allowed on these money market funds as described in their
respective prospectuses.
To the extent Shares are exchanged proportionately, as opposed to another
method, such as "first-in, first-out," or free Shares followed by CDSC liable
Shares, the exchanged Shares may, in some instances, be CDSC liable even
though a redemption of such Shares, as discussed elsewhere herein, may no
longer be subject to a CDSC. The proportional method is believed by management
to more closely meet and reflect the expectations of Class II Shareholders in
the event Shares are redeemed during the contingency period. For federal
income tax purposes, the cost basis of Shares redeemed or exchanged is
determined under the Code without regard to the method of transferring Shares
chosen by the Fund for purposes of exchanging or redeeming Shares.
TRANSFERS. Transfers between identically registered accounts in the same
fund and class are treated as non-monetary and non-taxable events, and are not
subject to a contingent deferred sales charge. The transferred Shares will
continue to age from the date of original purchase. Shares of each class will
be transferred on the same basis as described above for exchanges.
CONVERSION RIGHTS. It is not presently anticipated that Class II Shares will
be converted to Class I Shares. A Shareholder may, however, sell Class II
Shares and use the proceeds to purchase Class I Shares, subject to all
applicable sales charges.
EXCHANGES BY TIMING ACCOUNTS. In the case of market timing or allocation
services ("Timing Accounts"), FTD will deduct an administrative service fee of
$5.00 per exchange. Timing Accounts generally include accounts administered so
as to redeem or purchase Shares based upon certain predetermined market
indicators. In accordance with the terms of their respective prospectuses,
certain funds in the Franklin Templeton Group do not accept or may place
differing limitations than those described below on exchanges by Timing
Accounts.
The Fund reserves the right to temporarily or permanently terminate the
exchange privilege or reject any specific purchase order for any Timing
Account or any person whose transactions seem to follow a timing pattern who:
(i) makes an exchange request out of the Fund within two weeks of an earlier
exchange request out of the Fund, (ii) makes more than two exchanges out of
the Fund per calendar quarter, or (iii) exchanges Shares equal in value to at
least $5 million, or more than 1% of the Fund's net assets. Accounts under
common ownership or control, including accounts administered so as to redeem
or purchase Shares based upon certain predetermined market indicators, will be
aggregated for purposes of the exchange limits.
In addition, the Fund reserves the right to refuse the purchase side of
exchange requests by any Timing Account, person, or group if, in the
Investment Manager's judgment, the Fund would be unable to invest effectively
in accordance with its investment objective and policies, or would otherwise
potentially be adversely affected. A Shareholder's exchanges into the Fund may
be restricted or
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refused if the Fund receives or anticipates simultaneous orders affecting
significant portions of the Fund's assets. In particular, a pattern of
exchanges that coincides with a "market timing" strategy may be disruptive to
the Fund and therefore may be refused.
Finally, as indicated above, the Fund and FTD reserve the right to refuse
any order for the purchase of Shares.
HOW TO SELL SHARES OF THE FUND
Shares will be redeemed, without charge, on request of the Shareholder in
"Proper Order" to the Transfer Agent. "PROPER ORDER" MEANS THAT THE REQUEST TO
REDEEM MUST MEET ALL THE FOLLOWING REQUIREMENTS:
1. Except as provided below under "Redemptions by Telephone," it must be in
writing, signed by the Shareholder(s) exactly in the manner as the Shares are
registered, and must specify either the number of Shares, or the dollar amount
of Shares, to be redeemed and sent to Franklin Templeton Investor Services,
Inc., P.O. Box 33030, St. Petersburg, Florida 33733-8030;
2. The signature(s) of the redeeming Shareholder(s) must be guaranteed by an
"eligible guarantor," including (a) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (b) national securities
exchanges, registered securities associations and clearing agencies; (c)
securities broker-dealers which are members of a national securities exchange
or a clearing agency or which have minimum net capital of $100,000; or (d)
institutions that participate in the Securities Transfer Agent Medallion
Program ("STAMP") or other recognized signature medallion program. A notarized
signature will not be sufficient for the request to be in Proper Order. If the
Shares are registered in more than one name, the signature of each redeeming
Shareholder must be guaranteed. A signature guarantee is not required for
redemptions of $50,000 or less, requested by and payable to all Shareholders
of record, to be sent to the address of record for that account. However, the
Fund reserves the right to require signature guarantees on all redemptions. A
signature guarantee is required in connection with any written request for
transfer of Shares. Also, a signature guarantee is required if the Fund or the
Transfer Agent believes that a signature guarantee would protect against
potential claims based on the transfer instructions, including, for example,
when (i) the current address of one or more joint owners of an account cannot
be confirmed; (ii) multiple owners have a dispute or give inconsistent
instructions to the Fund; (iii) the Fund has been notified of an adverse
claim; (iv) the instructions received by the Fund are given by an agent, not
the actual registered owner; (v) the Fund determines that joint owners who are
married to each other are separated or may be the subject of divorce
proceedings; or (vi) the authority of a representative of a corporation,
partnership, association, or other entity has not been established to the
satisfaction of the Fund;
3. Any outstanding certificates must accompany the request together with a
stock power signed by the Shareholder(s), with signature(s) guaranteed as
described in Item 2 above;
4. Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction, require the following
documentation to be in proper form:
. Corporation--(i) Signature guaranteed letter of instruction from the
authorized officer(s) of the corporation, and (ii) a corporate
resolution in a form satisfactory to the Transfer Agent;
. Partnership--(i) Signature guaranteed letter of instruction from a
general partner and, if necessary, (ii) pertinent pages from the
partnership agreement identifying the general partners or other
documentation in a form satisfactory to the Transfer Agent;
. Trust--(i) Signature guaranteed letter of instruction from the
trustee(s), and (ii) a copy of the pertinent pages of the trust
document listing the trustee(s) or a certificate of incumbency if the
trustee(s) are not listed on the account registration;
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. Custodial (other than a retirement account) --Signature guaranteed
letter of instruction from the custodian;
. Accounts under court jurisdiction--Check court documents and the
applicable state law since these accounts have varying requirements,
depending upon the state of residence; and
5. Redemption of Shares held in a retirement plan for which FTTC or its
affiliate acts as trustee or custodian must conform to the distribution
requirements of the plan and the Fund's redemption requirements above.
Distributions from such plans are subject to additional requirements under the
Code, and certain documents (available from the Transfer Agent) must be
completed before the distribution may be made. For example, distributions from
retirement plans are subject to withholding requirements under the Code, and
the IRS Form W-4P (available from the Transfer Agent) may be required to be
submitted to the Transfer Agent with the distribution request, or the
distribution will be delayed. Franklin Templeton Investor Services, Inc. and
its affiliates assume no responsibility to determine whether a distribution
satisfies the conditions of applicable tax laws and will not be responsible
for any penalties assessed.
To avoid delay in redemption or transfer, Shareholders having questions
about these requirements should contact the Shareholder Services Department by
calling 1-800-632-2301.
The redemption price will be the net asset value of the Shares next computed
after the redemption request in Proper Order is received by the Transfer
Agent. A gain or loss for tax purposes generally will be realized upon the
redemption, depending on the tax basis of the Shares redeemed. Payment of the
redemption price ordinarily will be made by check (or by wire at the sole
discretion of the Transfer Agent if wire transfer is requested including name
and address of the bank and the Shareholder's account number to which payment
of the redemption proceeds is to be wired) within seven days after receipt of
the redemption request in Proper Order. However, if Shares have been purchased
by check, the Fund will make redemption proceeds available when a
Shareholder's check received for the Shares purchased has been cleared for
payment by the Shareholder's bank, which, depending upon the location of the
Shareholder's bank, could take up to 15 days or more. The check will be mailed
by first-class mail to the Shareholder's registered address (or as otherwise
directed). Remittance by wire (to a commercial bank account in the same
name(s) as the Shares are registered) or express mail, if requested, are
subject to a handling charge of up to $15, which will be deducted from the
redemption proceeds.
The Fund, through FTD, also repurchases Shares (whether in certificate or
book-entry form) through securities dealers. The Fund normally will accept
orders to repurchase such Shares by wire or telephone from dealers for their
customers at the net asset value next computed after the dealer has received
the Shareholder's request for repurchase, if the dealer received such request
before closing time of the NYSE on that day. Dealers have the responsibility
of submitting such repurchase requests by calling not later than 5:00 p.m.,
New York time, on such day in order to obtain that day's applicable redemption
price. Repurchase of Shares is for the convenience of Shareholders and does
not involve a charge by the Fund; however, securities dealers may impose a
charge on the Shareholder for transmitting the notice of repurchase to the
Fund. The Fund reserves the right to reject any order for repurchase, which
right of rejection might adversely affect Shareholders seeking redemption
through the repurchase procedure. Ordinarily payment will be made to the
securities dealer within seven days after receipt of a repurchase order and
Share certificate (if any) in "Proper Order" as set forth above. The Fund will
also accept, from member firms of the NYSE, orders to repurchase Shares for
which no certificates have been issued by wire or telephone without a
redemption request signed by the Shareholder, provided the member firm
indemnifies the Fund and FTD from any liability resulting from the absence of
the Shareholder's signature. Forms for such indemnity agreement can be
obtained from FTD.
The Fund may involuntarily redeem an investor's Shares if the net asset
value of such Shares is less than $100, except that involuntary redemptions
will not result from fluctuations in the value of an investor's Shares. In
addition, the Fund may involuntarily redeem the Shares of any investor who has
failed to provide the Fund with a certified taxpayer identification number or
such other tax-related certifications as the Fund may require. A notice of
redemption, sent by first-class mail to the investor's address of record, will
fix a date not less than 30 days after the mailing date, and Shares will be
redeemed at net asset value at the close of business on that
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<PAGE>
date, unless sufficient additional Shares are purchased to bring the aggregate
account value up to $100 or more, or unless a certified taxpayer
identification number (or such other information as the Fund has requested)
has been provided, as the case may be. A check for the redemption proceeds
will be mailed to the investor at the address of record.
REINSTATEMENT PRIVILEGE. For either Class I or Class II, the same class of
Shares of the Fund may be purchased at net asset value with the proceeds from
(i) a redemption of Shares of the Fund or shares of any other Franklin
Templeton Fund except any of the Franklin Templeton money market funds (unless
the redemption proceeds are from Class I shares of a fund with a lower initial
sales charge than that charged by the Fund and have been held in that fund for
less than six months), or (ii) a dividend or distribution paid by any of the
Franklin Templeton Funds, within 365 days after the date of the redemption or
dividend or distribution. Class II Shareholders may also invest such
distributions at net asset value in a Class I Franklin Templeton Fund.
However, if a Shareholder's original investment was in Class I shares of a
fund with a lower sales charge, or no sales charge, the Shareholder must pay
the difference. An investor may reinvest an amount not exceeding the proceeds
of the redemption or the dividend or distribution. While credit will be given
for any contingent deferred sales charge paid on the shares redeemed, a new
contingency period will begin. Matured Shares will be reinvested at net asset
value and will not be subject to a new contingent deferred sales charge.
Shares of the Fund redeemed in connection with an exchange into another fund
(see "Exchange Privilege") are not considered "redeemed" for this privilege.
In order to exercise this privilege, a written order for the purchase of
Shares of the Fund must be received by the Fund or the Fund's Transfer Agent
within 365 days after the redemption or the payment date of the distribution.
The 365 days, however, do not begin to run on redemption proceeds placed
immediately after redemption in a Franklin Bank Certificate of Deposit ("CD")
until the CD (including any rollover) matures. Reinvestment at net asset value
may also be handled by a securities dealer or other financial institution, who
may charge the Shareholder a fee for this service. The redemption is a taxable
transaction but reinvestment without a sales charge may affect the tax basis
of the Shares reinvested, and the amount of gain or loss resulting from a
redemption may be affected by exercise of the reinstatement privilege if the
Shares redeemed were held for 90 days or less, or if a Shareholder reinvests
in the same fund within 30 days. Reinvestment will be at the next calculated
net asset value after receipt.
SYSTEMATIC WITHDRAWAL PLAN. A Shareholder may establish a Systematic
Withdrawal Plan ("Plan") and receive periodic payments from the account
provided that the net asset value of the Shares held by the Shareholder is at
least $5,000. There are no service charges for establishing or maintaining a
Plan. The minimum amount which the Shareholder may withdraw is $50 per
withdrawal transaction although this is merely the minimum amount allowed
under the Plan and should not be mistaken for a recommended amount. Retirement
plans subject to mandatory distribution requirements are not subject to the
$50 minimum. The Plan may be established on a monthly, quarterly, semiannual
or annual basis. If the Shareholder establishes a Plan, any capital gain
distributions and income dividends paid by the Fund to the Shareholder's
account must be reinvested for the Shareholder's account in additional Shares
at net asset value. Payments are then made from the liquidation of Shares at
net asset value on the day of the liquidation (which is generally on or about
the 25th of the month) to meet the specified withdrawals. Payments are
generally received three to five days after the date of liquidation. By
completing the "Special Payment Instructions for Distributions" section of the
Shareholder Application included with this Prospectus, a Shareholder may
direct the selected withdrawals to another of the Franklin Templeton Funds, to
another person, or directly to a checking account. Liquidation of Shares may
reduce or possibly exhaust the Shares in the Shareholder's account, to the
extent withdrawals exceed Shares earned through dividends and distributions,
particularly in the event of a market decline. If the withdrawal amount
exceeds the total Plan balance, the account will be closed and the remaining
balance will be sent to the Shareholder. As with other redemptions, a
liquidation to make a withdrawal payment is a sale for federal income tax
purposes. Because the amount withdrawn under the Plan may be more than the
Shareholder's actual yield or income, part of such a Plan payment may be a
return of the Shareholder's investment.
Maintaining a Plan concurrently with purchases of additional Shares of the
Fund would be disadvantageous because of the sales charge on the additional
purchases. Also, redemptions of Class I Shares and Class II Shares may be
subject to a contingent deferred sales charge if the Shares are redeemed
within 12 months (Class I Shares) or 18 months (Class II Shares) of the
calendar month of the original purchase date. The Shareholder should
ordinarily not make additional investments of less than $5,000 or three times
the annual withdrawals under the Plan during the time such a Plan is in
effect.
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With respect to Class I Shares, the contingent deferred sales charge is
waived for redemptions through a Systematic Withdrawal Plan set up prior to
February 1, 1995. With respect to Systematic Withdrawal Plans set up on or
after February 1, 1995, the applicable contingent deferred sales charge is
waived for Class I and Class II Share redemptions of up to 1% monthly of an
account's net asset value (12% annually, 6% semiannually, 3% quarterly). For
example, if a Class I account maintained an annual balance of $1,000,000, only
$120,000 could be withdrawn through a once-yearly Systematic Withdrawal Plan
free of charge; any amount over that $120,000 would be assessed a 1% (or
applicable) contingent deferred sales charge. Likewise, if a Class II account
maintained an annual balance of $10,000, only $1,200 could be withdrawn
through a once-yearly Systematic Withdrawal Plan free of charge.
A Plan may be terminated on written notice by the Shareholder or the Fund,
and it will terminate automatically if all Shares are liquidated or withdrawn
from the account, or upon the Fund's receipt of notification of the death or
incapacity of the Shareholder. Shareholders may change the amount (but not
below $50) and schedule of withdrawal payments or suspend one such payment by
giving written notice to the Transfer Agent at least seven business days prior
to the end of the month preceding a scheduled payment. Share certificates may
not be issued while a Plan is in effect.
REDEMPTIONS BY TELEPHONE. Shareholders who file a Telephone Redemption
Authorization Agreement (the "Agreement") (a copy of which is included in this
Prospectus) may redeem Shares of the Fund by telephone, subject to the
Restricted Account exception noted under "Telephone Transactions -- Restricted
Accounts." The Fund and the Transfer Agent will employ reasonable procedures
to confirm that instructions given by telephone are genuine. Shareholders,
however, bear the risk of loss in certain cases as described under "Telephone
Transactions -- Verification Procedures."
For Shareholder accounts with a completed Agreement on file, redemptions of
uncertificated Shares or Shares which have previously been deposited with the
Fund or the Transfer Agent may be made for up to $50,000 per day per Fund
account. Telephone redemption requests received before the scheduled closing
time of the NYSE (generally 4:00 p.m., New York time) on any business day will
be processed that same day. The redemption check will be sent within seven
days, made payable to all the registered owners on the account, and will be
sent only to the address of record. Redemption requests by telephone will not
be accepted within 30 days following an address change by telephone. In that
case, a Shareholder should follow the other redemption procedures set forth in
this Prospectus. Institutional accounts which wish to execute redemptions in
excess of $50,000 must complete an Institutional Telephone Privileges
Agreement which is available from Franklin Templeton Institutional Services by
telephoning 1-800-321-8563.
CONTINGENT DEFERRED SALES CHARGE. In order to recover commissions paid to
securities dealers, Class I investments of $1 million or more, and any Class
II investments, redeemed within the contingency period of 12 months (Class I)
or 18 months (Class II) of the calendar month of their purchase will be
assessed a contingent deferred sales charge, unless one of the exceptions
described below applies. The charge is 1% of the lesser of the net asset value
of the Shares redeemed (exclusive of reinvested dividends and capital gain
distributions) or the net asset value at the time of purchase of such Shares,
and is retained by FTD. The contingent deferred sales charge is waived in
certain instances. See below.
In determining if a contingent deferred sales charge applies, Shares not
subject to a contingent deferred sales charge are deemed to be redeemed first,
in the following order: (i) a calculated number of Shares representing amounts
attributable to capital appreciation of those Shares held less than the
contingency period (12 months in the case of Class I Shares and 18 months in
the case of Class II Shares); (ii) Shares purchased with reinvested dividends
and capital gain distributions; and (iii) other Shares held longer than the
contingency period, and followed by any Shares held less than the contingency
period, on a "first in, first out" basis. For tax purposes, a contingent
deferred sales charge is treated as either a reduction in redemption proceeds
or an adjustment to the cost basis of the Shares redeemed.
The contingent deferred sales charge on each class of Shares is waived, as
applicable, for: exchanges; any account fees; distributions from an individual
retirement plan account due to death or disability, or upon periodic
distributions based on life
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expectancy; tax-free returns of excess contributions from employee benefit
plans; distributions from employee benefit plans, including those due to plan
termination or plan transfer; redemptions through a Systematic Withdrawal Plan
set up for Shares prior to February 1, 1995 and, for Systematic Withdrawal
Plans set up thereafter, redemptions of up to 1% monthly of an account's net
asset value (3% quarterly, 6% semiannually or 12% annually); redemptions
initiated by the Fund due to a Shareholder's account falling below the minimum
specified account size; and redemptions following the death of the Shareholder
or the beneficial owner.
All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that
month and each subsequent month.
Requests for redemptions for a SPECIFIED DOLLAR amount, unless otherwise
specified, will result in additional Shares being redeemed to cover any
applicable contingent deferred sales charge, while requests for redemption of
a SPECIFIC NUMBER of Shares will result in the applicable contingent deferred
sales charge being deducted from the total dollar amount redeemed.
TELEPHONE TRANSACTIONS
Shareholders of the Fund and their investment representative of record, if
any, may be able to execute various transactions by calling Shareholder
Services at 1-800-632-2301.
All Shareholders will be able to: (i) effect a change in address; (ii)
change a dividend option (see "Restricted Accounts" below); (iii) transfer
Fund Shares in one account to another identically registered account in the
Fund; (iv) request the issuance of certificates (to be sent to the address of
record only); and (v) exchange Fund Shares by telephone as described in this
Prospectus. In addition, Shareholders who complete and file an Agreement as
described under "How to Sell Shares of the Fund-Redemptions by Telephone" will
be able to redeem Shares of the Fund.
VERIFICATION PROCEDURES. The Fund and the Transfer Agent will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine. These will include: recording all telephone calls requesting
account activity by telephone, requiring that the caller provide certain
personal and/or account information requested by the telephone service agent
at the time of the call for the purpose of establishing the caller's
identification, and sending a confirmation statement on redemptions to the
address of record each time account activity is initiated by telephone. So
long as the Fund and the Transfer Agent follow instructions communicated by
telephone which were reasonably believed to be genuine at the time of their
receipt, neither they nor their affiliates will be liable for any loss to the
Shareholder caused by an unauthorized transaction. The Fund and the Transfer
Agent may be liable for any losses due to unathorized or fraudulent
instructions in the event such reasonable procedures are not followed.
Shareholders are, of course, under no obligation to apply for or accept
telephone transaction privileges. In any instance where the Fund or the
Transfer Agent is not reasonably satisfied that instructions received by
telephone are genuine, the requested transaction will not be executed and
neither the Fund, the Transfer Agent, nor their affiliates will be liable for
any losses which may occur because of a delay in implementing a transaction.
RESTRICTED ACCOUNTS. Telephone redemptions and dividend option changes may
not be accepted on Franklin Templeton retirement accounts. To assure
compliance with all applicable regulations, special forms are required for any
distribution, redemption, or dividend payment. While the telephone exchange
privilege is extended to Franklin Templeton IRA and 403(b) retirement
accounts, certain restrictions may apply to other types of retirement plans.
Changes to dividend options must also be made in writing.
To obtain further information regarding distribution or transfer procedures,
including any required forms, retirement account Shareholders may call to
speak to a Retirement Plan Specialist at 1-800-527-2020.
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GENERAL. During periods of drastic economic or market changes, it is
possible that the telephone transaction privileges will be difficult to
execute because of heavy telephone volume. In such situations, Shareholders
may wish to contact their dealer for assistance, or to send written
instructions to the Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor the Transfer Agent will be liable for any losses
resulting from the inability of a Shareholder to execute a telephone
transaction. The telephone transaction privilege may be modified or
discontinued by the Fund at any time upon 60 days' written notice to
Shareholders.
MANAGEMENT OF THE FUND
The Company is managed by its Board of Directors and all powers of the
Company are exercised by or under authority of the Board. Information relating
to the Directors and Executive Officers is set forth under the heading
"Management of the Company" in the SAI.
The Board has carefully reviewed the multiclass structure to ensure that no
material conflict exists between the two classes of Shares. Although the Board
does not expect to encounter material conflicts in the future, the Board will
continue to monitor the Fund and will take appropriate action to resolve such
conflicts if any should later arise.
In developing the multiclass structure, the Fund has retained the authority
to establish additional classes of Shares. It is the Fund's present intention
to offer only two classes of Shares, but new classes may be offered in the
future.
INVESTMENT MANAGER. The Investment Manager of the Fund is Templeton Global
Advisors Limited, Nassau, Bahamas. The Investment Manager manages the
investment and reinvestment of the Fund's assets. The Investment Manager is an
indirect wholly owned subsidiary of Franklin Resources, Inc. ("Franklin").
Through its subsidiaries, Franklin is engaged in various aspects of the
financial services industry. The Investment Manager and its affiliates serve
as advisers for a wide variety of public investment mutual funds and private
clients in many nations. The Templeton organization has been investing
globally over the past 52 years and, with its affiliates, provides investment
management and advisory services to a worldwide client base, including over
4.3 million mutual fund shareholders, foundations, endowments, employee
benefit plans and individuals. The Investment Manager and its affiliates have
approximately 4,100 employees in the United States, Australia, Scotland,
Germany, Hong Kong, Luxembourg, Bahamas, Singapore, Canada and Russia.
The Investment Manager uses a disciplined, long-term approach to value-
oriented global and international investing. It has an extensive global
network of investment research sources. Securities are selected for the Fund's
portfolio on the basis of fundamental company-by-company analysis. Many
different selection methods are used for different funds and clients and these
methods are changed and improved by the Investment Manager's research on
superior selection methods.
The Investment Manager performs similar services for other funds and
accounts and there may be times when the actions taken with respect to the
Fund's portfolio will differ from those taken by the Investment Manager on
behalf of other funds and accounts. Neither the Investment Manager and its
affiliates, its officers, directors or employees, nor the officers or
Directors of the Company are prohibited from investing in securities held by
the Fund or other funds and accounts which are managed or administered by the
Investment Manager to the extent such transactions comply with the Company's
Code of Ethics. Please see "Investment Management and Other Services--
Investment Management Agreement" in the SAI for further information on
securities transactions and a summary of the Company's Code of Ethics.
The Investment Manager does not furnish any other services or facilities for
the Fund, although such expenses are paid by some investment advisers of other
investment companies. As compensation for its services, the Fund pays the
Investment Manager a fee which, during the most recent fiscal year,
represented 0.63% of its average daily net assets.
22
<PAGE>
The lead portfolio manager for the Fund is Mark G. Holowesko. Mr. Holowesko
holds a B.A. degree from the College of Holy Cross and an MBA from Babson
College. He joined the Templeton organization in 1985, and is responsible for
coordinating equity research worldwide for the Investment Manager. Prior to
joining the Templeton organization, Mr. Holowesko worked with Roy West Trust
Corporation (Bahamas) Limited as an investment administrator. His duties at
Roy West included managing trust and individual accounts, as well as
conducting research of worldwide equity markets. Jeffrey A. Everett and Sean
Farrington exercise secondary portfolio management responsibilities with
respect to the Fund. Mr. Everett holds a B.S. degree in finance from
Pennsylvania State University. He joined the Templeton organization in 1989
and is Vice President, Portfolio Management/Research, of the Investment
Manager. Prior to joining the Templeton organization, Mr. Everett was an
investment officer at First Pennsylvania Investment Research, a division of
First Pennsylvania Corporation, where he analyzed equity and convertible
securities. Mr. Everett was also responsible for coordinating research for
Centre Square Investment Group, the pension management subsidiary of First
Pennsylvania Corporation. Mr. Farrington holds an A.B. in Economics from
Harvard University. He is a member of the Investment Manager's research
technology group responsible for the maintenance of the internal research
database. Further information concerning the Investment Manager is included
under the heading "Investment Management and Other Services" in the SAI.
BUSINESS MANAGER. Templeton Global Investors, Inc. provides certain
administrative facilities and services for the Fund, including payment of
salaries of officers, preparation and maintenance of books and records,
preparation of tax returns and financial reports, monitoring compliance with
regulatory requirements and monitoring tax-deferred retirement plans. For its
services, the Business Manager receives a fee equivalent on an annual basis to
0.15% of the combined average daily net assets of the Funds included in the
Company (the Fund and Templeton World Fund), reduced to 0.135% of such
combined net assets in excess of $200 million, to 0.10% of such assets in
excess of $700 million, and to 0.075% of such assets in excess of $1,200
million.
TRANSFER AGENT. Franklin Templeton Investor Services, Inc. serves as
transfer agent and dividend disbursing agent for the Fund.
CUSTODIAN. The Chase Manhattan Bank, N.A. serves as custodian of the Fund's
assets.
PLANS OF DISTRIBUTION. A separate Plan of Distribution has been approved and
adopted for each class ("Class I Plan" and "Class II Plan," respectively, or
"Plans") pursuant to Rule 12b-1 under the 1940 Act. The Rule 12b-1 fees
charged to each class will be based solely on the distribution and servicing
fees attributable to that particular class. Any portion of fees remaining from
either Plan after distribution to securities dealers of up to the maximum
amount permitted under each Plan may be used by the class to reimburse FTD for
routine ongoing promotion and distribution expenses incurred with respect to
such class. Such expenses may include, but are not limited to, the printing of
prospectuses and reports used for sales purposes, expenses of preparing and
distributing sales literature and related expenses, advertisements, and other
distribution-related expenses, including a prorated portion of FTD's overhead
expenses attributable to the distribution of Fund Shares, as well as any
distribution or service fees paid to securities dealers or their firms or
others who have executed a servicing agreement with the Fund, FTD or its
affiliates.
The maximum amount which the Fund may pay to FTD or others under the Class I
Plan for such distribution expenses is 0.25% per annum of Class I's average
daily net assets, payable on a quarterly basis. All expenses of distribution
and marketing in excess of 0.25% per annum will be borne by FTD, or others who
have incurred them, without reimbursement from the Fund. Under the Class I
Plan, costs and expenses not reimbursed in any one given quarter (including
costs and expenses not reimbursed because they exceed the applicable limit
under the Plan) may be reimbursed in subsequent quarters or years, subject to
applicable law. FTD has informed the Fund that the costs and expenses of Class
I Shares that may be reimbursable in future quarters or years were $1,260,716
(0.02% of its net assets) at August 31, 1995.
Under the Class II Plan, the maximum amount which the Fund is permitted to
pay to FTD or others for distribution expenses and related expenses is 0.75%
per annum of Class II's average daily net assets, payable quarterly. All
expenses of distribution, marketing and related services over that amount will
be borne by FTD, or others who have incurred them, without reimbursement by
the Fund. In
23
<PAGE>
addition, the Class II Plan provides for an additional payment by the Fund of
up to 0.25% per annum of Class II's average daily net assets as a servicing
fee, payable quarterly. This fee will be used to pay securities dealers or
other for, among other things, assisting in establishing and maintaining
customer accounts and records; assisting with purchase and redemption
requests; receiving and answering correspondence; monitoring dividend payments
from the Fund on behalf of the customers; or similar activities related to
furnishing personal services and/or maintaining Shareholder accounts.
During the first year following the purchase of Class II Shares, FTD will
retain 0.75% per annum of Class II's average daily net assets to partially
recoup fees FTD pays to securities dealers. FTD, or its affiliates, may pay,
from its own resources, a commission of up to 1% of the amount invested to
securities dealers who initiate and are responsible for purchases of Class II
Shares.
Both Plans also cover any payments to or by the Fund, the Investment
Manager, FTD, or other parties on behalf of the Fund, the Investment Manager
or FTD, to the extent such payments are deemed to be for the financing of any
activity primarily intended to result in the sale of Shares issued by the Fund
within the context of Rule 12b-1. The payments under the Plans are included in
the maximum operating expenses which may be borne by each class of the Fund.
For more information including a discussion of the Board's policies with
regard to the amount of each Plan's fees, please see the SAI.
EXPENSES. For the fiscal year ended August 31, 1995, expenses borne by Class
I Shares of the Fund amounted to 1.15% of the average net assets of such class
and expenses borne by Class II Shares of the Fund amounted to 1.90%
(annualized) of the average net assets of such class. See the Expense Table
for information regarding estimated expenses for both classes of Shares for
the current fiscal year.
BROKERAGE COMMISSIONS. The Fund's brokerage policies are described under the
heading "Brokerage Allocation" in the SAI. The Fund's brokerage policies
provide that the receipt of research services from a broker and the sale of
Shares by a broker are factors which may be taken into account in allocating
securities transactions, so long as the prices and execution provided by the
broker equal the best available within the scope of the Fund's brokerage
policies.
GENERAL INFORMATION
DESCRIPTION OF SHARES/SHARE CERTIFICATES. The Company's authorized capital
consists of 3,200,000,000 Common Shares of $1 par value per Share of which
1,500,000,000 Shares are classified as Templeton Foreign Fund Class I Shares,
500,000,000 Shares are classified as Templeton Foreign Fund Class II Shares,
800,000,000 Shares are classified as Templeton World Fund Class I Shares, and
400,000,000 are classified as Templeton World Fund Class II Shares.
Shares for an initial investment, as well as subsequent investments,
including the reinvestment of dividends and capital gain distributions, are
generally credited to an account in the name of an investor on the books of
the Fund, without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss
or theft of a share certificate. No charge is made for the issuance of one
certificate for all or some of the Shares purchased in a single order. A lost,
stolen or destroyed certificate cannot be replaced without obtaining a
sufficient indemnity bond. The cost of such a bond, which is generally borne
by the Shareholder, can be 2% or more of the value of the lost, stolen or
destroyed certificate. A certificate will be issued if requested by the
Shareholder or by the securities dealer.
VOTING RIGHTS. Shares of each class represent proportionate interests in the
assets of the Fund and have the same voting and other rights and preferences
as the other class of the Fund for matters that affect the Fund as a whole.
For matters that only affect a certain class of the Fund's Shares, however,
only Shareholders of that class will be entitled to vote. Therefore, each
class of Shares will vote separately on matters (1) affecting only that class,
(2) expressly required to be voted on separately by state law, or (3) required
to be voted on separately by the 1940 Act or the rules adopted thereunder. For
instance, if a change to the Rule 12b-1 plan relating to
24
<PAGE>
Class I Shares requires Shareholder approval, only Shareholders of Class I may
vote on changes to the Rule 12b-1 plan affecting that class. Similarly, if a
change to the Rule 12b-1 plan relating to Class II Shares requires Shareholder
approval, only Shareholders of Class II may vote on the change to such plan.
On the other hand, if there is a proposed change to the investment objective
of the Fund, this affects all Shareholders, regardless of which class of
Shares they hold, and therefore, each Share has the same voting rights.
MEETINGS OF SHAREHOLDERS. The Company is not required to hold annual
meetings of Shareholders and may elect not to do so. The Company will call a
special meeting of Shareholders when requested to do so by Shareholders
holding at least 10% of the Company's outstanding Shares. In addition, the
Company is required to assist Shareholder communications in connection with
the calling of Shareholder meetings to consider removal of a Director or
Directors.
DIVIDENDS AND DISTRIBUTIONS. The Fund intends to pay a dividend at least
annually representing substantially all of its net investment income and any
net realized capital gains. According to the requirements of the Code,
dividends and capital gains will be calculated and distributed in the same
manner for Class I and Class II Shares. The per share amount of any income
dividends will generally differ only to the extent that each class is subject
to different Rule 12b-1 fees. Unless otherwise requested, income dividends and
capital gain distributions paid by the Fund, other than on those Shares whose
owners keep them registered in the name of a broker-dealer, are automatically
reinvested on the payment date in whole or fractional Shares at net asset
value as of the ex-dividend date, unless a Shareholder makes a written or
telephonic request for payments in cash. By completing the "Special Payment
Instructions for Distributions" section of the Shareholder Application, Class
I Shareholders may direct that their dividends and/or capital gain
distributions be reinvested in Class I Shares of the Fund or Class I Shares of
any other Franklin Templeton Fund, and Class II Shareholders may direct that
their dividends and/or capital gains distributions be reinvested in either
Class I or Class II Shares of the Fund or any other Franklin Templeton Fund.
Shareholders may also direct the payment of their dividends or capital gain
distributions to another person. The processing date for the reinvestment of
dividends may vary from time to time, and does not affect the amount or value
of the Shares acquired. Income dividends and capital gain distributions will
be paid in cash on Shares during the time that their owners keep them
registered in the name of a broker-dealer, unless the broker-dealer has made
arrangements with the Transfer Agent for reinvestment.
Prior to purchasing Shares of the Fund, the impact of dividends or capital
gain distributions which have been declared but not yet paid should be
carefully considered. Any dividend or capital gain distribution paid shortly
after a purchase by a Shareholder prior to the record date will have the
effect of reducing the per Share net asset value of the Shares by the amount
of the dividend or distribution. All or a portion of such dividend or
distribution, although in effect a return of capital, generally will be
subject to tax.
Checks are forwarded by first-class mail to the address of record. The
proceeds of any such checks which are not accepted by the addressee and
returned to the Fund will be reinvested in the Shareholder's account in whole
or fractional Shares at net asset value next computed after the check has been
received by the Transfer Agent. Subsequent distributions automatically will be
reinvested at net asset value as of the ex-dividend date in additional whole
or fractional Shares.
FEDERAL TAX INFORMATION. The Fund intends to elect to be treated and to
qualify each year as a regulated investment company under Subchapter M of the
Code. See the SAI for a summary of the requirements that must be satisfied to
so qualify. A regulated investment company generally is not subject to federal
income tax on income and gains distributed in a timely manner to its
shareholders. The Fund intends to distribute to Shareholders substantially all
of its net investment income and net realized capital gains, which generally
will be taxable income or capital gains in their hands. Distributions declared
in October, November or December to Shareholders of record on a date in such
month and paid during the following January will be treated as having been
received by Shareholders on December 31 in the year such distributions were
declared. The Fund will inform Shareholders each year of the amount and nature
of such income or gains. Sales or other dispositions of Fund Shares generally
will give rise to taxable gain or loss. A more detailed description of tax
consequences to Shareholders is contained in the SAI under the heading "Tax
Status."
25
<PAGE>
The Fund may be required to withhold federal income tax at the rate of 31%
of all taxable distributions (including redemptions) paid to Shareholders who
fail to provide the Fund with their correct taxpayer identification number or
to make required certifications or where the Fund or the Shareholder has been
notified by the Internal Revenue Service that the Shareholder is subject to
backup withholding. Corporate Shareholders and certain other Shareholders
specified in the Code are exempt from backup withholding. Backup withholding
is not an additional tax. Any amounts withheld may be credited against the
Shareholder's Federal income tax liability.
INQUIRIES. Shareholders' inquiries will be answered promptly. They should be
addressed to Franklin Templeton Investor Services, Inc., P.O. Box 33030, St.
Petersburg, Florida 33733-8030--telephone 1-800-632-2301. Transcripts of
Shareholder accounts less than the three-years old are provided on request
without charge; requests for transcripts going back more than three years from
the date the request is received by the Transfer Agent are subject to a fee of
up to $15 per account.
PERFORMANCE INFORMATION. The Fund may include its total return in
advertisements or reports to Shareholders or prospective investors. Quotations
of average annual total return will be expressed in terms of the average
annual compounded rate of return on a hypothetical investment in the Fund over
a period of 1, 5 and 10 years (or up to the life of the Fund), will reflect
the deduction of the maximum initial sales charge and deduction of a
proportional share of Fund expenses (on an annual basis), and will assume that
all dividends and distributions are reinvested when paid. Total return may be
expressed in terms of the cumulative value of an investment in the Fund at the
end of a defined period of time. For a description of the methods used to
determine total return for the Fund, see the SAI.
Because Class II Shares were not offered prior to May 1, 1995, no
performance data is available for these Shares. After a sufficient period of
time has passed, Class II performance data will be available.
STATEMENTS AND REPORTS. The Fund's fiscal year ends on August 31. Annual
reports (containing financial statements audited by independent auditors and
additional information regarding the Fund's performance) and semiannual
reports (containing unaudited financial statements) are sent to Shareholders
each year. To reduce the volume of mail sent to one household as well as to
reduce Fund expenses, the Transfer Agent will attempt to identify related
shareholders within a household and send only one copy of the report.
Additional copies may be obtained, without charge, upon request to the Fund
Information Department--telephone 1-800/DIAL BEN. The Fund also sends to each
Shareholder a confirmation statement after every transaction that affects the
Shareholder's account and a year-end historical confirmation statement.
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<PAGE>
INSTRUCTIONS AND IMPORTANT NOTICE
SUBSTITUTE W-9 INSTRUCTIONS INFORMATION
GENERAL. Backup withholding is not an additional tax. Rather, the tax
liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the Internal Revenue Service ("IRS").
OBTAINING A NUMBER. If you do not have a Social Security Number/Taxpayer
Identification Number ("SSN/TIN"), you must obtain Form SS-5 or Form SS-4 from
your local Social Security or IRS office and apply for one. If you have
checked the "Awaiting TIN" box and signed the certification, withholding will
apply to payments relating to your account unless you provide a certified TIN
within 60 days.
WHAT SSN/TIN TO GIVE. Please refer to the following guidelines:
<TABLE>
<CAPTION>
ACCOUNT TYPE GIVE SSN OF ACCOUNT TYPE GIVE TAXPAYER ID # OF
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
. Individual Individual . Trust, Estate, or Trust, Estate, or
Pension Plan Trust Pension Plan Trust
- -----------------------------------------------------------------------------------------
. Joint Actual owner of . Corporation, Corporation,
Individual account, or if Partnership, or other Partnership, or other
combined funds, the organization organization
first-named
individual
- -----------------------------------------------------------------------------------------
. Unif. Minor . Broker nominee Broker nominee
Gift/Transfer
to Minor
- -----------------------------------------------------------------------------------------
. Sole Owner of business
Proprietor
- -----------------------------------------------------------------------------------------
. Legal Ward, Minor, or
Guardian Incompetent
- -----------------------------------------------------------------------------------------
</TABLE>
EXEMPT RECIPIENTS. Please provide your TIN and check the "Exempt Recipient"
box if you are an exempt recipient. Exempt recipients generally include:
A corporation A real estate investment trust
A financial institution A common trust fund operated by a bank
under section 584(a)
An organization exempt from tax An entity registered at all times
under section 501(a), or an under the Investment Company
individual retirement plan Act of 1940
A registered dealer in securities
or commodities registered in the
U.S. or a U.S. possession
IRS PENALTIES. If you do not supply us with your SSN/TIN, you will be subject
to an IRS $50 penalty unless your failure is due to reasonable cause and not
willful neglect. If you fail to report certain income on your Federal income
tax return, you will be treated as negligent and subject to an IRS 20% penalty
on any underpayment of tax attributable to such negligence, unless there was
reasonable cause for the resulting underpayment and you acted in good faith.
If you falsify information on this form or make any other false statement
resulting in no backup withholding on an account which should be subject to
backup withholding, you may be subject to an IRS $500 penalty and certain
criminal penalties including fines and imprisonment.
SUBSTITUTE W-8 INSTRUCTIONS INFORMATION
EXEMPT FOREIGN PERSON. Check the "Exempt Foreign Person" box if you qualify as
a non-resident alien or foreign entity that is not subject to certain U.S.
information return reporting or to backup withholding rules. Dividends paid to
your account may be subject to withholding of up to 30%. Generally, you are an
"Exempt Foreign Person" if you are not (1) a citizen or resident of the U.S.,
or (2) a U.S. corporation, partnership, estate, or trust. In the case of an
individual, an "Exempt Foreign Person" is one who has been physically present
in the U.S. for less than 31 days during the current calendar year. An
individual who is physically present in the U.S. for at least 31 days during
the current calendar year will still be treated as an "Exempt Foreign Person,"
provided that the total number of days physically present in the current
calendar year and the two preceding calendar years does not equal or exceed
183 days (counting all of the days in the current calendar year, only one-
third of the days in the first preceding calendar year and only one-sixth of
the days in the second preceding calendar year). In addition, lawful permanent
residents or green card holders may not be treated as "Exempt Foreign
Persons." If you are an individual or an entity, you must not now be, or at
this time expect to be, engaged in a U.S. trade or business with respect to
which any gain derived from transactions effected by the Fund/Payer during the
calendar year is effectively connected to the U.S.
PERMANENT ADDRESS. The Shareholder Application must contain your permanent
address if you are an "Exempt Foreign Person." If you are an individual,
provide your permanent address. If you are a partnership or corporation,
provide the address of your principal office. If you are an estate or trust,
provide the address of your permanent residence or the principal office of any
fiduciary.
NOTICE OF CHANGE IN STATUS. If you become a U.S. citizen or resident after you
have provided certification of your foreign status, or if you cease to be an
"Exempt Foreign Person," you must notify the Fund/Payer within 30 days of your
change in status. Reporting will then begin on the account(s) listed, and
backup withholding may also begin unless you certify to the Fund/Payer that
(1) the taxpayer identification number you have given is correct, and (2) the
IRS has not notified you that you are subject to backup withholding because
you failed to report certain interest or dividend income. You may use Form W-
9, "Payer's Request for Taxpayer Identification Number and Certification," to
make these certifications. If an account is no longer active, you do not have
to notify a Fund/Payer or broker of your change in status unless you also have
another account with the same Fund/Payer that is still active. If you receive
interest from more than one Fund/Payer or have dealings with more than one
broker or barter exchange, file a certificate with each. If you have more than
one account with the same Fund/Payer, the Fund/Payer may require you to file a
separate certificate for each account.
WHEN TO FILE. File these certifications with the Fund before a payment is made
to you, unless you have already done this in either of the two preceding
calendar years. Only certifications that are in proper order will be treated
as having been filed with the Fund.
HOW OFTEN YOU MUST FILE. This certificate generally remains in effect for
three calendar years. A Fund/Payer or broker, however, may require that a new
certificate be filed each time a payment is made. On joint accounts for which
each joint owner is a foreign person, each must provide a certification of
foreign status.
27
<PAGE>
FOR CORPORATE SHAREHOLDERS--FORM OF RESOLUTION
It will be necessary for corporate shareholders to provide a certified copy of
a resolution or other certificate of authority to authorize the purchase as
well as sale (redemption) of shares and withdrawals by checks or drafts. You
may use the following form of resolution or you may prefer to use your own. It
is understood that each Fund, Franklin Templeton Distributors, Inc., Franklin
Templeton Investor Services, Inc., the custodian bank and their affiliates may
rely upon these authorizations until revoked or amended by written notice
delivered by registered or certified mail to a Fund.
CERTIFIED COPY OF RESOLUTION (Corporation or Association)
The undersigned hereby certifies and affirms that he/she is the duly elected
of
-------------------------------- ------------------------------------------
TITLE CORPORATE NAME
a organized under the laws of the State of
-------------------- ---------------
TYPE OF ORGANIZATION STATE
and that the following is a true and correct copy of a resolution adopted by
the Board of Directors at a meeting duly called and held on
--------------------
DATE
RESOLVED, that the of this
-------------------------------------------------
OFFICERS' TITLES
Corporation or Association are authorized to open an account in the name of
the Corporation or Association with one or more of the Franklin Group of
Funds (R) or Templeton Family of Funds (collectively, the "Funds") and to
deposit such funds of this Corporation or Association in this account as
they deem necessary or desirable; that the persons authorized below may
endorse checks and other instruments for deposit to said account or
accounts; and
FURTHER RESOLVED, that any of the following officers are authorized
--------
NUMBER
to sign any share assignment on behalf of this Corporation or Association and
to take any other actions as may be necessary to sell or redeem its shares in
the Funds or to sign checks or drafts withdrawing funds from the account; and
FURTHER RESOLVED, that this Corporation or Association shall hold harmless,
indemnify, and defend the Funds, their custodian bank, Franklin Templeton
Distributors, Inc., Franklin Templeton Investor Services, Inc., and their
affiliates, from any claim, loss or liability resulting in whole or in
part, directly or indirectly, from their reliance from time to time upon
any certifications by the secretary or any assistant secretary of this
Corporation or Association as to the names of the individuals occupying
such offices and their acting in reliance upon these resolutions until
actual receipt by them of a certified copy of a resolution of the Board of
Directors of the Corporation or Association modifying or revoking any or
all such resolutions.
The undersigned further certifies that the below named persons, whose
signatures appear opposite their names and office titles, are duly elected
officers of the Corporation or Association. (Attach additional list if
necessary.)
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME OF CORPORATION OR ASSOCIATION DATE
Certified from minutes
-------------------------------------------------------
NAME AND TITLE
CORPORATE SEAL (if appropriate)
28
<PAGE>
THE FRANKLIN TEMPLETON TELEPHONE REDEMPTION AUTHORIZATION AGREEMENT
You may use Franklin Templeton's telephone redemption privilege to redeem
uncertificated Franklin Templeton Fund shares for up to $50,000 (or your
Shareholder account balance, whichever is less) per day, per fund account in
accordance with the terms of the Fund's Prospectus.
The telephone redemption privilege is available only to Shareholders who
specifically request it. If you would like to add this redemption privilege to
the other telephone transaction privileges automatically available to Franklin
Templeton Fund shareholders, please sign and return this authorization to
Franklin Templeton Investor Services, Inc. ("Services"), transfer agent and
shareholder servicing agent for the Franklin Templeton Funds.
SHAREHOLDER AUTHORIZATION: I/We request the telephone redemption privilege
under the terms described below and in the prospectus for each investment
company in the Franklin Templeton Group of Funds (a "Franklin Templeton Fund"
or a "Fund"), now opened or opened at a later date, holding shares registered
as follows:
- -------------------------------------- ---------------------------------------
PRINT NAME(S) AS SHOWN IN YOUR ACCOUNT
REGISTRATION ("SHAREHOLDER")
- -------------------------------------- ---------------------------------------
ACCOUNT NUMBER(S)
I/We authorize each Fund and Services to honor and act upon telephone requests
given as provided in this agreement to redeem shares from any
Shareholder account:
- -------------------------------------- ---------------------------------------
SIGNATURE(S) AND DATE
- -------------------------------------- ---------------------------------------
PRINT NAME(S) (AND TITLE/CAPACITY,
IF APPLICABLE)
VERIFICATION PROCEDURES: I/We understand and agree that: (1) each Fund and
Services will employ reasonable procedures to confirm that redemption
instructions communicated by telephone are genuine and that if these
confirmation procedures are not followed, the Fund or Services may be liable
for any losses due to unauthorized or fraudulent telephone instructions; (2)
the confirmation procedures will include the recording of telephone calls
requesting redemptions, requiring that the caller provide certain personal
and/or account information requested by the telephone service agent at the
time of the call for the purpose of establishing the caller's identification,
and the sending of confirmation statements to the address of record each time
a redemption is initiated by telephone; and (3) so long as the Fund and
Services follow the confirmation procedures in acting on instructions
communicated by telephone which were reasonably believed to be genuine at the
time of receipt, neither they, nor their parent or affiliates, will be liable
for any loss, damages or expenses caused by an unauthorized or fraudulent
redemption request.
JOINTLY OWNED/CO-TRUSTEE ACCOUNTS: Each of us signing this agreement as either
joint owners or co-trustees authorizes each Fund and Services to honor
telephone redemption requests given by ANY ONE of the signers, or our
investment representative of record, if any, ACTING ALONE.
APPOINTMENT OF ATTORNEY-IN-FACT: In order to issue telephone redemption
requests acting alone, each of us individually makes the following
appointment: I hereby appoint the other joint owner(s)/co-trustee(s) as my
agent(s) (attorney[s]-in-fact) with full power and authority to individually
act for me in any lawful way with respect to the issuance of instructions to a
Fund or Services in accordance with the telephone redemption privilege we have
requested by signing this agreement. This appointment shall not be affected by
my subsequent disability or incompetency and shall remain in effect until it
is revoked by either written notice from any one of us delivered to a Fund or
Services by registered mail, return receipt requested or by a Fund or Services
upon receipt of any information that causes a Fund or Services to believe in
good faith that there is or that there may be a dispute among any of us with
respect to the Franklin Templeton Fund account(s) covered by this agreement.
Each of us agrees to notify the Fund or Services immediately upon the death of
any of the signers.
CORPORATE/PARTNERSHIP/TRUST/RETIREMENT ACCOUNTS: The Shareholder and each of
us signing this agreement on behalf of the Shareholder represent and warrant
to each Franklin Templeton Fund and Services that the Shareholder has the
authority to enter into this agreement and that each of us is duly authorized
to execute this agreement on behalf of the Shareholder. The Shareholder agrees
that its election of the telephone redemption privilege means that a Fund or
Services may honor a telephone redemption request given by ANY
officer/partner/member/administrator/or agent of the Shareholder ACTING ALONE.
RESTRICTED ACCOUNTS: Telephone redemptions may not be accepted on Franklin
Templeton Trust Company retirement accounts.
PLEASE RETURN THIS FORM TO:
Franklin Templeton Investor Services, Inc., Attn.: Telephone Redemptions
Dept., 700 Central Avenue, St. Petersburg, Florida 33701-3628.
29
<PAGE>
The Franklin Templeton Group
Literature Request -- Call today for a free descriptive brochure and
prospectus on any of the funds listed below. The prospectus contains more
complete information, including fees, charges and expenses, and should be read
carefully before investing or sending money.
<TABLE>
<S> <C> <C>
TEMPLETON FUNDS Maryland FRANKLIN FUNDS SEEKING
American Trust Massachusetts*** HIGH CURRENT INCOME
Americas Government Securities Fund Michigan*** AGE High Income Fund
Developing Markets Trust Minnesota*** German Government Bond Fund
Foreign Fund Missouri Global Government Income Fund
Global Infrastructure Fund New Jersey Investment Grade Income Fund
Global Opportunities Trust New York* U.S. Government Securities Fund
Greater European Fund North Carolina
Growth Fund Ohio*** FRANKLIN FUNDS SEEKING HIGH CURRENT
Growth and Income Fund Oregon INCOME AND STABILITY OF PRINCIPAL
Income Fund Pennsylvania Adjustable Rate Securities Fund
Japan Fund Tennessee** Adjustable U.S. Government Securities Fund
Latin America Fund Texas Short-Intermediate U.S. Government Securities Fund
Money Fund Virginia
Real Estate Securities Fund Washington** FRANKLIN FUNDS FOR NON-U.S. INVESTORS
Smaller Companies Growth Fund Tax-Advantaged High Yield Securities Fund
World Fund FRANKLIN FUNDS Tax-Advantaged International Bond Fund
SEEKING CAPITAL GROWTH Tax-Advantaged U.S. Government Securities Fund
FRANKLIN FUNDS California Growth Fund
SEEKING TAX-FREE INCOME DynaTech Fund FRANKLIN TEMPLETON INTERNATIONAL
Federal Intermediate Term Equity Fund CURRENCY FUNDS
Tax-Free Income Fund Global Health Care Fund Global Currency Fund
Federal Tax-Free Income Fund Gold Fund Hard Currency Fund
High Yield Tax-Free Income Growth Fund High Income Currency Fund
Fund International Equity Fund
Insured Tax-Free Income Fund*** Pacific Growth Fund FRANKLIN MONEY MARKET FUNDS
Puerto Rico Tax-Free Income Fund Real Estate Securities Fund California Tax-Exempt Money Fund
FRANKLIN STATE-SPECIFIC FUNDS Small Cap Growth Fund Federal Money Fund
SEEKING TAX-FREE INCOME IFT U.S. Treasury Money Market Portfolio
Alabama FRANKLIN FUNDS SEEKING Money Fund
Arizona* GROWTH AND INCOME New York Tax-Exempt Money Fund
Arkansas** Balance Sheet Investment Fund Tax-Exempt Money Fund
California* Convertible Securities Fund
Colorado Equity Income Fund FRANKLIN FUND FOR CORPORATIONS
Connecticut Global Utilities Fund Corporate Qualified Dividend Fund
Florida* Income Fund
Georgia Premier Return Fund FRANKLIN TEMPLETON VARIABLE ANNUITIES
Hawaii** Rising Dividends Fund Franklin Valuemark
Indiana Strategic Income Fund Franklin Templeton Valuemark Income
Kentucky Utilities Fund Plus (an immediate annuity)
Louisiana
</TABLE>
Toll-free 1-800-DIAL BEN (1-800-342-5236)
* Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of municipal securities, and a high yield portfolio
(CA).
** The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
*** Portfolio of insured municipal securities.
30
<PAGE>
NOTES
-----
31
<PAGE>
- ---------------------------
TEMPLETON FOREIGN FUND
PRINCIPAL UNDERWRITER:
Franklin Templeton
Distributors, Inc.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Shareholder Services
1-800-632-2301
Fund Information
1-800/DIAL BEN
Institutional Services
1-800-321-8563
Dealer Services
1-800-524-4040
Retirement Plan Services
1-800-527-2020
This Prospectus is not
an offering of the
securities herein
described in any state
in which the offering
is not authorized. No
sales representative,
dealer, or other person
is authorized to give
any information or make
any representations
other than those
contained in this
Prospectus. Further
information may be
obtained from the
Principal Underwriter.
- --------------------------
[RECYCLE LOGO APPEARS HERE] TL104 P 1/96
TEMPLETON
FOREIGN
FUND
Prospectus
January 1, 1996
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
<PAGE>
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
Mail to: FRANKLIN TEMPLETON
P.O. Box 33031 St. Petersburg, Florida 33733-8031 (800) 393-3001
Please do not use this form for any Retirement Plan for which Franklin Templeton
Trust Company serves as custodian or trustee, or for Templeton Money Fund,
Templeton Institutional Funds or Templeton Capital Accumulator Fund. Request
separate Applications and/or Prospectuses.
- --------------------------------------------------------------------------------
SHAREHOLDER APPLICATION OR REVISION
[_] Please check the box if this is a revision and see Section 8
- --------------------------------------------------------------------------------
Please check Class I or Class II, if applicable, next to your Fund selection.
Class I and Class II shares have different sales charges and operating expenses,
among other differences, as described in each Fund's prospectus.
Date __________________
<TABLE>
<CAPTION>
CLASS CLASS
I II TEMPLETON I II TEMPLETON
<S> <C> <C> <C>
[_] [_]$______ AMERICAN TRUST [_] [_]$______ GLOBAL OPPORTUNITIES TRUST
[_] ______ AMERICAS GOVERNMENT SECURITIES FUND [_] [_] ______ GREATER EUROPEAN FUND
[_] [_] ______ DEVELOPING MARKETS TRUST [_] [_] ______ GROWTH FUND
[_] [_] ______ FOREIGN FUND [_] [_] ______ GROWTH AND INCOME FUND
[_] [_] ______ GLOBAL INFRASTRUCTURE FUND [_] [_] ______ INCOME FUND
<CAPTION>
CLASS CLASS
I II TEMPLETON I II
<S> <C> <C>
[_] $______ JAPAN FUND [_] [_] OTHER: $___________
[_] [_] ______ LATIN AMERICA FUND (Except for Class II Money Fund)
[_] [_] ______ REAL ESTATE SECURITIES FUND _______________________________
[_] [_] ______ SMALLER COMPANIES GROWTH FUND _______________________________
[_] [_] ______ WORLD FUND _______________________________
</TABLE>
- --------------------------------------------------------------------------------
1 ACCOUNT REGISTRATION (PLEASE PRINT)
- --------------------------------------------------------------------------------
[_] INDIVIDUAL OR JOINT ACCOUNT
_ _
__________________________________________________ ____________________________
First Name Middle Initial Last Name Social Security Number (SSN)
_ _
__________________________________________________ ____________________________
Joint Owner(s) (Joint ownership means "Joint Social Security Number (SSN)
Tenants With Rights of Survivorship" unless
otherwise specified) All owners must sign Section 4.
- --------------------------------------------------------------------------------
[_] GIFT/TRANSFER TO A MINOR
_______________________________ As Custodian For________________________________
Name of Custodian (one only) Minor's Name (one only)
_ _
_____________Uniform Gifts/Transfers to Minors Act______________________________
State of Residence Minor's Social Security Number
Please Note: Custodian's Signature, not Minor's, is required in Section 4.
- --------------------------------------------------------------------------------
[_] TRUST, CORPORATION, PARTNERSHIP, RETIREMENT PLAN, OR OTHER ENTITY
_
__________________________________________ ___________________________________
Name Taxpayer Identification Number (TIN)
__________________________________________ ____________________________________
Name of Beneficiary (if to be included in Date of Trust Document (must be
the Registration) completed for registration)
________________________________________________________________________________
Name of Each Trustee (if to be included in the Registration)
- --------------------------------------------------------------------------------
2 ADDRESS
- --------------------------------------------------------------------------------
___________________________________________ Daytime Phone (___)________________
Street Address Area Code
_
___________________________________________ Evening Phone (___)________________
City State Zip Code Area Code
I am a Citizen of: [_] U.S. or [_]______________________________
Country of Residence
- --------------------------------------------------------------------------------
3 INITIAL INVESTMENT ($100 minimum initial investment)
- --------------------------------------------------------------------------------
Check(s) enclosed for $___________________ . (Payable to the Fund(s)
indicated above.)
- --------------------------------------------------------------------------------
4 SIGNATURE AND TAX CERTIFICATIONS
(All registered owners must sign application)
- --------------------------------------------------------------------------------
See "Important Notice Regarding Taxpayer IRS Certifications" in back of
prospectus. The Fund reserves the right to refuse to open an account without
either a certified Taxpayer Identification Number ("TIN") or a certification of
foreign status. Failure to provide tax certifications in this section may result
in backup withholding on payments relating to your account and/or in your
inability to qualify for treaty withholding rates.
I am(We are) not subject to backup withholding because I(we) have not been
notified by the IRS that I am(we are) subject to backup withholding as a result
of a failure to report all interest or dividends or because the IRS has notified
me(us) that I am(we are) no longer subject to backup withholding. (If you are
currently subject to backup withholding as a result of a failure to report all
interest or dividends, please cross out the preceding statement.)
[_] The number shown above is my(our) correct TIN, or that of the Minor named in
Section 1.
[_] AWAITING TIN. I am(We are) waiting for a number to be issued to me(us).
I(We) understand that if I(we) do not provide a TIN to the Fund within 60
days, the Fund is required to commence 31% backup withholding until I(we)
provide a certified TIN.
[_] EXEMPT RECIPIENT. Individuals cannot be exempt. Check this box only after
reading the instructions to see whether you qualify as an exempt recipient.
(You should still provide a TIN.)
[_] EXEMPT FOREIGN PERSON. Check this box only if the following statement
applies: "I am(we are) neither a citizen nor a resident of the United
States. I(we) certify to the best of my(our) knowledge and belief, I(we)
qualify as an exempt foreign person and/or entity as described in the
instructions."
Permanent address for tax purposes:
________________________________________________________________________________
Street Address City State Country Postal Code
PLEASE NOTE: The IRS only allows one TIN to be listed on an account. On joint
accounts, it is preferred that the primary account owner (or person listed first
on the account) list his/her number as requested above.
CERTIFICATION - Under the penalties of perjury, I(we) certify that (1) the
information provided on this application is true, correct and complete, (2)
I(we) have read the prospectus(es) for the Fund(s) in which I am(we are)
investing and agree to the terms thereof, and (3) I am(we are) of legal age or
an emancipated minor. I (we) acknowledge that Shares of the Fund(s) are not
insured or guaranteed by any agency or institution and that an investment in the
Shares involves risks, including the possible loss of principal.
X X
- ---------------------------------------- ---------------------------------------
Signature Signature
X X
- ---------------------------------------- ---------------------------------------
- --------------------------------------------------------------------------------
5 BROKER/DEALER USE ONLY (PLEASE PRINT)
- --------------------------------------------------------------------------------
-----------------------
We hereby submit this application for the purchase of Templeton Dealer Number
shares of the Fund indicated above in accordance with
the terms of our selling agreement with Franklin -----------------------
Templeton Distributors, Inc. ("FTD"), and with the
Prospectus for the Fund. We agree to notify FTD of any
purchases of Class I shares which may be eligible for
reduced or eliminated sales charges.
-----------------------------------------------------------------------------
WIRE ORDER ONLY: The attached check for $_______ should be applied against
Wire Order
Confirmation Number ___________ Dated___________ For__________ Shares
-----------------------------------------------------------------------------
Securities Dealer Name__________________________________________________________
Main Office Address________________ Main Office Telephone Number (___)__________
Branch Number________ Representative Number ________ Representative Name________
Branch Address_________________________ Branch Telephone Number (___)___________
Authorized Signature, Securities Dealer______________________ Title_____________
- --------------------------------------------------------------------------------
ACCEPTED: Franklin Templeton Distributors, Inc. By___________ Date______________
- --------------------------------------------------------------------------------
Please see reverse side for Shareholder Account Privileges:
[_] Distribution Options [_] Special Instructions for Distributions
[_] Systematic Withdrawal Plan [_] Automatic Investment Plan
[_] Telephone Exchange Service [_] Letter of Intent
[_] Cumulative Quantity Discount
This application must be preceded or accompanied by a prospectus for
the Fund(s) being purchased.
<PAGE>
- --------------------------------------------------------------------------------
6 DISTRIBUTION OPTIONS (Check one)
- --------------------------------------------------------------------------------
Check one - if no box is checked, all dividends and capital gains will be
reinvested in additional shares of the Fund.
[_] Reinvest all dividends [_] Pay all dividends in cash
and capital gains. and reinvest capital gains.
[_] Pay capital gains in cash [_] Pay all dividends and
and reinvest dividends. capital gains in cash.
- --------------------------------------------------------------------------------
7 OPTIONAL SHAREHOLDER PRIVILEGES
- --------------------------------------------------------------------------------
A. SPECIAL PAYMENT INSTRUCTIONS FOR DISTRIBUTIONS (Check one box)
[_] Invest Distributions, as noted in Section 6, or [_] withdrawals, as noted
in section 7(B), in another Franklin or Templeton Fund.
Restrictions may apply to purchases of shares of a different class. See
the prospectus for details.
Fund Name______________________ Existing Account Number___________________
[_] Send my Distributions to the person, named below, instead of as registered
and addressed in Sections 1 and 2.
Name___________________________ Street Address____________________________
City___________________________ State____________________Zip Code_________
- --------------------------------------------------------------------------------
B. SYSTEMATIC WITHDRAWAL PLAN
Please withdraw from my Franklin Templeton account $_____($50 minimum)
[_]Monthly [_]Quarterly [_]Semi-Annually or [_]Annually as set forth in the
Prospectus, starting in ______________(Month). The net asset value of the
shares held must be at least $5,000 at the time the plan is established.
Additional restrictions may apply to Class II or other shares subject to
contingent deferred sales charge, as described in the prospectus. Send the
withdrawals to: [_]Address of Record OR [_]the Franklin Templeton Fund or
person specified in Section 7(A) - Special Payment Instructions for
Distributions.
- --------------------------------------------------------------------------------
C. TELEPHONE TRANSACTIONS
TELEPHONE EXCHANGE PRIVILEGE: If the Fund does not receive specific
-----------------------------
instructions from the shareholder, either in writing or by telephone, the
Telephone Exchange Privilege (see the prospectus) is automatically extended
to each account. The shareholder should understand, however, that the Fund
and Franklin Templeton Investor Services, Inc. ("FTI") or Franklin Templeton
Trust Company and their agents will not be liable for any loss, injury,
damage or expense as a result of acting upon instructions communicated by
telephone reasonably believed to be genuine. The shareholder agrees to hold
the Fund and its agents harmless from any loss, claims, or liability arising
from its or their compliance with such instructions. The shareholder
understands that this option is subject to the terms and conditions set forth
in the prospectus of the fund to be acquired.
[_]No, I do NOT wish to participate in the Telephone Exchange Privilege or
authorize the Fund or its agents, including FTI or Templeton Funds Trust
Company, to act upon instructions received by telephone to exchange shares
for shares of any other account(s) within the Franklin Templeton Group of
Funds.
Telephone Redemption Privilege: This is available to shareholders who
-------------------------------
specifically request it and who complete the Franklin Templeton Telephone
Redemption Authorization Agreement in the back of the Fund's prospectus.
- --------------------------------------------------------------------------------
D. AUTOMATIC INVESTMENT PLAN
IMPORTANT: ATTACH AN UNSIGNED, VOIDED CHECK (FOR CHECKING ACCOUNTS) OR A
SAVINGS ACCOUNT DEPOSIT SLIP HERE, AND COMPLETE THE INFORMATION BELOW. I(We)
would like to establish an Automatic Investment Plan (the "Plan") as
described in the Prospectus. I(We) agree to reimburse FTI and/or FTD for any
expenses or losses that they may incur in connection with my(our) plan,
including any caused by my(our) bank's failure to act in accordance with
my(our) request. If my(our) bank makes any erroneous payment or fails to make
a payment after shares are purchased on my(our) behalf, any such purchase may
be cancelled and I(we) hereby authorize redemptions and/or deductions from
my(our) account for that purpose.
Debit my (circle one) savings, checking, other ________ account monthly for
$__________($25 minimum) on or about the [_]1st [_]5th [_]15th or [_]20th day
starting_______(month), to be invested in (name of
Fund)___________________Account Number (if known)_______
INSTRUCTIONS TO BANK - AUTOMATIC INVESTMENT PLAN AUTHORIZATION
To:__________________________________ ______________________________________
Name of Your Bank ABA Number
___________________________ _________________ ____________ ______________
Street Address City State Zip Code
I(We) authorize you to charge my(our) Checking/Savings Account and to make
payment to FTD, upon instructions from FTD. I(We) agree that in making payment
for such charges your rights shall be the same as if each were a charge made and
signed personally by me(us). This authority shall remain in effect until you
receive written notice from me(us) changing its terms or revoking it. Until you
actually receive such notice, I(we) agree that you shall be fully protected in
paying any charge under this authority. I(we) further agree that if any such
charge is not made, whether with or without cause and whether intentionally or
inadvertently, you shall be under no liability whatsoever.
X_________________________________________________ ___________________________
Signature(s) EXACTLY as shown on your bank records Date
______________________________________ _______________________________________
Print Name(s) Account Number
______________________________ _________________ ____________ ______________
Your Street Address City State Zip Code
- --------------------------------------------------------------------------------
E. LETTER OF INTENT (LOI) -- Not Applicable to Purchases of Class II
[_]I(We) agree to the terms of the LOI and provisions for reservations of
Class I shares and grant FTD the security interest set forth in the
Prospectus. Although I am(we are) not obligated to do so, it is my(our)
intention to invest over a 13 month period in Class I and/or Class II shares
of one or more Franklin or Templeton Funds (including all money market funds
in the Franklin Templeton Group) an aggregate amount at least equal to that
which is checked below. I understand that reduced sales charges will apply
only to purchases of Class I shares.
<TABLE>
<S> <C> <C> <C> <C>
[_]$50,000-99,999 (except for Income Fund [_]$100,000-249,999 [_]$250,000-499,999 [_]$500,000-999,999 [_]$1,000,0000 or more
and Americas Government Securities Fund)
</TABLE>
Purchases of Class I Shares under LOI of $1,000,000 or more are made at net
asset value and may be subject to a contingent deferred sales charge as
described in the prospectus.
Purchases made within the last 90 days will be included as part of your LOI.
Please write in your Account Number(s)____________ ____________ ____________
- --------------------------------------------------------------------------------
F. CUMULATIVE QUANTITY DISCOUNT -- Not Applicable to Purchases of Class II
Class I shares may be purchased at the offering price applicable to the total
of (a) the dollar amount then being purchased plus (b) the amount equal to
the cost or current value (whichever is higher) of the combined holdings of
the purchaser, his or her spouse, and their children or grandchildren under
age 21, of Class I and/or Class II shares of funds in the Franklin Templeton
Group, as well as other holdings of Franklin Templeton Investments, as that
term is defined in the prospectus. In order for this cumulative quantity
discount to be made available, the shareholder or his or her securities
dealer must notify FTI or FTD of the total holdings in the Franklin Templeton
Group each time an order is placed. I understand that reduced sales charges
will apply only to purchases of Class I shares.
[_]I(We) own shares of more than one Fund in the Franklin Templeton Group and
qualify for the Cumulative Quantity Discount described above and in the
Prospectus.
My(Our) other Account Number(s) are ___________ ___________ _______________
- --------------------------------------------------------------------------------
8 ACCOUNT REVISION (If Applicable)
- --------------------------------------------------------------------------------
If you are using this application to revise your Account Registration, or wish
to have Distributions sent to an address other than the address on your existing
Account's Registration, a Signature Guarantee is required. Signatures of all
registered owners must be guaranteed by an "eligible guarantor" as defined in
the "How to Sell Shares of the Fund" section in the Fund's Prospectus. A Notary
Public is not an acceptable guarantor.
X________________________________________ ____________________________________
Signature(s) of Registered Account Owners Account Number(s)
X________________________________________ ____________________________________
X________________________________________
X________________________________________ ____________________________________
Signature Guarantee Stamp
NOTE: For any change in registration, please send us any outstanding
Certificates by Registered Mail.
- --------------------------------------------------------------------------------
TLGOF APP 12/95
TEMPLETON FUNDS, INC.
THIS STATEMENT OF ADDITIONAL INFORMATION
DATED ,
JANUARY 1, 1996
IS NOT A PROSPECTUS. IT SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUSES OF
TEMPLETON WORLD FUND AND TEMPLETON FOREIGN FUND DATED
JANUARY 1, 1996, AS AMENDED FROM TIME TO TIME, WHICH MAY BE OBTAINED
WITHOUT CHARGE UPON REQUEST TO THE PRINCIPAL UNDERWRITER,
FRANKLIN TEMPLETON DISTRIBUTORS, INC.,
700 CENTRAL AVENUE, P.O. BOX 33030
ST. PETERSBURG, FLORIDA 33733-8030
TOLL FREE TELEPHONE: 800/DIAL BEN
TABLE OF CONTENTS
General Information and History.......................1
Investment Objectives and Policies....................1
-Investment Policies.................................1
-Repurchase Agreements...............................2
-Loans of Portfolio Securities.......................2
-Debt Securities.....................................2
-Structured Investments .............................4
-Stock Index Futures Contracts.......................5
-Stock Index Options.................................6
-Investment Restrictions.............................7
-Risk Factors . . . . . . . . . .................10
-Trading Policies...................................15
-Personal Securities Transactions...................15
Management of the Company............................16
Director Compensation................................21
Principal Shareholders...............................22
Investment Management and Other
Services.......................................... 23
-Investment Management
Agreements.........................................23
-Management Fees....................................25
-The Investment Manager.............................26
-Business Manager...................................26
-Custodian and Transfer Agent.......................28
-Legal Counsel......................................28
-Independent Accountants............................28
-Reports to Shareholders............................28
Brokerage Allocation.................................28
Purchase, Redemption and
Pricing of Shares..................................31
-Ownership and Authority
Disputes..........................................32
-Tax-Deferred Retirement Plans......................32
-Letter of Intent...................................34
-Special Net Asset Value Purchases..................35
-Redemptions in Kind. . . . . . . ..................36
Tax Status...........................................36
Principal Underwriter................................43
Description of Shares................................45
Performance Information..............................46
Financial Statements.................................49
GENERAL INFORMATION AND HISTORY
After incorporating under the laws of Maryland as Templeton World Fund,
Inc. and registering under the Investment Company Act of 1940 (the "1940 Act"),
the Company commenced business as an investment company on January 17, 1978. On
October 1, 1982 the Company's name was changed to Templeton Funds, Inc. (the
"Company") and it became a series investment company with two separate classes
of Shares constituting, respectively, Templeton World Fund ("World Fund") and
Templeton Foreign Fund ("Foreign Fund") (collectively, the "Funds"). As such,
the holder of the Shares issued for one Fund has an interest only in the
portfolio, assets and liabilities of that Fund.
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT POLICIES. The investment objective and policies of each Fund
are described in each Fund's Prospectus under the heading "General
Description--Investment Objective and Policies." Each Fund may invest for
defensive purposes in commercial paper which, at the date of investment, must be
rated A-1 by Standard & Poor's Corporation ("S&P") or Prime-1 by Moody's
Investors
<PAGE>
Service, Inc. ("Moody's") or, if not rated, be issued by a
company which at the date of investment has an outstanding debt
issue rated AAA or AA by S&P or Aaa or Aa by Moody's.
REPURCHASE AGREEMENTS. Repurchase agreements are contracts under which
the buyer of a security simultaneously commits to resell the security to the
seller at an agreed-upon price and date. Under a repurchase agreement, the
seller is required to maintain the value of the securities subject to the
repurchase agreement at not less than their repurchase price. Templeton Global
Advisors Limited (the "Investment 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 seller, including possible delays or restrictions upon a
Fund's ability to dispose of the underlying securities. A Fund will enter into
repurchase agreements only with parties who meet creditworthiness standards
approved by the Board of Directors, I.E., banks or broker-dealers which have
been determined by the Investment Manager to present no serious risk of becoming
involved in bankruptcy proceedings within the time frame contemplated by the
repurchase transaction.
LOANS OF PORTFOLIO SECURITIES. World Fund may lend to banks and
broker-dealers portfolio securities with an aggregate market value of up to
one-third of its total assets. Such loans must be secured by collateral
(consisting of any combination of cash, U.S. Government securities or
irrevocable letters of credit) in an amount at least equal (on a daily
marked-to-market basis) to the current market value of the securities loaned.
World Fund retains all or a portion of the interest received on investment of
the cash collateral or receives a fee from the borrower. World Fund may
terminate the loans at any time and obtain the return of the securities loaned
within five business days. World Fund will continue to receive any interest or
dividends paid on the loaned securities and will continue to have voting rights
with respect to the securities. However, as with other extensions of credit,
there are risks of delay in recovery or even loss of rights in collateral should
the borrower fail.
DEBT SECURITIES. The Funds may invest in debt securities which are
rated at least Caa by Moody's or CCC by S&P or deemed to be of comparable
quality by the Investment Manager. As an operating policy, neither Fund will
invest more than 5% of its assets in debt securities rated lower than Baa by
Moody's or BBB by S&P. 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
- 2 -
<PAGE>
generally declines. These changes in market value will be
reflected in a Fund's net asset value.
Although they may offer higher yields than do higher rated securities,
low rated and unrated debt securities generally involve greater volatility of
price and risk of principal and income, including the possibility of default by,
or bankruptcy of, the issuers of the 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 each 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, and the ability of a Fund to
achieve its investment objective may, to the extent of investment in low rated
debt securities, be more dependent upon such creditworthiness analysis than
would be the case if a Fund were investing in higher rated securities.
Low 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.
A Fund may accrue and report interest on high yield bonds structured as
zero coupon bonds or pay-in-kind securities as income even though it receives no
cash interest until the
- 3 -
<PAGE>
security's maturity or payment date. In order to qualify for beneficial tax
treatment afforded regulated investment companies, a Fund must distribute
substantially all of its net income to Shareholders (see "Tax Status"). Thus, a
Fund may have to dispose of its portfolio securities under disadvantageous
circumstances to generate cash in order to satisfy the distribution requirement.
Recent legislation, which requires federally insured savings and loan
associations to divest their investments in low rated debt securities, may have
a material adverse effect on the Funds' net asset values and investment
practices.
STRUCTURED INVESTMENTS. Included among the issuers of debt securities
in which the Funds may invest are entities organized and operated solely for the
purpose of restructuring the investment characteristics of various securities.
These entities are typically organized by investment banking firms which receive
fees in connection with establishing each entity and arranging for the placement
of its securities. This type of restructuring involves the deposit with or
purchases by an entity, such as a corporation or trust, of specified instruments
and the issuance by that entity of one or more classes of securities
("Structured Investments") backed by, or representing interests in, the
underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued Structured Investments to create securities
with different investment characteristics such as varying maturities, payment
priorities or interest rate provisions; the extent of the payments made with
respect to Structured Investments is dependent on the extent of the cash flow on
the underlying instruments. Because Structured Investments of the type in which
the Funds anticipate investing typically involve no credit enhancement, their
credit risk will generally be equivalent to that of the underlying instruments.
The Fund is permitted to invest in a class of Structured Investments
that is either subordinated or unsubordinated to the right of payment of another
class. Subordinated Structured Investments typically have higher yields and
present greater risks than unsubordinated Structures Investments. Although the
Fund's purchase of subordinated Structured Investments would have a similar
economic effect to that of borrowing against the underlying securities, the
purchase will not be deemed to be leverage for purposes of the limitations
placed on the extent of the Fund's assets that may be used for borrowing
activities.
Certain issuers of Structured Investments may be deemed to be
"investment companies" as defined in the 1940 Act. As a result, the Fund's
investment in these Structured Investments may be limited by the restrictions
contained in the 1940 Act.
- 4 -
<PAGE>
Structured Investments are typically sold in private placement transactions, and
there currently is no active trading market for Structured Investments. To the
extent such investments are illiquid, they will be subject to the Fund's
restrictions on investments in illiquid securities.
STOCK INDEX FUTURES CONTRACTS. World Fund's investment policies permit
it to buy and sell stock index futures contracts with respect to any stock index
traded on a recognized stock exchange or board of trade, to an aggregate amount
not exceeding 20% of World Fund's total assets as of the time when such
contracts are entered into. Successful use of stock index futures is subject to
the Investment Manager's ability to predict correctly movements in the direction
of the stock markets. No assurance can be given that the Investment Manager's
judgment in this respect will be correct.
A stock index futures contract is a contract to buy or sell units of a
stock index at a specified future date at a price agreed upon when the contract
is made. The value of a unit is the current value of the stock index. For
example, the Standard & Poor's 500 Stock Index (the "S&P 500 Index") is composed
of 500 selected common stocks, most of which are listed on the New York Stock
Exchange ("NYSE"). The S&P 500 Index assigns relative weightings to the value of
one share of each of these 500 common stocks included in the Index, and the
Index fluctuates with changes in the market values of the shares of those common
stocks. In the case of the S&P 500 Index, contracts are to buy or sell 500
units. Thus, if the value of the S&P 500 Index were $150, one contract would be
worth $75,000 (500 units x $150). The stock index futures contract specifies
that no delivery of the actual stocks making up the Index will take place.
Instead, settlement in cash must occur upon the termination of the contract,
with the settlement being the difference between the contract price and the
actual level of the stock index at the expiration of the contract. For example,
if World Fund enters into a futures contract to buy 500 units of the S&P 500
Index at a specified future date at a contract price of $150 and the S&P 500
Index is at $154 on that future date, World Fund will gain $2,000 (500 units x
gain of $4). If World Fund enters into a futures contract to sell 500 units of
the stock index at a specified future date at a contract price of $150 and the
S&P 500
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Index is at $154 on that future date, World Fund will lose $2,000 (500 units x
loss of $4).
During or in anticipation of a period of market appreciation, World
Fund may enter into a "long hedge" of common stock which it proposes to add to
its portfolio by purchasing stock index futures for the purpose of reducing the
effective purchase price of such common stock. To the extent that the securities
which World Fund proposes to buy change in value in correlation with the stock
index contracted for, the purchase of futures contracts on that index would
result in gains to World Fund which could be offset against rising prices of
such common stock.
During or in anticipation of a period of market decline, World Fund may
"hedge" common stock in its portfolio by selling stock index futures for the
purpose of limiting the exposure of its portfolio to such decline. To the extent
that World Fund's portfolio of securities changes in value in correlation with a
given stock index, the sale of futures contracts on that index could
substantially reduce the risk to the portfolio of a market decline and, by so
doing, provide an alternative to the liquidation of securities positions in the
portfolio with resultant transaction costs.
Parties to an index futures contract must make initial margin deposits
to secure performance of the contract, which currently range from 1 1/2% to 5%
of the contract amount. Initial margin requirements are determined by the
respective exchanges on which the futures contracts are traded. There also are
requirements to make variation margin deposits as the value of the futures
contract fluctuates.
At the time World Fund purchases a stock index futures contract, an
amount of cash, U.S. Government securities, or other highly liquid debt
securities equal to the market value of the contract will be deposited in a
segregated account with World Fund's Custodian. When selling a stock index
futures contract, World Fund will maintain with its Custodian liquid assets
that, when added to the amounts deposited with a futures commission merchant or
broker as margin, are equal to the market value of the instruments underlying
the contract. Alternatively, World Fund may "cover" its position by owning a
portfolio with a volatility substantially similar to that of the index on which
the futures contract is based, or holding a call option permitting World Fund to
purchase the same futures contract at a price no higher than the price of the
contract written by World Fund (or at a higher price if the difference is
maintained in liquid assets with World Fund's Custodian).
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STOCK INDEX OPTIONS. World Fund may purchase and sell put and call
options on securities indices in standardized contracts traded on national
securities exchanges, boards of trade, or similar entities, or quoted on NASDAQ.
An option on a securities index is a contract that gives the purchaser of the
option, in return for the premium paid, the right to receive from the writer of
the option, cash equal to the difference between the closing price of the index
and the exercise price of the option, expressed in dollars, times a specified
multiplier for the index option. (An index is designed to reflect specified
facets of a particular financial or securities market, a specific group of
financial instruments or securities, or certain economic indicators.)
World Fund may write call options and put options only if they are
"covered." A call option on an index is covered if World Fund maintains with its
custodian cash or cash equivalents equal to the contract value. A call option is
also covered if World Fund holds a call on the same index as the call written
where the exercise price of the call held is (i) equal to or less than the
exercise price of the call written, or (ii) greater than the exercise price of
the call written, provided the difference is maintained by World Fund in cash or
cash equivalents in a segregated account with its Custodian. A put option is
also covered if World Fund holds a put on the same index as the put written
where the exercise price of the put held is (i) equal to or greater than the
exercise price of the put written, or (ii) less than the exercise price of the
put written, provided the difference is maintained by World Fund in cash or cash
equivalents in a segregated account with its Custodian.
If an option written by World Fund expires, World Fund will realize a
capital gain equal to the premium received at the time the option was written.
If an option purchased by World Fund expires unexercised, World Fund will
realize a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may be closed
out by an offsetting purchase or sale of an option of the same series (type,
exchange, index, exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be effected when World
Fund desires.
INVESTMENT RESTRICTIONS. Each of the Funds has imposed upon
itself certain investment restrictions which, together with its
investment objective and policies, are fundamental policies
except as otherwise indicated. No changes in either Fund's
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investment objective and policies or investment restrictions (except those which
are not fundamental policies) can be made without the approval of that Fund's
Shareholders. For this purpose, the provisions of the 1940 Act require, with
respect to either Fund, the affirmative vote of the lesser of either (1) 67% or
more of the Shares of a Fund present at a Shareholders' meeting at which more
than 50% of the outstanding Shares of such Fund are present or represented by
proxy or (2) more than 50% of the outstanding Shares of a Fund.
In accordance with these restrictions, neither of the Funds will:
1. Invest in real estate or mortgages on real estate
(although each Fund may invest in marketable securities
secured by real estate or interests therein or issued
by companies or investment trusts which invest in real
estate or interests therein); invest in other open-end
investment companies; invest in interests (other than
debentures or equity stock interests) in oil, gas or
other mineral exploration or development programs; or
purchase or sell commodity contracts except that World
Fund may purchase or sell stock index futures
contracts.
2. Purchase or retain securities of any company in which
Directors or officers of the Company or of its Investment
Manager, individually owning more than 1/2 of 1% of the
securities of such company, in the aggregate own more than 5%
of the securities of such company.
3. Purchase more than 10% of any class of securities of any one
company, including more than 10% of its outstanding voting
securities, or invest in any company for the purpose of
exercising control or management.
4. Act as an underwriter; issue senior securities; purchase on
margin or sell short; write, buy or sell puts, calls,
straddles or spreads (but World Fund may make margin payments
in connection with, and purchase and sell, stock index futures
contracts and options on securities indices).
5. Loan money apart from the purchase of a portion of an
issue of publicly distributed bonds, debentures, notes
and other evidences of indebtedness, although the Funds
may buy from a bank or broker-dealer United States and
Canadian government obligations with a simultaneous
agreement by the seller to repurchase them within no
more than seven days at the original purchase price
plus accrued interest.
6. Borrow money for any purpose other than redeeming its
Shares or purchasing its Shares for cancellation, and
then only as a temporary measure up to an amount not
exceeding 5% of the value of its total assets; or
pledge, mortgage or hypothecate its assets for any
purpose other than to secure such borrowings, and then
only up to such extent not exceeding 10% of the value
of its total assets as the Company's Board of Directors
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may by resolution approve. As an operating policy approved by
the Board of Directors of the Company, neither Fund will
pledge, mortgage or hypothecate its assets to the extent that
at any time the percentage of pledged assets plus the sales
commission will exceed 10% of the Offering Price of the Shares
of a Fund. (For purposes of this restriction, collateral
arrangements by World Fund with respect to margin for a stock
index futures contract are not deemed to be a pledge of
assets.)
7. Invest more than 5% of the value of a Fund's total assets in
securities of issuers which have been in continuous operation
less than three years.
8. Invest more than 5% of a Fund's total assets in
warrants, whether or not listed on the New York or
American Stock Exchange, including no more than 2% of
its total assets which may be invested in warrants that
are not listed on those exchanges. Warrants acquired
by a Fund in units or attached to securities are not
included in this restriction. This restriction does
not apply to options on securities indices.
9. Invest more than 15% of a Fund's total assets in
securities of foreign issuers which are not listed on a
recognized United States or foreign securities
exchange, including no more than 10% of its total
assets (including warrants) which may be invested in
securities with a limited trading market. A Fund's
position in the latter type of securities may be of
such size as to affect adversely their liquidity and
marketability and a Fund may not be able to dispose of
its holdings in these securities at the current market
price.
10. Invest more than 25% of a Fund's total assets in a
single industry.
11. Invest in "letter stocks" or securities on which there
are any sales restrictions under a purchase agreement.
12. Participate on a joint or a joint and several basis in any
trading account in securities. (See "Investment Objectives and
Policies--Trading Policies" as to transactions in the same
securities for World Fund, Foreign Fund, and/or other mutual
funds with the same or affiliated advisers.)
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Whenever any investment policy or investment restriction states a
maximum percentage of either Fund's assets which may be invested in any security
or other property, it is intended that such maximum percentage limitation be
determined immediately after and as a result of that Fund's acquisition of such
security or property. The value of a Fund's assets is calculated as described in
its Prospectus under the heading "How to Buy Shares of the Fund." Nothing in the
investment policy or investment restrictions (except restrictions 9 and 10)
shall be deemed to prohibit either Fund from purchasing securities pursuant to
subscription rights distributed to either Fund by any issuer of securities held
at the time in its portfolio (as long as such purchase is not contrary to either
Fund's status as a diversified investment company under the 1940 Act).
RISK FACTORS. Each Fund has an unlimited right to purchase securities
in any foreign country, developed or developing, if they are listed on a stock
exchange, as well as a limited right to purchase such securities if they are
unlisted. Investors should consider carefully the substantial risks involved in
securities of companies and governments of foreign nations, which are in
addition to the usual risks inherent in domestic investments.
There may be less publicly available information about foreign
companies comparable to the reports and ratings published about companies in the
United States. Foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards, and auditing practices
and requirements may not be comparable to those applicable to United States
companies. A Fund, therefore, may encounter difficulty in obtaining market
quotations for purposes of valuing its portfolio and calculating its net asset
value. Foreign markets have substantially less volume than the NYSE and
securities of some foreign companies are less liquid and more volatile than
securities of comparable United States companies. Although neither Fund may
invest more than 15% of its total assets in unlisted foreign securities,
including not more than 10% of its total assets in securities with a limited
trading market, in the opinion of management such securities with a limited
trading market do not present a significant liquidity problem. Commission rates
in foreign countries, which are generally fixed rather than subject to
negotiation as in the United States, are likely to be higher. In many foreign
countries there is less government supervision and regulation of stock
exchanges, brokers and listed companies than in the United States.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
These risks include (i) less social,
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political and economic stability; (ii) the small current size of the markets for
such securities and the currently low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies which may restrict a Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed legal
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until recently in
certain Eastern European countries, of a capital market structure or
market-oriented economy; and (vii) the possibility that recent favorable
economic developments in Eastern Europe may be slowed or reversed by
unanticipated political or social events in such countries.
In addition, many countries in which a Fund may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had any may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some developing countries may
differ favorably or unfavorably from the United States economy in such respects
as growth of gross domestic product, rate of inflation, currency depreciation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
Investments in Eastern European countries may involve risks of
nationalization, expropriation and confiscatory taxation. The Communist
governments of a number of Eastern European countries expropriated large amounts
of private property in the past, in many cases without adequate compensation,
and there can be no assurance that such expropriation will not occur in the
future. In the event of such expropriation, a Fund could lose a substantial
portion of any investments it has made in the affected countries. Further, no
accounting standards exist in Eastern European countries. Finally, even though
certain Eastern European currencies may be convertible into United States
dollars, the conversion rates may be artificial to the actual market values and
may be adverse to a Fund's Shareholders.
Investing in Russian companies involves a high degree of risk and
special considerations not typically associated with investing in the United
States securities markets, and should be considered highly speculative. Such
risks include: (1) delays in settling portfolio transactions and risk of loss
arising out of Russia's system of share registration and custody; (2) the risk
that it may be impossible or more difficult than in other countries to obtain
and/or enforce a judgment; (3) pervasiveness
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of corruption and crime in the Russian economic system; (4) currency exchange
rate volatility and the lack of available currency hedging instruments; (5)
higher rates of inflation (including the risk of social unrest associated with
periods of hyper-inflation); (6) controls on foreign investment and local
practices disfavoring foreign investors and limitations on repatriation of
invested capital, profits and dividends, and on a Fund's ability to exchange
local currencies for U.S. dollars; (7) the risk that the government of Russia or
other executive or legislative bodies may decide not to continue to support the
economic reform programs implemented since the dissolution of the Soviet Union
and could follow radically different political and/or economic policies to the
detriment of investors, including non-market-oriented policies such as the
support of certain industries at the expense of other sectors or investors, or a
return to the centrally planned economy that existed prior to the dissolution of
the Soviet Union; (8) the financial condition of Russian companies, including
large amounts of inter-company debt which may create a payments crisis on a
national scale; (9) dependency on exports and the corresponding importance of
international trade; (10) the risk that the Russian tax system will not be
reformed to prevent inconsistent, retroactive and/or exorbitant taxation; and
(11) possible difficulty in identifying a purchaser of securities held by a Fund
due to the underdeveloped nature of the securities markets.
There is little historical data on Russian securities markets because
they are relatively new and a substantial proportion of securities transactions
in Russia are privately negotiated outside of stock exchanges. Because of the
recent formation of the securities markets as well as the underdeveloped state
of the banking and telecommunications systems, settlement, clearing and
registration of securities transactions are subject to significant risks.
Ownership of shares (except where shares are held through depositories that meet
the requirements of the 1940 Act) is defined according to entries in the
company's share register and normally evidenced by extracts from the register or
by formal share certificates. However, there is no central registration system
for shareholders and these services are carried out by the companies themselves
or by registrars located throughout Russia. These registrars are not necessarily
subject to effective state supervision and it is possible for a Fund to lose its
registration through fraud, negligence or even mere oversight. While a Fund will
endeavor to ensure that its interest continues to be appropriately recorded
either itself or through a custodian or other agent inspecting the share
register and by obtaining extracts of share registers through regular
confirmations, these extracts have no legal enforceability and it is possible
that subsequent illegal amendment or other fraudulent act may deprive the Fund
of its ownership rights or improperly
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<PAGE>
dilute its interests. In addition, while applicable Russian regulations impose
liability on registrars for losses resulting from their errors, it may be
difficult for a Fund to enforce any rights it may have against the registrar or
issuer of the securities in the event of loss of share registration.
Furthermore, although a Russian public enterprise with more than 1,000
shareholders is required by law to contract out the maintenance of its
shareholder register to an independent entity that meets certain criteria, in
practice this regulation has not always been strictly enforced. Because of this
lack of independence, management of a company may be able to exert considerable
influence over who can purchase and sell the company's shares by illegally
instructing the registrar to refuse to record transactions in the share
register. This practice may prevent a Fund from investing in the securities of
certain Russian companies deemed suitable by the Investment Manager. Further,
this also could cause a delay in the sale of Russian company securities by a
Fund if a potential purchaser is deemed unsuitable, which may expose the Fund to
potential loss on the investment.
Each Fund endeavors to buy and sell foreign currencies on as favorable
a basis as practicable. Some price spread in currency exchange (to cover service
charges) will 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 which 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 which could affect investments in securities of issuers in foreign
nations.
Either Fund may be affected either unfavorably or favorably 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 a 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. Certain
of these currencies have experienced a steady devaluation relative to the U.S.
dollar. Any devaluations in the currencies in which a Fund's portfolio
securities are denominated may have a detrimental impact on that Fund. Through
the flexible
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policy of the Funds, the Investment Manager endeavors to avoid unfavorable
consequences and to take advantage of favorable developments in particular
nations where from time to time it places the investments of either Fund.
The exercise of this flexible policy may include decisions to purchase
securities with substantial risk characteristics and other decisions such as
changing the emphasis on investments from one nation to another and from one
type of security to another. Some of these decisions may later prove profitable
and others may not. No assurance can be given that profits, if any, will exceed
losses.
The Directors consider at least annually the likelihood of the
imposition by any foreign government of exchange control restrictions which
would affect the liquidity of either Fund's assets maintained with custodians in
foreign countries, as well as the degree of risk from political acts of foreign
governments to which such assets may be exposed. ^The Directors also consider
the degree of risk involved through the holding of portfolio securities in
domestic and foreign securities depositories (see "Investment Management and
Other Services --Custodian and Transfer Agent"). However, in the absence of
willful misfeasance, bad faith or gross negligence on the part of the Investment
Manager, any losses resulting from the holding of either Fund's portfolio
securities in foreign countries and/or with securities depositories will be at
the risk of the Shareholders. No assurance can be given that the Directors'
appraisal of the risks will always be correct or that such exchange control
restrictions or political acts of foreign governments might not occur.
There are additional risks involved in stock index futures
transactions. These risks relate to World Fund's ability to reduce or eliminate
its futures positions, which will depend upon the liquidity of the secondary
markets for such futures. World Fund intends to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, but there is no assurance that a liquid secondary market will exist for
any particular contract at any particular time. Use of stock index futures for
hedging may involve risks because of imperfect correlations between movements in
the prices of the stock index futures on the one hand and movements in the
prices of the securities being hedged or of the underlying stock index on the
other. Successful use of stock index futures by World Fund for hedging purposes
also depends upon the Investment Manager's ability to predict correctly
movements in the direction of the market, as to which no assurance can be given.
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<PAGE>
There are several risks associated with transactions in options on
securities indices. For example, there are significant differences between the
securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its
objectives. A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when World Fund seeks
to close out an option position. If World Fund were unable to close out an
option that it had purchased on a securities index, it would have to exercise
the option in order to realize any profit or the option may expire worthless. If
trading were suspended in an option purchased by World Fund, it would not be
able to close out the option. If restrictions on exercise were imposed, World
Fund might be unable to exercise an option it has purchased. Except to the
extent that a call option on an index written by World Fund is covered by an
option on the same index purchased by World Fund, movements in the index may
result in a loss to World Fund; however, such losses may be mitigated by changes
in the value of World Fund's securities during the period the option was
outstanding.
TRADING POLICIES. The Investment Manager and its affiliated companies
serve as investment adviser to other investment companies and private clients.
Accordingly, the respective portfolios of certain of these funds and clients may
contain many or some of the same securities. When certain funds or clients are
engaged simultaneously in the purchase or sale of the same security, the trades
may be aggregated for execution and then allocated in a manner designed to be
equitable to each party. The larger size of the transaction may affect the price
of the security and/or the quantity which may be bought or sold for each party.
If the transaction is large enough, brokerage commissions in certain countries
may be negotiated below those otherwise chargeable.
Sale or purchase of securities, without payment of brokerage
commissions, fees (except customary transfer fees) or other remuneration in
connection therewith, may be effected between any of these funds, or between
funds and private clients, under procedures adopted pursuant to Rule 17a-7 under
the 1940 Act.
PERSONAL SECURITIES TRANSACTIONS. Access persons of the
Franklin Templeton Group, as defined in SEC Rule 17(j) under the
1940 Act, who are employees of Franklin Resources, Inc. or their
subsidiaries, are permitted to engage in personal securities
transactions subject to the following general restrictions and
procedures: (1) The trade must receive advance clearance from a
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<PAGE>
Compliance Officer and must be completed within 24 hours after this clearance;
(2) Copies of all brokerage confirmations must be sent to the Compliance Officer
and within 10 days after the end of each calendar quarter, a report of all
securities transactions must be provided to the Compliance Officer; (3) In
addition to items (1) and (2), access persons involved in preparing and making
investment decisions must file annual reports of their securities holdings each
January and also inform the Compliance Officer (or other designated personnel)
if they own a security that is being considered for a fund or other client
transaction or if they are recommending a security in which they have an
ownership interest for purchase or sale by a fund or other client.
MANAGEMENT OF THE COMPANY
The name, address, principal occupation during the past five years and
other information with respect to each of the Directors and Executive Officers
of the Company are as follows:
NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH COMPANY DURING PAST FIVE YEARS
HARRIS J. ASHTON
Metro Center
1 Station Place
Stamford, Connecticut
Director
Chairman of the Board, president
and chief executive officer of
General Host Corporation (nursery
and craft centers); and a director
of RBC Holdings (U.S.A.) Inc. (a
bank holding company) and Bar-S
Foods. Age 63.
NICHOLAS F. BRADY*
The Bullitt House
102 East Dover Street
Easton, Maryland
Director Chairman of Templeton Emerging Markets Investment Trust PLC; chairman
of Templeton Latin America Investment Trust PLC; chairman of Darby Overseas
Investments, Ltd. (an investment firm) (1994- present); director of the Amerada
Hess Corporation, Capital Cities/ABC, Inc., Christiana Companies, and the H.J.
Heinz Company; Secretary of the United States Department of the Treasury
(1988-January 1993); and chairman of the board of Dillon, Read & Co. Inc.
(investment banking) prior thereto. Age 65.
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NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH COMPANY DURING PAST FIVE YEARS
F. BRUCE CLARKE
19 Vista View Blvd.
Thornhill, Ontario
Director
Retired; formerly, credit adviser for the National Bank of Canada.
Age 85.
HASSO-G VON DIERGARDT-NAGLO
R.R. 3
Stouffville, Ontario
Director
Farmer; and president of Clairhaven
Investments, Ltd. and other private
investment companies. Age 79.
S. JOSEPH FORTUNATO
200 Campus Drive
Florham Park, New Jersey
Director
Member of the law firm of Pitney,
Hardin, Kipp & Szuch; and a
director of General Host
Corporation. Age 63.
JOHN Wm. GALBRAITH
360 Central Avenue
Suite 1300
St. Petersburg, Florida
Director
President of Galbraith Properties,
Inc. (personal investment company);
director of Gulfwest Banks, Inc.
(bank holding company) (1995-
present) and Mercantile Bank (1991-
present); vice chairman of
Templeton, Galbraith & Hansberger
Ltd. (1986-1992); and chairman of
Templeton Funds Management, Inc.
(1974-1991). Age 74.
ANDREW H. HINES, JR.
150 2nd Avenue N.
St. Petersburg, Florida
Director Consultant for the Triangle Consulting Group; chairman of the board
and chief executive officer of Florida Progress Corporation (1982-February 1990)
and director of various of its subsidiaries; chairman and director of Precise
Power Corporation; executive-in-residence of Eckerd College (1991- present); and
a director of Checkers Drive-In Restaurants, Inc.
Age 72.
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NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH COMPANY DURING PAST FIVE YEARS
CHARLES B. JOHNSON*
777 Mariners Island Blvd.
San Mateo, California
Chairman of the Board
and Vice President
President, chief executive officer, and director of Franklin Resources, Inc.;
chairman of the board and director of Franklin Advisers, Inc. and Franklin
Templeton Distributors, Inc.; director of Franklin Administrative Services,
Inc., General Host Corporation, and Templeton Global Investors, Inc.; and
officer and director, trustee or managing general partner, as the case may be,
of most other subsidiaries of Franklin and of 55 of the investment companies in
the Franklin Templeton Group. Age 62.
RUPERT H. JOHNSON, JR.*
777 Mariners Island Blvd.
San Mateo, California
Director Executive vice president and director of Franklin Resources, Inc.;
president and director of Franklin Advisers, Inc.; executive vice president and
director of Franklin Templeton Distributors, Inc.; director of Franklin
Administrative Services, Inc.; and officer and/or director, trustee or managing
general partner, as the case may be, of most other subsidiaries of Franklin, and
of 42 of the investment companies in the Franklin Templeton Group. Age 55.
BETTY P. KRAHMER
2201 Kentmere Parkway
Wilmington, Delaware
Director
Director or trustee of various
civic associations; formerly,
economic analyst, U.S. Government.
Age 66
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NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH COMPANY DURING PAST FIVE YEARS
GORDON S. MACKLIN
8212 Burning Tree Road
Bethesda, Maryland
Director
Chairman of White River Corporation (information services); director of Fund
America Enterprises Holdings, Inc., Lockheed Martin Corporation, MCI
Communications Corporation, Fusion Systems Corporation, Infovest Corporation,
and Medimmune, Inc.; formerly, chairman of Hambrecht and Quist Group; director
of H&Q Healthcare Investors; and president of the National Association of
Securities Dealers, Inc. Age 67.
FRED R. MILLSAPS
2665 NE 37th Drive
Fort Lauderdale, Florida
Director
Manager of personal investments (1978-present); chairman and chief executive
officer of Landmark Banking Corporation (1969-1978); financial vice president of
Florida Power and Light (1965-1969); vice president of The Federal Reserve Bank
of Atlanta (1958-1965); and a director of various other business and nonprofit
organizations. Age 66.
MARK G. HOLOWESKO
Lyford Cay
Nassau, Bahamas
President
President and director of Templeton Global Advisors Limited; director of global
equity research for Templeton Worldwide, Inc.; president or vice president of
the Templeton Funds; formerly, investment administrator with Roy West Trust
Corporation (Bahamas) Limited (1984-1985). Age 35.
- 19 -
<PAGE>
NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH COMPANY DURING PAST FIVE YEARS
MARTIN L. FLANAGAN
777 Mariners Island Blvd.
San Mateo, California
Vice President Senior vice president, treasurer and chief financial officer of
Franklin Resources, Inc.; director and executive vice president of Templeton
Investment Counsel, Inc.; director, president and chief executive officer of
Templeton Global Investors, Inc.; president or vice president of various
Templeton Funds; director or trustee of six Templeton Funds; accountant, Arthur
Andersen & Company (1982-1983); and a member of the International Society of
Financial Analysts and the American Institute of Certified Public Accountants.
Age 35.
JOHN R. KAY
500 East Broward Blvd.
Fort Lauderdale, Florida
Vice President Vice president of the Templeton Funds; vice president and
treasurer of Templeton Global Investors, Inc. and Templeton Worldwide, Inc.;
assistant vice president of Franklin Templeton Distributors, Inc.; formerly,
vice president and controller of the Keystone Group, Inc. Age 55.
JAMES R. BAIO
500 East Broward Blvd.
Fort Lauderdale, Florida
Treasurer Certified public accountant; treasurer of the Templeton Funds;
senior vice president of Templeton Worldwide, Inc., Templeton Global Investors,
Inc., and Templeton Funds Trust Company; formerly, senior tax manager of Ernst &
Young (certified public accountants) (1977-1989). Age 41.
- 20 -
<PAGE>
THOMAS M. MISTELE
700 Central Avenue
St. Petersburg, Florida
Secretary
Senior vice president of Templeton Global Investors, Inc.; vice president of
Franklin Templeton Distributors, Inc.; formerly, secretary of the Templeton
Funds; attorney, Dechert Price & Rhoads (1985-1988) and Freehill, Hollingdale &
Page (1988); and judicial clerk, U.S. District Court (Eastern District of
Virginia) (1984-1985). Age 42.
JEFFREY L. STEELE
1500 K Street, N.W.
Washington, D.C.
Assistant Secretary
Partner, Dechert Price & Rhoads.
Age 50.
- --------------------
* These Directors are "interested persons" of the Company as
that term is defined in the 1940 Act. Mr. Brady and
Franklin Resources, Inc. are limited partners of Darby
Overseas Partners, L.P. ("Darby Overseas"). Mr. Brady
established Darby Overseas in February, 1994, and is
Chairman and a shareholder of the corporate general partner
of Darby Overseas. In addition, Darby Overseas and
Templeton Global Advisors Limited are limited partners of
Darby Emerging Markets Fund, L.P. ^
There are no family relationships between any of the Directors, except
that Messrs. Charles B. Johnson and Rupert H.
Johnson, Jr. are brothers.
DIRECTOR COMPENSATION
All of the Company's Officers and Directors also hold positions with
other investment companies in the Franklin Templeton Group. No compensation is
paid by the Company to any officer or Director who is an officer, trustee or
employee of the Investment Manager or its affiliates. Each Templeton Fund pays
its independent directors and trustees and Mr. Brady an annual retainer and/or
fees for attendance at Board and Committee meetings, the amount of which is
based on the level of assets in each fund. Accordingly, ^ the Company currently
pays the independent Directors and Mr. Brady an annual retainer of $12,500
- 21 -
<PAGE>
and a fee of $950 per meeting attended of the Board and its Committees. The
independent Directors and Mr. Brady are reimbursed for any expenses incurred in
attending meetings, paid pro rata by each Franklin Templeton Fund in which they
serve. No pension or retirement benefits are accrued as part of Company
expenses.
The following table shows the total compensation paid to the Directors
by the Company and by all investment companies in the Franklin Templeton Group^:
<TABLE>
<CAPTION>
Number of Total Compensation
Aggregate Franklin Templeton from all Fund in
Name of CompensatFund Boards on which Franklin Templeton
DIRECTOR FROM THE COMPANY* DIRECTOR SERVES GROUP**
- -------- -----------------------------------------------------------------------
<S> <C> <C> <C>
Harris J. Ashton $14,225 57 $ 239,025
Nicholas F. Brady 14,225 24 98,225
F. Bruce Clarke 16,225 20 83,350
Hasso G. von Diergardt-Naglo 14,225 20 77,350
S. Joseph Fortunato 14,225 59 255,845
John Wm. Galbraith 4,075 23 70,100
Andrew H. Hines, Jr. 16,225 24 106,325
Betty P. Krahmer 14,225 24 93,475
Gordon S. Macklin 14,225 54 230,625
Fred R. Millsaps 16,225 24 104,325
</TABLE>
- ---------------
* For the fiscal year ended August 31, 1995.
** For the calendar year ended December 31, 1995
PRINCIPAL SHAREHOLDERS
As of December 1, 1995, there were 394,994,390 World Fund Shares
outstanding, of which 912,183 Shares (or 0.231% of the total outstanding World
Fund Shares) were owned beneficially by all the Directors and Officers of the
Company as a group. As of December 1, 1995, no person owned of record or, to the
knowledge of management, owned beneficially of record, 5% or more of the
outstanding World Fund-Class I Shares, and no person owned of record or, to the
knowledge of management, owned beneficially, 5% or more of the outstanding World
Fund-Class II Shares, except Merrill Lynch, Pierce, Fenner & Smith, Inc., 4800
Deer Lake Drive East, Jacksonville, Florida 32246-6484 owned of record 145,954
Shares (representing 14% of the outstanding Shares). As of December 1, 1995,
there were 790,763,336 Foreign Fund Shares
- 22 -
<PAGE>
outstanding, of which 653,565 Shares (or 0.083% of the total outstanding Foreign
Fund Shares) were owned beneficially by all the Directors and officers of the
Company as a group. As of December 1, 1995, to the knowledge of management, no
person owned beneficially of record 5% or more of the outstanding Foreign
Fund-Class I Shares, except Merrill Lynch, Pierce, Fenner & Smith, Inc., 4800
Deer Lake Drive East, P.O. Box 45286, Jacksonville, Florida 32246-6484 owned of
record 48,828,748 Shares (representing 6% of the outstanding Shares) and no
person owned beneficially 5% or more of the outstanding Foreign Fund-Class II
Shares, except Merrill Lynch, Pierce, Fenner & Smith, Inc., 4800 Deer Lake Drive
East, P.O. Box 45286, Jacksonville, Florida 32246-6484 owned 3,858,566 Shares
(representing 25% of the outstanding Shares).
INVESTMENT MANAGEMENT AND OTHER SERVICES
INVESTMENT MANAGEMENT AGREEMENTS. The Investment Manager of each Fund
is Templeton Global Advisors Limited, a Bahamian corporation with offices in
Nassau, Bahamas. On October 30, 1992, the Investment Manager assumed the
investment management duties of Templeton, Galbraith & Hansberger Ltd. ("Old
TGH"), a Cayman Islands corporation, with respect to the Funds in connection
with the merger of the business of Old TGH with that of Franklin Resources, Inc.
("Franklin"). The Investment Management Agreements between the Investment
Manager and the Company on behalf of World Fund and Foreign Fund, dated October
30, 1992, amended and restated December 6, 1994, was approved by the
Shareholders of each Fund on October 30, 1992, and was last approved by the
Board of Directors, including approval by a majority of the Directors who were
not parties to the Investment Management Agreements or interested persons of any
such party, at a meeting on December 5, 1995 and will continue through December
31, 1996.
The Investment Management Agreements will continue from year to year
thereafter, subject to approval annually by the Board of Directors or by vote of
a majority of the outstanding Shares of each Fund (as defined in the 1940 Act)
and also, in either event, with the approval of a majority of those Directors
who are not parties to the Agreements or interested persons of any such party in
person at a meeting called for the purpose of voting on such approval.
Each Investment Management Agreement requires the Investment Manager to
manage the investment and reinvestment of each Fund's assets. The Investment
Manager is not required to furnish any personnel, overhead items or facilities
for the Funds, including daily pricing or trading desk facilities, although such
expenses are paid by investment advisers of some other investment
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<PAGE>
companies. These expenses have been and may continue to be borne
by the Funds.
Each Investment Management Agreement provides that the Investment
Manager will select brokers and dealers for execution of each Fund's portfolio
transactions consistent with the Company's brokerage policies (see "Brokerage
Allocation"). Although the services provided by broker-dealers in accordance
with the brokerage policies incidentally may help reduce the expenses of or
otherwise benefit the Investment Manager and other investment advisory clients
of the Investment Manager and of its affiliates, as well as the Funds, the value
of such services is indeterminable and the Investment Manager's fee is not
reduced by any offset arrangement by reason thereof.
The Investment Manager renders its services to the Funds from outside
the United States. When the Investment Manager determines to buy or sell the
same securities for a Fund that the Investment Manager or certain of its
affiliates have selected for one or more of the Investment Manager's other
clients or for clients of its affiliates, the orders for all such securities
trades may be placed for execution by methods determined by the Investment
Manager, with approval by the Company's Board of Directors, to be impartial and
fair, in order to seek good results for all parties (see "Investment Objectives
and Policies--Trading Policies"). Records of securities transactions of persons
who know when orders are placed by a Fund are available for inspection at least
four times annually by the Compliance Officer of the Company so that the
non-interested Directors (as defined in the 1940 Act) can be satisfied that the
procedures are generally fair and equitable for all parties.
The Investment Manager also provides management services to numerous
other investment companies or funds and accounts pursuant to management
agreements with each fund or account. The Investment Manager may give advice and
take action with respect to any of the other funds and accounts it manages, or
for its own account, which may differ from action taken by the Investment
Manager on behalf of a Fund. Similarly, with respect to a Fund, the Investment
Manager is not obligated to recommend, purchase or sell, or to refrain from
recommending, purchasing or selling any security that the Investment Manager and
access persons, as defined by the 1940 Act, may purchase or sell for its or
their own account or for the accounts of any other fund or account. Furthermore,
the Investment Manager is not obligated to refrain from investing in securities
held by a Fund or other funds or accounts which it manages or administers. Any
transactions for the accounts of the Investment Manager and other access persons
will be made in compliance with the Company's Code of Ethics as
- 24 -
<PAGE>
described in section "Investment Objectives and Policies --
Personal Securities Transactions."
Each Investment Management Agreement further provides that the
Investment Manager shall have no liability to the Company, a Fund or any
Shareholder of a Fund for any error of judgment, mistake of law, or any loss
arising out of any investment or other act or omission in the performance by the
Investment Manager of its duties under the Agreement or for any loss or damage
resulting from the imposition by any government of exchange control restrictions
which might affect the liquidity of a Fund's assets, or from acts or omissions
of custodians or securities depositories, or from any wars or political acts of
any foreign governments to which such assets might be exposed, except for any
liability, loss or damage resulting from willful misfeasance, bad faith or gross
negligence on the Investment Manager's part or reckless disregard of its duties
under the Investment Management Agreement. Each Investment Management Agreement
will terminate automatically in the event of its assignment, and may be
terminated by the Company on behalf of a Fund at any time without payment of any
penalty on 60 days' written notice, with the approval of a majority of the
Directors of the Company in office at the time or by vote of a majority of the
outstanding Shares of a Fund (as defined by the 1940 Act).
MANAGEMENT FEES. For its services, each Fund pays the Investment
Manager a monthly fee equal on an annual basis to 0.75% of the average daily net
assets of the Fund up to the first $200,000,000, reduced to a fee of 0.675% of
such average daily net assets in excess of $200,000,000 up to $1,300,000,000,
and further reduced to a fee of 0.60% of such average daily net assets in excess
of $1,300,000,000. Each class of Shares pays a portion of the fee, determined by
the proportion of the Fund that it represents. During the fiscal years ended
August 31, 1995, 1994 and 1993, the Investment Manager received fees from World
Fund of $33,261,874, $31,051,062, and $25,931,668, respectively, and from
Foreign Fund of $36,110,792, $23,889,119, and $12,676,159, respectively,
pursuant to the Investment Management Agreements.
The amount of such fee would be reduced by the amount by which a Fund's
annual expenses for all purposes (including the investment management fee)
except taxes, brokerage fees and commissions, and extraordinary expenses such as
litigation, exceed any applicable state regulations. The strictest rule
currently applicable to a Fund is 2.5% of the first $30,000,000 of net assets,
2.0% of the next $70,000,000 of net assets and 1.5% of the remainder.
- 25 -
<PAGE>
THE INVESTMENT MANAGER. The Investment Manager is an
indirect wholly owned subsidiary of Franklin, a publicly traded
company whose shares are listed on the NYSE. Charles B. Johnson
(a Director and Officer of the Fund) and Rupert H. Johnson, Jr.
(a Director of the Fund) are principal shareholders of Franklin
and own, respectively, approximately 20% and 16% of its
outstanding shares. Messrs. Charles B. Johnson and Rupert H.
Johnson, Jr. are brothers.
BUSINESS MANAGER. Templeton Global Investors, Inc. performs
certain administrative functions for the Company including:
o providing office space, telephone, office equipment and
supplies for the Company;
o paying all compensation of the Company's officers;
o authorizing expenditures and approving bills for
payment on behalf of the Company;
o supervising preparation of annual and semiannual reports to
Shareholders, notices of dividends, capital gain distributions
and tax credits, and attending to correspondence and other
communications with individual Shareholders;
o daily pricing of each Fund's investment portfolio and
preparing and supervising publication of daily quotations of
the bid and asked prices of each Fund's Shares, earnings
reports and other financial data;
o monitoring relationships with organizations serving the
Company, including the custodian and printers;
o providing trading desk facilities to the Company;
o supervising compliance by the Company and each Fund
with recordkeeping requirements under the 1940 Act and
regulations thereunder, and with state regulatory
requirements; maintaining books and records for the
Company and each Fund (other than those maintained by
the Custodian and Transfer Agent); and preparing and
filing tax reports other than the Funds' income tax
returns;
o monitoring the qualifications of the tax-deferred
retirement plans offered by the Company; and
o providing executive, clerical and secretarial help
needed to carry out these responsibilities.
- 26 -
<PAGE>
For its services, the Business Manager receives a monthly fee equal on
an annual basis to 0.15% of the first $200,000,000 of the Company's aggregate
average daily net assets (I.E., total of World Fund and Foreign Fund), reduced
to 0.135% annually of the Company's aggregate net assets in excess of
$200,000,000, further reduced to 0.1% annually of such net assets in excess of
$700,000,000, and further reduced to a fee of 0.075% annually of such net assets
in excess of $1,200,000,000. The fee is allocated between World Fund and Foreign
Fund according to their respective average daily net assets. Each class of
Shares pays a portion of the fee, determined by the proportion of the Fund that
it represents. Since the Business Manager's fee covers services often provided
by investment advisers to other funds, each Fund's combined expenses for
advisory and administrative services may be higher than those of other
investment companies. During the fiscal years ended August 31, 1995, 1994, and
1993, the Business Manager (and, prior to April 1, 1993, Templeton Funds
Management, Inc., the previous business manager) received business management
fees of $8,965,630, $7,161,271, and $5,119,730, respectively.
The Business Manager is relieved of liability to the Company for any
act or omission in the course of its performance under the Business Management
Agreement in the absence of willful misfeasance, bad faith or gross negligence.
The Business Management Agreement may be terminated by the Company at any time
on 60 days' written notice without payment of penalty, provided that such
termination by the Company shall be directed or approved by vote of a majority
of the Directors of the Company in office at the time or by vote of a majority
of the outstanding voting securities of the Company (as defined by the 1940
Act), and shall terminate automatically and immediately in the event of its
assignment.
Templeton Global Investors, Inc. is an indirect wholly owned
subsidiary of Franklin.
CUSTODIAN AND TRANSFER AGENT. The Chase Manhattan Bank, N.A. serves as
Custodian of the Funds' assets, which are maintained at the Custodian's
principal office, MetroTech Center, Brooklyn, New York 11245, and at the offices
of its branches and agencies throughout the world. The Custodian has entered
into agreements with foreign sub-custodians approved by the Directors pursuant
to Rule 17f-5 under the 1940 Act. The Custodian, its branches and sub-custodians
generally do not hold certificates for the securities in their custody, but
instead have book records with domestic and foreign securities depositories,
which in turn have book records with the transfer agents of the issuers of the
securities. Compensation for the services of the Custodian is based on a
schedule of charges agreed on from time to time.
- 27 -
<PAGE>
Franklin Templeton Investor Services, Inc. serves as the Company's
Transfer Agent. Services performed by the Transfer Agent include processing
purchase, transfer and redemption orders; making dividend payments, capital gain
distributions and reinvestments; and handling all routine communications with
Shareholders. The Transfer Agent receives from the Company an annual fee of
$13.74 per Shareholder account plus out-of-pocket expenses, such fee to be
adjusted each year to reflect changes in the Department of Labor Consumer Price
Index.
LEGAL COUNSEL. Dechert Price & Rhoads, 1500 K Street, N.W.,
Washington, D.C. 20005, is legal counsel for the Company.
INDEPENDENT ACCOUNTANTS. The firm of McGladrey & Pullen, LLP, 555 Fifth
Avenue, New York, New York 10017, serves as independent accountants for the
Company. Its audit services comprise examination of the Funds' financial
statements and review of the Funds' filings with the Securities and Exchange
Commission ("SEC") and the Internal Revenue Service ("IRS").
REPORTS TO SHAREHOLDERS. The Company's fiscal year ends on August 31.
Shareholders will be provided at least semiannually with reports showing the
portfolio of each Fund and other information, including an annual report with
financial statements audited by the independent accountants. Shareholders who
would like to receive an interim quarterly report may phone the Fund Information
Department at 1-800/DIAL BEN.
BROKERAGE ALLOCATION
The Investment Management Agreements provide that the Investment
Manager is responsible for selecting members of securities exchanges, brokers
and dealers (such members, brokers and dealers being hereinafter referred to as
"brokers") for the execution of the Company's portfolio transactions and, when
applicable, the negotiation of commissions in connection therewith. All
decisions and placements are made in accordance with the following principles:
1. Purchase and sale orders will usually be placed with
brokers who are selected by the Investment Manager as
able to achieve "best execution" of such orders. "Best
execution" means prompt and reliable execution at the
most favorable securities price, taking into account
the other provisions hereinafter set forth. The
determination of what may constitute best execution and
price in the execution of a securities transaction by a
broker involves a number of considerations, including
without limitation, the overall direct net economic
result to a Fund (involving both price paid or received
- 28 -
<PAGE>
and any commissions and other costs paid), the efficiency with
which the transaction is effected, the ability to effect the
transaction at all where a large block is involved,
availability of the broker to stand ready to execute possibly
difficult transactions in the future, and the financial
strength and stability of the broker. Such considerations are
judgmental and are weighed by the Investment Manager in
determining the overall reasonableness of brokerage
commissions.
2. In selecting brokers for portfolio transactions, the
Investment Manager takes into account its past experience as
to brokers qualified to achieve "best execution," including
brokers who specialize in any foreign securities held by a
Fund.
3. The Investment Manager is authorized to allocate
brokerage business to brokers who have provided
brokerage and research services, as such services are
defined in Section 28(e) of the Securities Exchange Act
of 1934 (the "1934 Act"), for the Company and/or other
accounts, if any, for which the Investment Manager
exercises investment discretion (as defined in Section
3(a)(35) of the 1934 Act) and, as to transactions as to
which fixed minimum commission rates are not
applicable, to cause a Fund to pay a commission for
effecting a securities transaction in excess of the
amount another broker would have charged for effecting
that transaction, if the Investment Manager determines
in good faith that such amount of commission is
reasonable in relation to the value of the brokerage
and research services provided by such broker, viewed
in terms of either that particular transaction or the
Investment Manager's overall responsibilities with
respect to the Company and the other accounts, if any,
as to which it exercises investment discretion. In
reaching such determination, the Investment Manager is
not required to place or attempt to place a specific
dollar value on the research or execution services of a
broker or on the portion of any commission reflecting
either of said services. In demonstrating that such
determinations were made in good faith, the Investment
Manager shall be prepared to show that all commissions
were allocated and paid for purposes contemplated by
the Company's brokerage policy; that commissions were
paid only for products or services which provide lawful
and appropriate assistance to the Investment Manager in
the performance of its investment decision-making
responsibilities; and that the commissions paid were
within a reasonable range. The determination that
- 29 -
<PAGE>
commissions were within a reasonable range shall be based on
any available information as to the level of commissions known
to be charged by other brokers on comparable transactions, but
there shall be taken into account the Company's policies that
(i) obtaining a low commission is deemed secondary to
obtaining a favorable securities price, since it is recognized
that usually it is more beneficial to a Fund to obtain a
favorable price than to pay the lowest commission; and (ii)
the quality, comprehensiveness and frequency of research
studies which are provided for the Company and the Investment
Manager are useful to the Investment Manager in performing its
advisory services under its Investment Management Agreements
with the Company. Research services provided by brokers to the
Investment Manager are considered to be in addition to, and
not in lieu of, services required to be performed by the
Investment Manager under its Investment Management Agreements.
Research furnished by brokers through whom the Company effects
securities transactions may be used by the Investment Manager
for any of its accounts, and not all such research may be used
by the Investment Manager for the Company. When execution of
portfolio transactions is allocated to brokers trading on
exchanges with fixed brokerage commission rates, account may
be taken of various services provided by the broker, including
quotations outside the United States for daily pricing of
foreign securities held in a Fund's portfolio.
4. Purchases and sales of portfolio securities within the United
States other than on a securities exchange shall be executed
with primary market makers acting as principal except where,
in the judgment of the Investment Manager, better prices and
execution may be obtained on a commission basis or from other
sources.
5. Sales of the Funds' Shares (which shall be deemed to
include also shares of other investment companies
registered under the 1940 Act which have either the
same investment adviser or an investment adviser
affiliated with the Funds' Investment Manager) made by
a broker are one factor among others to be taken into
account in deciding to allocate portfolio transactions
(including agency transactions, principal transactions,
purchases in underwritings or tenders in response to
tender offers) for the account of a Fund to that
broker; provided that the broker shall furnish "best
execution" as defined in paragraph 1 above, and that
such allocation shall be within the scope of a Funds
- 30 -
<PAGE>
policies as stated above; and provided further, that in every
allocation made to a broker in which the sale of Shares is
taken into account there shall be no increase in the amount of
the commissions or other compensation paid to such broker
beyond a reasonable commission or other compensation
determined, as set forth in paragraph 3 above, on the basis of
best execution alone or best execution plus research services,
without taking account of or placing any value upon such sale
of Shares.
Insofar as known to management, no Director or officer of the Company,
nor the Investment Manager or the Principal Underwriter or any person affiliated
with any of them, has any material direct or indirect interest in any broker
employed by or on behalf of the Company for either World Fund or Foreign Fund.
Franklin Templeton Distributors, Inc., the Principal Underwriter for the
Company, is a registered broker-dealer but has never executed any purchase or
sale transactions for either Fund's portfolio or participated in commissions on
any such transactions, and has no intention of doing so in the future. The total
brokerage commissions on World Fund's portfolio transactions during the fiscal
years ended August 31, 1995, 1994, and 1993 (not including any spreads or
concessions on principal transactions) were $8,042,091, $6,895,789, and
$4,751,804. The total brokerage commissions on Foreign Fund's portfolio
transactions during the fiscal years ended August 31, 1995, 1994, and 1993 (not
including any spreads or concessions on principal transactions) were
$11,925,138, $7,329,697, and $3,185,372. All portfolio transactions are
allocated to broker-dealers only when their prices and execution, in the good
faith judgment of the Investment Manager, are equal to the best available within
the scope of the Company's policies. There is no fixed method used in
determining which broker-dealers receive which order or how many orders.
PURCHASE, REDEMPTION AND PRICING OF SHARES
The Prospectuses describe the manner in which the Funds'
Shares may be purchased and redeemed. See "How to Buy Shares of
the Fund" and "How to Sell Shares of the Fund."
Net asset value is determined separately for each Fund. Net asset value
per Share is determined as of the scheduled closing of the NYSE (generally 4:00
p.m., New York time), every Monday through Friday (exclusive of national
business holidays). The Company's offices will be closed, and net asset value
will not be calculated, on those days on which the NYSE is closed, which
currently are: New Year's Day, Presidents' Day, Good Friday,
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<PAGE>
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Trading in securities on European and Far Eastern securities exchanges
and over-the-counter markets is normally completed well before the close of
business in New York on each day on which the NYSE is open. Trading of European
or Far Eastern securities generally, or in a particular country or countries,
may not take place on every New York business day. Furthermore, trading takes
place in various foreign markets on days which are not business days in New York
and on which a Fund's net asset value is not calculated. Each Fund calculates
net asset value per Share, and therefore effects sales, redemptions and
repurchases of its Shares, as of the close of the NYSE once on each day on which
that Exchange is open. Such calculation does not take place contemporaneously
with the determination of the prices of many of the portfolio securities used in
such calculation and if events occur which materially affect the value of those
foreign securities, they will be valued at fair market value as determined by
the management and approved in good faith by the Board of Directors.
The Board of Directors may establish procedures under which a Fund may
suspend the determination of net asset value for the whole or any part of any
period during which (1) the NYSE is closed other than for customary weekend and
holiday closings, (2) trading on the NYSE is restricted, (3) an emergency exists
as a result of which disposal of securities owned by either Fund is not
reasonably practicable or it is not reasonably practicable for either Fund
fairly to determine the value of its net assets, or (4) for such other period as
the SEC may by order permit for the protection of the holders of either Fund's
Shares.
OWNERSHIP AND AUTHORITY DISPUTES. In the event of disputes involving
multiple claims of ownership or authority to control a Shareholder's account,
each Fund has the right (but has no obligation) to: (1) freeze the account and
require the written agreement of all persons deemed by the Fund to have a
potential property interest in the account, prior to executing instructions
regarding the account; or (2) interplead disputed funds or accounts with a court
of competent jurisdiction. Moreover, the Funds may surrender ownership of all or
a portion of an account to the IRS in response to a Notice of Levy.
In addition to the special purchase plans described in the
Prospectuses, other special purchase plans also are available:
TAX-DEFERRED RETIREMENT PLANS. Each Fund offers its
Shareholders the opportunity to participate in the following
types of retirement plans:
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<PAGE>
o For individuals whether or not covered by other
qualified plans;
o For simplified employee pensions;
o For employees of tax-exempt organizations; and
o For corporations, self-employed individuals and
partnerships.
Capital gains and income received by the foregoing plans generally are
exempt from taxation until distribution from the plans. Investors considering
participation in any such plan should review specific tax laws relating thereto
and should consult their attorneys or tax advisers with respect to the
establishment and maintenance of any such plan. Additional information,
including the fees and charges with respect to all of these plans, is available
upon request to the Principal Underwriter. No distribution under a retirement
plan will be made until Franklin Templeton Trust Company ("FTTC") receives the
participant's election on IRS Form W-4P (available on request from FTTC) and
such other documentation as it deems necessary, as to whether or not U.S. income
tax is to be withheld from such distribution.
INDIVIDUAL RETIREMENT ACCOUNT (IRA). All individuals (whether or not
covered by qualified private or governmental retirement plans) may purchase
Shares of either Fund pursuant to an IRA. However, contributions to an IRA by an
individual who is covered by a qualified private or governmental plan may not be
tax-deductible depending on the individual's income. Custodial services for IRAs
are available through FTTC. Disclosure statements summarizing certain aspects of
IRAs are furnished to all persons investing in such accounts, in accordance with
IRS regulations.
SIMPLIFIED EMPLOYEE PENSIONS (SEP-IRA). For employers who wish to
establish a simplified form of employee retirement program investing in Shares
of either Fund, there are available Simplified Employee Pensions invested in IRA
Plans. Details and materials relating to these Plans will be furnished upon
request to the Principal Underwriter.
RETIREMENT PLAN FOR EMPLOYEES OF TAX-EXEMPT ORGANIZATIONS (403(B)).
Employees of public school systems and certain types of charitable organizations
may enter into a deferred compensation arrangement for the purchase of Shares of
either Fund without being taxed currently on the investment. Contributions which
are made by the employer through salary reduction are excludable from the gross
income of the employee.
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Such deferred compensation plans, which are intended to qualify under Section
403(b) of the Internal Revenue Code of 1986, as amended (the "Code"), are
available through the Principal Underwriter. Custodian services are provided by
FTTC.
QUALIFIED PLAN FOR CORPORATIONS, SELF-EMPLOYED INDIVIDUALS AND
PARTNERSHIPS. For employers who wish to purchase Shares of either Fund in
conjunction with employee retirement plans, there is a prototype master plan
which has been approved by the IRS. A "Section 401(k) plan" is also available.
FTTC furnishes custodial services for these plans. For further details,
including custodian fees and plan administration services, see the master plan
and related material which is available from the Principal Underwriter.
LETTER OF INTENT. Purchasers who intend to invest $50,000 or more in
Class I Shares of the Funds or any other fund in the Franklin Group of Funds and
the Templeton Family of Funds, except Templeton Capital Accumulator Fund, Inc.,
Templeton Variable Annuity Fund, Templeton Variable Products Series Fund,
Franklin Valuemark Funds and Franklin Government Securities Trust (the "Franklin
Templeton Funds"), within 13 months (whether in one lump sum or in installments,
the first of which may not be less than 5% of the total intended amount and each
subsequent installment not less than $25 unless the investor is a qualifying
employee benefit plan (the "Benefit Plan"), including automatic investment and
payroll deduction plans), and to beneficially hold the total amount of such
Class I Shares fully paid for and outstanding simultaneously for at least one
full business day before the expiration of that period, should execute a Letter
of Intent ("LOI") on the form provided in the Shareholder Application in the
Prospectus. Payment for not less than 5% of the total intended amount must
accompany the executed LOI unless the investor is a Benefit Plan. Except for
purchases of Shares by a Benefit Plan, those Class I Shares purchased with the
first 5% of the intended amount stated in the LOI will be held as "Escrowed
Shares" for as long as the LOI remains unfulfilled. Although the Escrowed Shares
are registered in the investor's name, his full ownership of them is conditional
upon fulfillment of the LOI. No Escrowed Shares can be redeemed by the investor
for any purpose until the LOI is fulfilled or terminated. If the LOI is
terminated for any reason other than fulfillment, the Transfer Agent will redeem
that portion of the Escrowed Shares required and apply the proceeds to pay any
adjustment that may be appropriate to the sales commission on all Class I Shares
(including the Escrowed Shares) already purchased under the LOI and apply any
unused balance to the investor's account. The LOI is not a binding obligation to
purchase any amount of Shares, but its execution will result in the purchaser
paying a lower sales charge at the appropriate quantity purchase level. A
purchase
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not originally made pursuant to an LOI may be included under a subsequent LOI
executed within 90 days of such purchase. In this case, an adjustment will be
made at the end of 13 months from the effective date of the LOI at the net asset
value per Share then in effect, unless the investor makes an earlier written
request to the Principal Underwriter upon fulfilling the purchase of Shares
under the LOI. In addition, the aggregate value of any Shares, including Class
II Shares, purchased prior to the 90-day period referred to above may be applied
to purchases under a current LOI in fulfilling the total intended purchases
under the LOI. However, no adjustment of sales charges previously paid on
purchases prior to the 90-day period will be made.
If an LOI is executed on behalf of a benefit plan (such plans are
described under "How to Buy Shares of the Fund -- Net Asset Value Purchases
(Both Classes)" in the Prospectus), the level and any reduction in sales charge
for these employee benefit plans will be based on actual plan participation and
the projected investments in the Franklin Templeton Funds ^ under the LOI.
Benefit Plans are not subject to the requirement to reserve 5% of the total
intended purchase, or to any penalty as a result of the early termination of a
plan, nor are Benefit Plans entitled to receive retroactive adjustments in price
for investments made before executing LOIs.
SPECIAL NET ASSET VALUE PURCHASES. As discussed in the Prospectus under
"How to Buy Shares of the Fund -- Description of Special Net Asset Value
Purchases," certain categories of investors may purchase Class I Shares of a
Fund at net asset value (without a front-end or contingent deferred sales
charge). Franklin Templeton Distributors, Inc. ("FTD") or one of its affiliates
may make payments, out of its own resources, to securities dealers who initiate
and are responsible for such purchases, as indicated below. FTD may make these
payments in the form of contingent advance payments, which may require
reimbursement from the securities dealers with respect to certain redemptions
made within 12 months of the calendar month following purchase, as well as other
conditions, all of which may be imposed by an agreement between FTD, or its
affiliates, and the securities dealer.
The following amounts will be paid by FTD or one of its affiliates, out
of its own resources, to securities dealers who initiate and are responsible for
(i) purchases of most equity and fixed-income Franklin Templeton Funds made at
net asset value by certain designated retirement plans (excluding IRA and IRA
rollovers): 1.00% on sales of $1 million but less than $2 millon, plus 0.80% on
sales of $2 million but less than $3 million, plus 0.50% on sales of $3 million
but less than $50 million, plus 0.25% on sales of $50 million but less than $100
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million, plus 0.15% on sales of $100 million or more; and (ii) purchases of most
fixed-income Franklin Templeton Funds made at net asset value by non-designated
retirement plans: 0.75% on sales of $1 million but less than $2 million, plus
0.60% on sales of $2 million but less than $3 million, plus 0.50% on sales of $3
million but less than $50 million, plus 0.25% on sales of $50 million but less
than $100 million, plus 0.15% on sales of $100 million or more. These payment
breakpoints are reset every 12 months for purposes of additional purchases. With
respect to purchases made at net asset value by certain trust companies and
trust departments of banks and certain retirement plans of organizations with
collective retirement plan assets of $10 million or more, FTD, or one of its
affiliates, out of its own resources, may pay up to 1% of the amount invested.
Under agreements with certain banks in Taiwan, Republic of China, the
Funds' Shares are available to such banks' discretionary trust funds at net
asset value. The banks may charge service fees to their customers who
participate in the discretionary trusts. Pursuant to agreements, a portion of
such service fees may be paid to FTD, or an affiliate of FTD to help defray
expenses of maintaining a service office in Taiwan, including expenses related
to local literature fulfillment and communication facilities.
REDEMPTIONS IN KIND. Redemption proceeds are normally paid in cash;
however, the Fund may pay the redemption price in whole or in part by a
distribution in kind of securities from the portfolio of the Fund, in lieu of
cash, in conformity with applicable rules of the SEC. In such circumstances, the
securities distributed would be valued at the price used to compute the Fund's
net asses value. If shares are redeemed in kind, the redeeming Shareholder might
incur brokerage costs in converting the assets into cash. A Fund is obligated to
redeem Shares solely in cash up to the lesser $250,000 or 1% of its net assets
during any 90-day period for any one Shareholder.
TAX STATUS
Each of the Funds intends normally to pay a dividend at least once
annually representing substantially all of its net investment income (which
includes, among other items, dividends and interest) and to distribute at least
annually any realized capital gains. By so doing and meeting certain
diversification of assets and other requirements of the ^ Code, each Fund
intends to qualify annually as a regulated investment company under the Code.
The status of the Funds as regulated investment companies does not involve
government supervision of management or of their investment practices or
policies. As a regulated investment company, a Fund generally will be relieved
of
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liability for U.S. Federal income tax on that portion of its net investment
income and net realized capital gains which it distributes to its Shareholders.
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement also are subject to a nondeductible 4% excise tax. To
prevent application of the excise tax, each Fund intends to make distributions
in accordance with the calendar year distribution requirement.
Dividends of net investment income and net short-term capital gains are
taxable to Shareholders as ordinary income. Distributions of net investment
income may be eligible for the corporate dividends-received deduction to the
extent attributable to a Fund's qualifying dividend income. However, the
alternative minimum tax applicable to corporations may reduce the benefit of the
dividends-received deduction. Distributions of net capital gains (the excess of
net long-term capital gains over net short-term capital losses) designated by a
Fund as capital gain dividends are taxable to Shareholders as long-term capital
gains, regardless of the length of time the Fund's Shares have been held by a
Shareholder, and are not eligible for the dividends-received deduction.
Generally, dividends and distributions are taxable to Shareholders, whether
received in cash or reinvested in Shares of a Fund. Any distributions that are
not from a Fund's investment company taxable income or net capital gain may be
characterized as a return of capital to Shareholders or, in some cases, as
capital gain. Shareholders will be notified annually as to the Federal tax
status of dividends and distributions they receive and any tax withheld thereon.
Distributions by a Fund reduce the net asset value of the Fund Shares.
Should a distribution reduce the net asset value below a Shareholder's cost
basis, the distribution nevertheless would be taxable to the Shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implication of
buying Shares just prior to a distribution by a Fund. The price of Shares
purchased at that time includes the amount of the forthcoming distribution, but
the distribution will generally be taxable to them.
Certain of the debt securities acquired by the Funds may be treated as
debt securities that were originally issued at a discount. Original issue
discount can generally be defined as the difference between the price at which a
security was issued and its stated redemption price at maturity. Although no
cash income is actually received by the Funds, original issue discount on a
taxable debt security earned in a given year generally is treated for Federal
income tax purposes as interest and,
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therefore, such income would be subject to the distribution
requirements of the Code.
Some of the debt securities may be purchased by the Funds at a discount
which exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for Federal income tax purposes.
The gain realized on the disposition of any taxable debt security having market
discount will be treated as ordinary income to the extent it does not exceed the
accrued market discount on such debt security. Generally, market discount
accrues on a daily basis for each day the debt security is held by a Fund at a
constant rate over the time remaining to the debt security's maturity or, at the
election of a Fund, at a constant yield to maturity which takes into account the
semi-annual compounding of interest.
A Fund may invest in stocks of foreign companies that are classified
under the Code as passive foreign investment companies ("PFICs"). In general, a
foreign company is classified as a PFIC if at least one-half of its assets
constitute investment-type assets or 75% or more of its gross income is
investment-type income. Under the PFIC rules, an "excess distribution" received
with respect to PFIC stock is treated as having been realized ratably over the
period during which a Fund held the PFIC stock. A Fund itself will be subject to
tax on the portion, if any, of the excess distribution that is allocated to that
Fund's holding period in prior taxable years (and an interest factor will be
added to the tax, as if the tax had actually been payable in such prior taxable
years) even though the Fund distributes the corresponding income to
Shareholders. Excess distributions include any gain from the sale of PFIC stock
as well as certain distributions from a PFIC. All excess distributions are
taxable as ordinary income.
A Fund may be able to elect alternative tax treatment with respect to
PFIC stock. Under an election that currently may be available, a Fund generally
would be required to include in its gross income its share of the earnings of a
PFIC on a current basis, regardless of whether any distributions are received
from the PFIC. If this election is made, the special rules, discussed above,
relating to the taxation of excess distributions, would not apply. In addition,
another election may be available that would involve marking to market the
Funds' PFIC shares at the end of each taxable year (and on certain other dates
prescribed in the Code), with the result that unrealized gains are treated as
though they were realized. If this election were made, tax at the fund level
under the PFIC rules would generally be eliminated, but the Funds could, in
limited circumstances, incur nondeductible interest charges. Each Fund's
intention to qualify
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<PAGE>
annually as a regulated investment company may limit its elections with respect
to PFIC shares.
Because the application of the PFIC rules may affect, among other
things, the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC stock, as well as subject a Fund
itself to tax on certain income from PFIC stock, the amount that must be
distributed to Share-holders, and which will be taxed to Shareholders as
ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not invest in PFIC stock.
Income received by a Fund from sources within foreign countries may be
subject to withholding and other income or similar taxes imposed by such
countries. If more than 50% of the value of a Fund's total assets at the close
of its taxable year consists of securities of foreign corporations, that Fund
will be eligible and intends to elect to "pass through" to the Fund's
Shareholders the amount of foreign taxes paid by that Fund. Pursuant to this
election, a Shareholder will be required to include in gross income (in addition
to taxable dividends actually received) his pro rata share of the foreign taxes
paid by a Fund, and will be entitled either to deduct (as an itemized deduction)
his pro rata share of foreign income and similar taxes in computing his taxable
income or to use it as a foreign tax credit against his U.S. Federal income tax
liability, subject to limitations. No deduction for foreign taxes may be claimed
by a Shareholder who does not itemize deductions, but such a Shareholder may be
eligible to claim the foreign tax credit (see below). Each Shareholder will be
notified within 60 days after the close of the Funds' taxable year whether the
foreign taxes paid by a Fund will "pass through" for that year.
Generally, a credit for foreign taxes is subject to the limitation that
it may not exceed the Shareholder's U.S. tax attributable to his foreign source
taxable income. For this purpose, if the pass-through election is made, the
source of a Fund's income flows through to its Shareholders. With respect to a
Fund, gains from the sale of securities will be treated as derived from U.S.
sources and certain currency fluctuation gains, including fluctuation gains from
foreign currency-denominated debt securities, receivables and payables, will be
treated as ordinary income derived from U.S. sources. The limitation on the
foreign tax credit is applied separately to foreign source passive income (as
defined for purposes of the foreign tax credit), including the foreign source
passive income passed through by a Fund. Shareholders may be unable to claim a
credit for the full amount of their proportionate share of the foreign taxes
paid by a Fund. Foreign taxes may not be deducted in
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computing alternative minimum taxable income and the foreign tax credit can be
used to offset only 90% of the alternative minimum tax (as computed under the
Code for purposes of this limitation) imposed on corporations and individuals.
If a Fund is not eligible to make the election to "pass through" to its
Shareholders its foreign taxes, the foreign income taxes it pays generally will
reduce investment company taxable income and the distributions by a Fund will be
treated as United States source income.
Certain options and futures contracts in which World Fund may invest
are "section 1256 contracts." Gains or losses on section 1256 contracts
generally are considered 60% long-term and 40% short-term capital gains or
losses ("60/40"); however, foreign currency gains or losses (as discussed below)
arising from certain section 1256 contracts may be treated as ordinary income or
loss. Also, section 1256 contracts held by World Fund at the end of each taxable
year (and on certain other dates as prescribed under the Code) are
"marked-to-market" with the result that unrealized gains or losses are treated
as though they were realized.
Generally, the hedging transactions undertaken by World Fund may result
in "straddles" for U.S. Federal income tax purposes. The straddle rules may
affect the character of gains (or losses) realized by World Fund. In addition,
losses realized by World Fund on positions that are part of the straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which the losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences to World Fund of hedging transactions are
not entirely clear. The hedging transactions may increase the amount of
short-term capital gain realized by World Fund which is taxed as ordinary income
when distributed to Shareholders.
World Fund may make one or more of the elections available under the
Code which are applicable to straddles. If World Fund makes any of the
elections, the amount, character, and timing of the recognition of gains or
losses from the affected straddle positions will be determined under rules that
vary according to the election(s) made. The rules applicable under certain of
the elections may operate to accelerate the recognition of gains or losses from
the affected straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to Shareholders and which will be taxed to Shareholders as ordinary
income or
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long-term capital gain may be increased or decreased as compared to a fund that
did not engage in such hedging transactions.
Requirements relating to the World Fund's tax status as a regulated
investment company may limit the extent to which World Fund will be able to
engage in transactions in options and futures contracts.
Under the Code, gains or losses attributable to fluctuations in foreign
currency exchange rates which occur between the time a Fund accrues income or
other receivables or accrues expenses or other liabilities denominated in a
foreign currency and the time a Fund actually collects such receivables or pays
such liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and on disposition of certain financial contracts and options, gains or losses
attributable to fluctuations in the value of foreign currency between the date
of acquisition of the security or contract and the date of disposition also are
treated as ordinary gain or loss. These gains and losses, referred to under the
Code as "section 988" gains and losses, may increase or decrease the amount of a
Fund's net investment income to be distributed to its Shareholders as ordinary
income. For example, fluctuations in exchange rates may increase the amount of
income that a Fund must distribute in order to qualify for treatment as a
regulated investment company and to prevent application of an excise tax on
undistributed income. Alternatively, fluctuations in exchange rates may decrease
or eliminate income available for distribution. If section 988 losses exceed
other net investment income during a taxable year, a Fund would not be able to
make ordinary dividend distributions, or distributions made before the losses
were realized would be recharacterized as return of capital to Shareholders for
Federal income tax purposes, rather than as an ordinary dividend, reducing each
Shareholder's basis in his Fund Shares, or as a capital gain.
Upon the sale or exchange of his Shares, a Shareholder will realize a
taxable gain or loss depending upon his basis in the Shares. Such gain or loss
will be treated as capital gain or loss if the Shares are capital assets in the
Shareholder's hands, and generally will be long-term if the Shareholder's
holding period for the Shares is more than one year and generally otherwise will
be short-term. Any loss realized on a sale or exchange will be disallowed to the
extent that the Shares disposed of are replaced (including replacement through
the reinvesting of dividends and capital gain distributions in a Fund) within a
period of 61 days beginning 30 days before and ending 30 days after the
disposition of the Shares. In such a case, the basis of the Shares acquired will
be adjusted to
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reflect the disallowed loss. Any loss realized by a Shareholder on the sale of a
Fund's Shares held by the Shareholder for six months or less will be treated for
Federal income tax purposes as a long-term capital loss to the extent of any
distributions of long-term capital gains received by the Shareholder with
respect to such Shares.
In some cases, Shareholders will not be permitted to take sales charges
into account for purposes of determining the amount of gain or loss realized on
the disposition of their Shares. This prohibition generally applies where (1)
the Shareholder incurs a sales charge in acquiring the stock of a regulated
investment company, (2) the stock is disposed of before the 91st day after the
date on which it was acquired, and (3) the Shareholder subsequently acquires
shares of the same or another regulated investment company and the otherwise
applicable sales charge is reduced or eliminated under a "reinvestment right"
received upon the initial purchase of shares of stock. In that case, the gain or
loss recognized will be determined by excluding from the tax basis of the Shares
exchanged all or a portion of the sales charge incurred in acquiring those
Shares. This exclusion applies to the extent that the otherwise applicable sales
charge with respect to the newly acquired Shares is reduced as a result of
having incurred a sales charge initially. Sales charges affected by this rule
are treated as if they were incurred with respect to the stock acquired under
the reinvestment right. This provision may be applied to successive acquisitions
of stock.
Each Fund generally will be required to withhold Federal income tax at
a rate of 31% ("backup withholding") from dividends paid, capital gain
distributions, and redemption proceeds to Shareholders if (1) the Shareholder
fails to furnish a Fund with the Shareholder's correct taxpayer identification
number or social security number and to make such certifications as a Fund may
require, (2) the IRS notifies the Shareholder or a Fund that the Shareholder has
failed to report properly certain interest and dividend income to the IRS and to
respond to notices to that effect, or (3) when required to do so, the
Shareholder fails to certify that he is not subject to backup withholding. Any
amounts withheld may be credited against the Shareholder's Federal income tax
liability.
Ordinary dividends and taxable capital gain distributions declared in
October, November, or December with a record date in such month and paid during
the following January will be treated as having been paid by a Fund and received
by Shareholders on December 31 of the calendar year in which declared, rather
than the calendar year in which the dividends are actually received.
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Distributions also may be subject to state, local and foreign taxes.
U.S. tax rules applicable to foreign investors may differ significantly from
those outlined above. Shareholders are advised to consult their own tax advisers
for details with respect to the particular tax consequences to them of an
investment in either Fund.
PRINCIPAL UNDERWRITER
Franklin Templeton Distributors, Inc. ("FTD" or the
"Principal Underwriter"), P.O. Box 33030, St. Petersburg, Florida
33733-8030, toll free telephone (800) 237-0738, is the Principal
Underwriter of each Fund's Shares. FTD is a wholly owned
subsidiary of Franklin.
The Company, pursuant to Rule 12b-1 under the 1940 Act, has adopted a
Distribution Plan with respect to each class of Shares ("Plans") on behalf of
each Fund. Under the Plans adopted with respect to Class I Shares, a Fund may
reimburse the Principal Underwriter or others quarterly (subject to a limit of
0.25% per annum of each Fund's average daily net assets attributable to Class I
Shares) for costs and expenses incurred by FTD or others in connection with any
activity which is primarily intended to result in the sale of a Fund's Shares.
Under the Plans adopted with respect to Class II Shares, each Fund will pay FTD
or others quarterly (subject to a limit of 1.00% per annum of each Fund's
average daily assets attributable to Class II Shares of which up to 0.25% of
such net assets may be paid to dealers for personal service and/or maintenance
of Shareholder accounts) for costs and expenses incurred by FTD or others in
connection with any activity which is primarily intended to result in the sale
of the Fund's Shares. Payments to FTD or others could be for various types of
activities, including (1) payments to broker-dealers who provide certain
services of value to each Fund's Shareholders (sometimes referred to as a "trail
fee"); (2) reimbursement of expenses relating to selling and servicing efforts
or of organizing and conducting sales seminars; (3) payments to employees or
agents of the Principal Underwriter who engage in or support distribution of
Shares; (4) payments of the costs of preparing, printing and distributing
Prospectuses and reports to prospective investors and of printing and
advertising expenses; (5) payment of dealer commissions and wholesaler
compensation in connection with sales of a Fund's Shares and interest or
carrying charges in connection therewith; and (6) such other similar services as
the Company's Board of Directors determines to be reasonably calculated to
result in the sale of Shares. Under the Plan adopted with respect to Class I
Shares of a Fund, the costs and expenses not reimbursed in any one given quarter
(including costs and expenses not reimbursed because they exceed 0.25% of
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the Fund's average daily net assets attributable to Class I Shares) may be
reimbursed in subsequent quarters or years.
During the fiscal year ended August 31, 1995, FTD incurred in
connection with the distribution of shares costs and expenses of $10,215,632 for
Class I Shares of World Fund, $11,211 for Class II Shares of World Fund,
$15,404,475 for Class I Shares of Foreign Fund, and $355,895 for Class II Shares
of Foreign Fund. During the same period, the Company made reimbursements
pursuant to the Plans in the amount of $10,215,632 on behalf of Class I Shares
of World Fund $11,211 on behalf of Class II Shares of World Fund, $14,581,987 on
behalf of Class I Shares of Foreign Fund, and $90,617 on behalf of Class II
Shares of Foreign Fund. As indicated above, unreimbursed expenses, which amount
to $1,087,776 for Shares of Foreign Fund, may be reimbursed by the Company
during the fiscal year ending August 31, 1996 or in subsequent years. In the
event that a Plan is terminated, the Company will not be liable to FTD for any
unreimbursed expenses that had been carried forward from previous months or
years. During the fiscal year ended August 31, 1995, FTD spent, with respect to
Class I Shares of World Fund, the following amounts on: compensation to dealers,
$8,860,935; sales promotion, $287,494; printing, $183,388; advertising,
$817,078; and wholesale costs and expenses, $66,736; and with respect to Class
II Shares of World Fund, the following amounts on: compensation to dealers,
$818; sales promotion, $6; printing, $5; advertising, $32; and wholesale costs
and expenses, $10,349; and, with respect to Class I Shares of Foreign Fund, the
following amounts on: compensation to dealers, $12,429,081; sales promotion,
$290,597; printing, $734,122; advertising, $1,443,337; and wholesale costs and
expenses, $507,338; and with respect to Class II Shares of Foreign Fund, the
following amounts on: compensation to dealers, $25,609; sales promotion, $198;
printing, $919; advertising, $1,118; and wholesale costs and expenses,
$328,050349
The Distribution Agreement provides that the Principal Underwriter will
use its best efforts to maintain a broad and continuous distribution of each
Fund's Shares among bona fide investors and may sign selling contracts with
responsible dealers, as well as sell to individual investors. The Shares are
sold only at the Offering Price in effect at the time of sale, and each Fund
receives not less than the full net asset value of the Shares sold. The discount
between the Offering Price and the net asset value may be retained by the
Principal Underwriter or it may reallow all or any part of such discount to
dealers. In the three fiscal years ended August 31, 1995, 1994, and 1993, FTD
(and, prior to June 1, 1993, Templeton Funds Distributor, Inc.) retained of such
discount $1,962,439, $1,931,397, and $1,208,991, respectively, or approximately
18.64%, 19.87%, and 16.46% of the gross sales commissions for those years with
respect to World
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Fund, and retained $6,510,032, $9,452,983, and $3,975,783, respectively, or
approximately 13.17%, 15.81%, and 17.5% of the gross sales commissions for those
years with respect to Foreign Fund.
The Distribution Agreement provides that the Company shall pay the
costs and expenses incident to registering and qualifying each Fund's Shares for
sale under the Securities Act of 1933 and under the applicable Blue Sky laws of
the jurisdictions in which the Principal Underwriter desires to distribute such
Shares, and for preparing, printing and distributing prospectuses and reports to
Shareholders. The Principal Underwriter pays the cost of printing additional
copies of prospectuses and reports to Shareholders used for selling purposes.
(The Company pays costs of preparation, set-up and initial supply of the Funds'
prospectuses for existing Shareholders.)
The Distribution Agreement is subject to renewal from year to year in
accordance with the provisions of the 1940 Act and terminates automatically in
the event of its assignment. The Distribution Agreement may be terminated
without penalty by either party upon 60 days' written notice to the other,
provided termination by the Company shall be approved by the Board of Directors
or a majority (as defined in the 1940 Act) of the Shareholders. The Principal
Underwriter is relieved of liability for any act or omission in the course of
its performance of the Distribution Agreement, in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations.
FTD is the principal underwriter for the other Templeton Funds.
DESCRIPTION OF SHARES
The Shares of each Fund have the same preferences, conversion and other
rights, voting powers, restrictions and limitations as to dividends,
qualifications and terms and conditions of redemption, except as follows: all
consideration received from the sale of Shares of either Fund, together with all
income, earnings, profits and proceeds thereof, belongs to that Fund and is
charged with liabilities in respect of that Fund and of that Fund's part of
general liabilities of the Company in the proportion that the total net assets
of the Fund bear to the total net assets of both Funds. The net asset value of a
Share of either Fund is based on the assets belonging to that Fund less the
liabilities charged to that Fund, and dividends are paid on Shares of either
Fund only out of lawfully available assets belonging to that Fund. In the event
of liquidation or dissolution of the Company, the Shareholders of each Fund will
be
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<PAGE>
entitled, out of assets of the Company available for distribution, to the assets
belonging to that particular Fund.
The Shares have non-cumulative voting rights so that the holders of a
plurality of the Shares voting for the election of Directors at a meeting at
which 50% of the outstanding Shares are present can elect all the Directors and
in such event, the holders of the remaining Shares voting for the election of
Directors will not be able to elect any person or persons to the Board of
Directors.
PERFORMANCE INFORMATION
Each Fund may, from time to time, include its total return in
advertisements or reports to Shareholders or prospective investors. Quotations
of average annual total return for each Fund will be expressed in terms of the
average annual compounded rate of return for periods in excess of one year or
the total return for periods less than one year of a hypothetical investment in
the Fund over periods of one, five, or ten years (up to the life of the Fund)
calculated pursuant to the following formula: P(1 + T)n = ERV (where P = a
hypothetical initial payment of $1,000, T = the average annual total return for
periods of one year or more or the total return for periods of less than one
year, n = the number of years, and ERV = the ending redeemable value of a
hypothetical $1,000 payment made at the beginning of the period). All total
return figures reflect the deduction of the maximum initial sales charge and
deduction of a proportional share of a Fund's expenses on an annual basis, and
assume that all dividends and distributions are reinvested when paid. World
Fund's average annual total return for the one-, five- and ten-year periods
ended August 31, 1995 was 3.56%, 13.39% and 12.91%, respectively. Foreign Fund's
average annual total return for the one-, five- and ten-year periods ended
August 31, 1995, was (2.79)%, 8.99% and 16.43%, respectively.
Performance information for each Fund may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index, Dow Jones
Industrial Average, or other unmanaged indices so that investors may compare
each Fund's results with those of a group of unmanaged securities widely
regarded by investors as representative of the securities market in general;
(ii) other groups of mutual funds tracked by Lipper Analytical Services, Inc., a
widely used independent research firm which ranks mutual funds by overall
performance, investment objectives and assets, or tracked by other services,
companies, publications, or persons who rank mutual funds on overall performance
or other criteria; and (iii) the Consumer Price Index (measure for inflation) to
assess the real rate of return from an investment in a Fund. Unmanaged indices
may assume the
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<PAGE>
reinvestment of dividends but generally do not reflect deductions
for administrative and management costs and expenses.
Performance information for each Fund reflects only the performance of
a hypothetical investment in each Fund during the particular time period on
which the calculations are based. Performance information should be considered
in light of each Fund's investment objective and policies, characteristics and
quality of the portfolio and the market conditions during the given time period,
and should not be considered as a representation of what may be achieved in the
future.
From time to time, each Fund and the Investment Manager may also refer
to the following information:
(1) The Investment Manager's and its affiliates' market share of
international equities managed in mutual funds prepared or published by
Strategic Insight or a similar statistical organization.
(2) The performance of U.S. equity and debt markets relative to
foreign markets prepared or published by Morgan Stanley
Capital International or a similar financial organization.
(3) The capitalization of U.S. and foreign stock markets as
prepared or published by the International Finance
Corporation, Morgan Stanley Capital International or a similar
financial organization.
(4) The geographic and industry distribution of the Fund's
portfolio and the Fund's top ten holdings.
(5) The gross national product and populations, including age
characteristics, literacy rates, foreign investment improvements due to
a liberalization of securities laws and a reduction of foreign exchange
controls, and improving communication technology, of various countries
as published by various statistical organizations.
(6) To assist investors in understanding the different returns
and risk characteristics of various investments, the Fund
may show historical returns of various investments and
published indices (E.G., Ibbotson Associates, Inc. Charts
and Morgan Stanley EAFE - Index).
(7) The major industries located in various jurisdictions as
published by the Morgan Stanley Index.
(8) Rankings by DALBAR Surveys, Inc. with respect to mutual fund
shareholder services.
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<PAGE>
(9) Allegorical stories illustrating the importance of
persistent long-term investing.
(10) The Fund's portfolio turnover rate and its ranking relative
to industry standards as published by Lipper Analytical
Services, Inc. or Morningstar, Inc.
(11) A description of the Templeton organization's investment management
philosophy and approach, including its worldwide search for undervalued
or "bargain" securities and its diversification by industry, nation and
type of stocks or other securities.
(12) Quotations from the Templeton organization's founder, Sir John
Templeton,* advocating the virtues of diversification and long-term
investing, including the following:
o "Never follow the crowd. Superior performance is
possible only if you invest differently from the
crowd."
o "Diversify by company, by industry and by
country."
o "Always maintain a long-term perspective."
o "Invest for maximum total real return."
o "Invest - don't trade or speculate."
o "Remain flexible and open-minded about types of
investment."
o "Buy low."
o "When buying stocks, search for bargains among
quality stocks."
o "Buy value, not market trends or the economic
outlook."
o "Diversify. In stocks and bonds, as in much else,
there is safety in numbers."
- --------
* Sir John Templeton sold the Templeton organization to
Franklin Resources, Inc. in October, 1992 and resigned from
the Company's Board on April 16, 1995. He is no longer
involved with the investment management process.
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<PAGE>
o "Do your homework or hire wise experts to help
you."
o "Aggressively monitor your investments."
o "Don't panic."
o "Learn from your mistakes."
o "Outperforming the market is a difficult task."
o "An investor who has all the answers doesn't even
understand all the questions."
o "There's no free lunch."
o "And now the last principle: Do not be fearful or
negative too often."
In addition, each Fund and the Investment Manager may also refer to the
number of Shareholders in the Fund or the aggregate number of shareholders of
the Franklin Templeton Funds or the dollar amount of fund and private account
assets under management in advertising materials.
FINANCIAL STATEMENTS
The financial statements contained in the Fund's Annual Reports to
Shareholders of Templeton World Fund and Templeton Foreign Fund dated August 31,
1995 are incorporated herein by
reference.
<PAGE>
TL STMT 01/96
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<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements: Incorporated by
reference from the 1995 Annual Reports to
Shareholders of Templeton World Fund and
Templeton Foreign Fund:
Independent Auditors' Report
Investment Portfolios as of August 31, 1995
Statements of Assets and Liabilities as of
August 31, 1995
Statements of Operations for the year ended
August 31, 1995
Statements of Changes in Net Assets for the
years ended August 31, 1995 and 1994
Notes to Financial Statements
(b) Exhibits
(1) (A) Amended and Restated Articles of
Incorporation dated January 26,
1989
(B) Articles Supplementary dated
October 24, 1990
(C) Articles Supplementary dated
October 16, 1993
(D) Articles Supplementary dated
February 22, 1994
(E) Articles Supplementary dated
January 6, 1995 *
(F) Articles Supplementary dated April
13, 1995 *
(G) Articles of Amendment dated April
17, 1995 *
- 51 -
<PAGE>
(H) Articles Supplementary dated
October 26, 1995
(2) By-laws (Amended and Restated March
1, 1991)
(3) Not Applicable
(4) (A) Specimen stock certificate for
Templeton World Fund*
(B)Specimen stock certificate for
Templeton Foreign Fund*
(5) (A) Amended and Restated Investment
Management Agreement -- Templeton
World Fund *
(B) Amended and Restated Investment
Management Agreement -- Templeton
Foreign Fund *
(6) (A) Distribution Agreement
(B) Form of Dealer Agreement
(7) Not Applicable
(8) (A) Custody Agreement dated June 1,
1984 as amended and restated
February 11, 1986 on behalf of
Templeton World Fund with The Chase
Manhattan Bank, N.A.
(B) Custody Agreement dated
June 1, 1984 as amended and
restated February 11, 1986
on behalf of Templeton
Foreign Fund with The Chase
Manhattan Bank, N.A.
(9) (A) Business Management Agreement
(B) Form of Transfer Agent Agreement
(C) Form of Sub-Transfer Agent Services
Agreement
- 52 -
<PAGE>
(D) Form of Sub-Accounting Services
Agreement
(E) Form of Sub-Transfer Agent
Agreement between Fidelity
Investments Institutional
Operations Company and Templeton
Funds Trust Company
(10) Opinion and consent of counsel
(filed with Rule 24f-2 Notice) **
(11) Consent of Independent Public Accountants
(12) Not Applicable
(13) Not Applicable
(14) Model Retirement plans *
(15) (A)(1) Distribution Plan -- Templeton
World Fund Class I Shares *
(2) Distribution Plan -- Templeton
World Fund Class II Shares *
(B)(1) Distribution Plan -- Templeton
Foreign Fund Class I Shares *
(2) Distribution Plan -- Templeton
Foreign Fund Class II Shares *
(16) Schedule showing computation of
performance quotations provided in
response to Item 22
(18) Form of Multiclass Plan *
(27) Financial Data Schedule
* Previously filed with Registration Statement No. 2-60067 and
incorporated by reference herein.
** Rule 24f-2 Notice filed with the Securities and Exchange
Commission on October 30, 1995.
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<PAGE>
Item 25. Persons Controlled by or Under Common Control
with Registrant
None.
Item 26. Number of Record Holders
Templeton World Fund
Shares of Common Stock, 282,884 Class I
Shareholders, 1,351 Class II Shareholders as
of November 30, 1995.
Templeton Foreign Fund
Shares of Common Stock, 338,912 Class I
Shareholders, 8,830 Class II Shareholders as
of November 30, 1995.
Item 27. Indemnification
All officers, directors, employees and
agents of the Registrant are to be
indemnified to the fullest extent permitted
by law for any liabilities of any nature
whatsoever incurred in connection with the
affairs of the Registrant, except in cases
where willful misfeasance, bad faith, gross
negligence or reckless disregard of duties
to the Registrant are established. See
Article 5.1 of the By-Laws of the
Registrant, filed as Exhibit 2 to the
Registration Statement, which is
incorporated herein by reference, for a more
complete description of matters relating to
indemnification.
Item 28. Business and Other Connections of Investment
Adviser
The business and other connections of
Registrant's investment manager, Templeton,
Galbraith & Hansberger Ltd., are described
in Parts A and B.
For information relating to the investment
manager's officers and directors, reference
is made to Form ADV filed under the
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<PAGE>
Investment Advisers Act of 1940 by Templeton,
Galbraith & Hansberger Ltd.
Item 29. Principal Underwriters
(a) Franklin Templeton Distributors, Inc.
also acts as principal underwriter of
shares of:
Templeton Growth Fund, Inc.
Templeton Smaller Companies Growth Fund,
Inc.
Templeton Income Trust
Templeton Real Estate Securities Fund
Templeton Capital Accumulator Fund, Inc.
Templeton Developing Markets Trust
Templeton American Trust, Inc.
Templeton Institutional Funds, Inc.
Templeton Global Opportunities Trust
Templeton Variable Products Series Fund
Templeton Global Investment Trust
Templeton Variable Annuity Fund
AGE High Income Fund, Inc.
Franklin Balance Sheet Investment Fund
Franklin California Tax Free Income Fund,
Franklin California Tax Free Trust
Franklin Custodian Funds, Inc. Franklin
Equity Fund Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Gold Fund Franklin International
Trust Franklin Investors Securities Trust
Franklin Managed Trust Franklin Money Fund
Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund
Franklin New York Tax-Free Trust Franklin
Premier Return Fund Franklin Real Estate
Securities Fund Franklin Strategic Series
Franklin Tax-Advantaged High Yield
Securities Fund
Franklin Tax-Advantaged International
Bond Fund
Franklin Tax- Advantaged U.S. Government
Securities Fund
Franklin Tax Exempt Money Fund
Franklin Tax-Free Trust
Franklin Value Investors Trust
Franklin Templeton Global Trust
Franklin Templeton Money Fund Trust
- 55 -
<PAGE>
Franklin Templeton Japan Fund
Institutional Fiduciary Trust
(b) The directors and officers of FTD
are identified below. Except as
otherwise indicated, the address of
each director or officer is 777
Mariners Island Blvd., San Mateo, CA
94404.
Positions and Positions and
Offices with Offices with
Name Underwriter Registrant
Charles B. Johnson Chairman of the Board Vice President
and Director
Gregory E. Johnson President None
Rupert H. Johnson, Jr. Executive Vice President Director
and Director
Harmon E. Burns Executive Vice President None
and Director
Edward V. McVey Senior Vice President None
Kenneth V. Domingues Senior Vice President None
William J. Lippman Senior Vice President None
Richard C. Stoker Senior Vice President None
Charles E. Johnson Senior Vice President None
500 East Broward Blvd.
Ft. Lauderdale, FL 33394
Deborah R. Gatzek Senior Vice President None
and Assistant Secretary
James K. Blinn Vice President None
Richard O. Conboy Vice President None
James A. Escobedo Vice President None
Loretta Fry Vice President None
Robert N. Geppner Vice President None
Mike Hackett Vice President None
Peter Jones Vice President None
700 Central Avenue
St. Petersburg, Fl 33701
Philip J. Kearns Vice President None
Ken Leder Vice President None
Jack Lemein Vice President None
John R. McGee Vice President None
Thomas M. Mistele Vice President Secretary
700 Central Avenue
St. Petersburg, FL 33701
Harry G. Mumford Vice President None
Vivian J. Palmieri Vice President None
- 56 -
<PAGE>
Kent P. Strazza Vice President None
Kenneth A. Lewis Treasurer None
Leslie M. Kratter Secretary None
John R. Kay Assistant Vice Vice President
500 East Broward Blvd. President
Ft. Lauderdale, Fl 33394
Karen DeBellis Assistant Treasurer None
700 Central Avenue
St. Petersburg, Fl 33710
Philip A. Scatena Assistant Treasurer None
(c) Not applicable (information on
unaffiliated underwriters).
Item 30. Location of Accounts and Records
The accounts, books and other documents
required to be maintained by Registrant
pursuant to Rule 31a-1(a) of the Investment
Company Act of 1940 are in the possession of
Templeton Global Investors, Inc., 500 East
Broward Blvd., Fort Lauderdale, Florida
33394.
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) Not Applicable.
(b) Not Applicable.
(c) Registrant undertakes to furnish to
each person to whom a Prospectus for
World Fund or Foreign Fund is
provided a copy of such Fund's
latest Annual Report, upon request
and without charge.
- 57 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in St. Petersburg, Florida, on the day
of December, 1995.
Templeton Funds, Inc.
By:___________________
Mark G. Holowesko*
President
*By:/s/THOMAS M. MISTELE
Thomas M. Mistele
as attorney-in-fact**
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated:
Signature Title Date
_________________________ President December 29, 1995
Mark G. Holowesko* (Chief Executive
Officer)
_________________________ Director December 29, 1995
Charles B. Johnson
_________________________ Director December 29, 1995
Hasso-G von Diergardt-Naglo*
_________________________ Director December 29, 1995
Betty P. Krahmer*
_________________________ Director December 29, 1995
F. Bruce Clarke*
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<PAGE>
_________________________ Director December 29, 1995
Fred R. Millsaps*
_________________________ Director December 29, 1995
John Wm. Galbraith*
_________________________ Director December 29, 1995
Rupert H. Johnson, Jr.*
_________________________ Director December 29, 1995
Harris J. Ashton*
_________________________ Director December 29, 1995
S. Joseph Fortunato*
_________________________ Director December 29, 1995
Andrew H. Hines, Jr.*
_________________________ Director December 29, 1995
Gordon S. Macklin*
_________________________ Director December 29, 1995
Nicholas F. Brady*
_________________________ Treasurer December 29, 1995
James R. Baio* (Chief Financial
and Accounting
Officer)
*By: /s/THOMAS M.MISTELE
Thomas M. Mistele
as attorney-in-fact**
** Powers of Attorney are filed with Post-Effective Amendment
No. 21 to this Registration Statement on August 19, 1992,
Post-Effective Amendment No. 23 to this Registration
Statement on November 2, 1993, Post-Effective Amendment No.
24 to this Registration Statement on December 23, 1993, and
Post-Effective Amendment No. 25 to this Registration
Statement on December 30, 1994, or filed herewith.
- 59 -
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being a duly
elected Director of Templeton Funds, Inc. (the "Company"), constitutes and
appoints Allan S. Mostoff, Jeffrey L. Steele, William J. Kotapish and Thomas M.
Mistele, and each of them, his true and lawful attorney-in-fact and agents with
full power of substitution and resubstitution for him in his name, place and
stead, in any and all capacities, to sign the Company's registration statement
and any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and conforming all that said
attorneys-in-fact and agents, or any of the, or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Dated: August 31, 1995
/s/JOHN WM. GALBRAITH
John Wm. Galbraith
- 60 -
<PAGE>
EXHIBIT LIST
Exhibit Number Name of Exhibit
(1)(A) Amended and Restated Articles
Incorporation
(B) Articles Supplementary
(C) Articles Supplementary
(D) Articles Supplementary
(H) Articles Supplementary
(2) Amended and Restated By-laws
(6)(A) Distribution Agreement
(B) Form of Dealer Agreement
(8)(A) Custody Agreement - Templeton World
Fund
(B) Custody Agreement - Templeton
Foreign Fund
(9)(A) Business Management Agreement
(B) Form of Transfer Agent Service
(C) Form of Sub-Transfer Agent Service
Agreement
(D) Form of Sub-Accounting Services
Agreement
(E) Form of Sub-Transfer Agent
Agreement between Fidelity
Investments Institutional
Operations Company and Templeton
Funds Trust Company
(11) Consent of Independent Public
Accountants
(16) Schedule showing computation of
performance quotations provided in
response to Item 22
- 61 -
<PAGE>
(27) Financial Data Schedules
- 62 -
<PAGE>
ARTICLES OF RESTATEMENT
OF
THE ARTICLES OF INCORPORATION
OF
TEMPLETON FUNDS, INC.
Under Section 2-608 of the
General Corporation Law of Maryland
THE UNDERSIGNED, Daniel Calabria, being the Vice President of
TEMPLETON FUNDS, INC. (hereinafter, the "Corporation"), hereby certifies:
FIRST: That the Amended Articles of Incorporation of the
Corporation were filed with the State Department of Assessments
and Taxation on October 5, 1977.
SECOND: That this restatement of the Corporation's
Articles of Incorporation has been approved by a majority of the
Board of Directors.
THIRD: That the provisions set forth in the articles of
restatement are all the provisions of the charter currently in
effect and the charter is not amended by the articles of
restatement.
<PAGE>
FOURTH: That the current principal office of the
Corporation is 700 Central Avenue, St. Petersburg, Florida
33733.
FIFTH: That the current directors of the Corporation are
as follows:
John M. Templeton
John M. Templeton, Jr.
John Wm. Galbraith
Hasso-G von Diergardt-Naglo
Harry G. Kuch
F. Bruce Clarke
William F. James
Betty P. Krahmer
LeRoy C. Paslay
The Articles of Incorporation of the Corporation are hereby
restated as follows:
FIRST: The undersigned, JOHN L. GOLDSTONE, whose post office
address is 488 Madison Avenue, New York, New York 10022, being of full legal
age, under and by virtue of the General Laws of the State of Maryland
authorizing the formation of corporations, is acting as sole incorporator with
the intention of forming a corporation.
SECOND: The name of the Corporation is TEMPLETON FUNDS, INC.
-2-
<PAGE>
THIRD: The purposes for which the Corporation is formed
are as follows:
(1) To hold, invest and reinvest its funds, and in connection
therewith to hold part or all of its funds in cash, and to purchase or otherwise
acquire, hold for investment or otherwise write, sell, assign, negotiate,
transfer, exchange or otherwise dispose of or turn to account or realize upon,
securities (which term "securities" shall for the purposes of these Articles of
Incorporation, without limitation of the generality thereof, be deemed to
include any stocks, shares, bonds, debentures, notes, certificates of deposit
issued by banks, mortgages or other obligations or evidences of indebtedness,
and any options, certificates, receipts, warrants or other instruments
representing rights to receive, purchase or subscribe for the same, or
evidencing or representing any other rights or interests therein or in any
property or assets created or issued by any issuer (which term "issuer" shall,
for the purposes of these Articles of Incorporation, without limiting the
generality thereof, be deemed to include any persons, firms, associations,
partnerships, corporations, syndicates, combina-tions, organizations,
governments or subdivisions, agencies or instrumentalities of any government);
and to exercise, as owner or holder of any securities, all rights, powers and
privileges in respect thereof; and to do any and all acts and things for the
-3-
<PAGE>
preservation, protection, improvement and enhancement in value of
any and all such securities.
(2) To acquire all or any part of the goodwill, rights, property
and business of any person, firm, association or corporation heretofore or
hereafter engaged in any business similar to any business which the Corporation
has the power to conduct, and to hold, utilize, enjoy and in any manner dispose
of the whole or any part of the rights, property and business so acquired, and
to assume in connection therewith any liabilities of any such person, firm,
association or corporation.
(3) To apply for, obtain, purchase or otherwise acquire, any
patents, copyrights, licenses, trademarks, trade names and the like, which may
seem capable of being used for any of the purposes of the Corporation; and to
use, exercise, develop, grant licenses in respect of, sell and otherwise turn to
account, the same.
(4) To issue and sell shares of its own capital stock in such
amounts and on such terms and conditions, for such purposes and for such amount
or kind of consideration (including without limitation thereto, securities) now
or hereafter permitted by the laws of Maryland and these Articles of
Incorporation, as its Board of Directors may determine.
(5) To purchase or otherwise acquire, hold, dispose of, resell,
transfer, reissue or cancel (all without the vote or consent of the stockholders
of the Corporation) shares of its
-4-
<PAGE>
capital stock in any manner and to the extent now or hereafter permitted by the
laws of said State and by these Articles of Incorporation.
(6) To conduct its business in all its branches at one or
more offices in Maryland and elsewhere in any part of the world,
without restriction or limit as to extent.
(7) The Corporation shall be authorized to exercise and enjoy all
of the powers, rights and privileges granted to, or conferred upon, corporations
by the General Laws of the State of Maryland now or hereafter in force, and the
enumeration of the foregoing powers shall not be deemed to exclude any powers,
rights or privileges so granted or conferred.
(8) To do any and all such further acts and things and to exercise
any and all such further powers as may be necessary, incidental, relative,
conducive, appropriate or desirable for the accomplishment, carrying out or
attainment of all or any of the foregoing purposes or objects.
The foregoing objects and purposes shall, except as otherwise
expressly provided, be in no way limited or restricted by reference to, or
inference from, the terms of any other clause of this or any other Article of
these Articles of Incorporation, and shall each be regarded as independent and
construed as powers as well as objects and purposes, and the enumeration of
specific purposes, objects and powers shall not be construed to limit or
-5-
<PAGE>
restrict in any manner the meaning of general terms or the general powers of the
Corporation now or hereafter conferred by the laws of the State of Maryland, nor
shall the expression of one thing be deemed to exclude another, though it be of
like nature, not expressed; provided, however, that the Corporation shall not
have power to carry on within the State of Maryland any business whatsoever the
carrying on of which would preclude it from being classified as an ordinary
business corporation under the laws of said State; nor shall it carry on any
business, or exercise any powers, in any other state, territory, district or
country except to the extent that the same may lawfully be carried on or
exercised under the laws thereof.
FOURTH: The post office address of the principal office of the
Corporation in the State of Maryland is c/o The Corporation Trust Incorporated,
32 South Street, Baltimore, Maryland 21202. The name of the resident agent of
the Corporation is The Corporation Trust Incorporated, a corporation of the
State of Maryland, and the post office address of the resident agent is 32 South
Street, Baltimore, Maryland 21202.
FIFTH:
(1) The total number of shares of stock which the Corporation shall
have the authority to issue is FOUR HUNDRED MILLION (400,000,000) Common Shares
of the par value of ONE
-6-
<PAGE>
DOLLAR ($1.00) each and of the aggregate par value of FOUR HUNDRED MILLION
DOLLARS ($400,000,000) (of which 40,000,000 Shares have been classified as
Foreign Fund Shares, with the preferences, rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption of Foreign Fund Shares as set forth in Articles Supplementary
previously filed). The Board of Directors may classify or reclassify any
unissued stock from time to time.
(2) At all meetings of stockholders, each stockholder of the
Corporation shall be entitled to one vote for each share of stock standing in
his name on the books of the Corporation on the date fixed in accordance with
the Bylaws for determination of stockholders entitled to vote at such meeting,
irrespective of the class thereof; provided, however, that to the extent class
voting is required under the Investment Company Act of 1940, as amended, or
Maryland law as to any matter submitted to a vote of the stockholders at any
such meeting, those requirements shall apply. Any fractional share shall carry
proportionately all the rights of a whole share, including the right to vote and
the right to receive dividends and distributions.
(3) Each holder of the capital stock of the Corporation upon proper
written request (including signature guarantees if required by the Board of
Directors) to the Corporation accompanied, when stock certificates representing
such shares are outstanding, by surrender of the appropriate stock certificate
or
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<PAGE>
certificates in proper form for transfer, or, such other form as the Board of
Directors may provide, shall be entitled to require the Corporation to redeem
all or any part of the Shares of capital stock standing in the name of such
holder on the books of the Corporation, at the net asset value of such shares,
less any redemption fee fixed by the Board of Directors and payable to the
Corporation not exceeding 1% of the net asset value of the shares redeemed. Any
such redemption fee may be applied in such cases as may be determined by the
Board. The method of computing such net asset value, the time as of which such
net asset value shall be computed and the time within which the Corporation
shall make payment thereof, shall be determined as hereinafter provided in
Article SEVENTH of these Articles of Incorporation. Notwithstanding the
foregoing, the Board of Directors of the Corporation may suspend the right of
the holders of the capital stock of the Corporation to require the Corporation
to redeem shares of such capital stock when permitted or required to do so by
the 1940 Act (which term the "1940 Act" shall for the purposes of these Articles
of Incorporation mean the Investment Company Act of 1940 as from time to time
amended and any rule, regulation or order thereunder).
(4) All shares of the capital stock of the Corporation now or
hereafter authorized shall be subject to redemption and redeemable at the option
of the stockholder, in the sense used in the General Laws of the State of
Maryland authorizing the
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<PAGE>
formation of corporations, at the redemption price for any such shares,
determined in the manner set out in these Articles of Incorporation or in any
amendment thereto. In the absence of any specification as to the purposes for
which shares of the capital stock of the Corporation are redeemed or repurchased
by it, all shares so redeemed or repurchased shall be deemed to be acquired for
retirement in the sense contemplated by the laws of the State of Maryland and
the number of the authorized shares of the capital stock of the Corporation
shall not be reduced by the number of any shares redeemed or repurchased by it.
(5) Notwithstanding any provision of law requiring any action to be
taken or authorized by the affirmative vote of the holders of a majority, or
other designated proportion of the shares, or to be otherwise taken or
authorized by a vote of the stockholders, such action shall be effective and
valid if taken or authorized by the affirmative vote of the holders of a
majority of the total number of shares outstanding and entitled to vote thereon
pursuant to the provisions of these Articles of Incorporation.
(6) No holder of stock of the Corporation shall, as such holder,
have any right to purchase or subscribe for any shares of the capital stock of
the Corporation of any class or any other security of the Corporation which it
may issue or sell (whether out of the number of shares authorized by these
Articles of Incorporation, or out of any shares of the capital stock of the
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Corporation acquired by it after the issue thereof, or other-wise) other than
such right, if any, as the Board of Directors, in its discretion, may determine.
(7) All persons who shall acquire stock in the Corporation shall
acquire the same subject to the provisions of these Articles of Incorporation.
(8) The Board of Directors of the Corporation, subject to any
applicable provisions of the 1940 Act is authorized to classify or to
reclassify, from time to time any unissued shares of stock of the Corporation,
whether now or hereafter authorized, by setting, changing or eliminating the
preference, conversion or rights, voting powers, restrictions or limitations as
to dividends and qualifications or terms and conditions of or rights to require
redemption of the stock and pursuant to such classification, or
reclassification, to increase or decrease the number of authorized shares of any
class, but the number of shares of any class shall not be reduced by the Board
of Directors below the number of shares outstanding.
Without limiting the generality of the foregoing, the dividends and
distributions of investment income and capital gains with respect to the stock
of the Corporation, and with respect to each class that hereafter may be
created, shall be in such amount as may be declared from time to time by the
Board of Directors, and such dividends and distributions may vary from class to
class to such extent and for such purposes as the Board
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of Directors may deem appropriate, including, but not limited to, the purpose of
complying with requirements of regulatory or legislative authorities.
SIXTH: The number of Directors of the Corporation shall initially
be three and the names of those who shall act as such until the first annual
meeting or until their successors are duly chosen and qualified are as follows:
John M. Templeton
John L. Goldstone
Glenn M. Feit
However, the By-laws of the Corporation may fix the number of
Directors at a number greater than that named in these Articles of Incorporation
and may authorize the Board of Directors, by the vote of a majority of the
entire Board of Directors, to increase or decrease the number of Directors fixed
by these Articles of Incorporation or in the By-laws, within the limits
specified in the By-laws, provided that in no case shall the number of Directors
be less than three, and to fill the vacancies created by any such increase in
the number of Directors. Unless otherwise provided by the By-laws of the
Corporation, the Directors of the Corporation need not be stock-holders therein.
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SEVENTH: The following provisions are hereby
adopted for the purpose of defining, limiting and regulating the
powers of the Corporation and the Directors and stockholders.
(1) The By-laws of the Corporation may divide the Directors of the
Corporation into classes and prescribe the tenure of office of the several
classes, but no class shall be elected for a period shorter than that from the
time of the election following the division into classes until the next annual
meeting and thereafter for a period shorter than the interval between annual
meetings or for a period longer than five years, and the term of office of at
least one class shall expire each year. Notwithstanding the foregoing, no such
division into classes shall be made prior to the first annual meeting of
stockholders of the Corporation.
(2) The holders of shares of the capital stock of the Corporation
shall have only such right to inspect the records, documents, accounts and books
of the Corporation as are provided by Maryland law, subject to reasonable
regulations of the Board of Directors, not contrary to Maryland law, as to
whether and to what extent, and at what times and places, and under what
conditions and regulations, such rights shall be exercised.
(3) Any Director, or any officer elected or appointed by
the Board of Directors or by any committee of said Board or by
the stockholders or otherwise, may be removed at any time, with
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or without cause, in such lawful manner as may be provided in the
By-laws of the Corporation.
(4) If the By-laws so provide, the Board of Directors of the
Corporation shall have power to hold their meetings, to have an office or
offices and, subject to the provisions of the laws of Maryland, to keep the
books of the Corporation outside of said State at such places as may from time
to time be designated by them.
(5) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the Board of Directors may exercise all
such powers and do all such acts and things as may be exercised or done by the
Corporation, subject, nevertheless, to the express provisions of the laws of
Maryland, of these Articles of Incorporation and of the By-laws of the
Corporation.
(6) Shares of stock in other corporations shall be voted in person
or by proxy by the President or a Vice-President, or such officer or officers of
the Corporation as the Board of Directors shall designate for the purpose, or by
a proxy or proxies thereunto duly authorized by the Board of Directors, except
as otherwise ordered by vote of the holders of a majority of the shares of the
capital stock of the Corporation outstanding and entitled to vote in respect
thereto.
(7) (a) Subject to the provisions of the 1940 Act, any
director, officer or employee individually, or any
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partnership of which any director, officer or employee may be a
member, or any corporation or association of which any director,
officer or employee may be an officer, director, trustee, employee
or stockholder, may be a party to, or may be pecuniarily or
otherwise interested in, any contract or transaction of the
Corporation, and in the absence of fraud no contract or other
transaction shall be thereby affected or invalidated; provided that
in case a director, or a partnership, corporation or association of
which a director is a member, officer, director, trustee, employee
or stockholder is so interested, such fact shall be disclosed or
shall have been known to the Board of Directors or a majority
thereof; and any Director of the Corporation who is so interested,
or who is also a director, officer, trustee, employee or
stockholder of such other corporation or association or a member of
such partnership which is so interested, may be counted in
determining the existence of a quorum at any meeting of the Board
of Directors of the Corporation which shall authorize any such
contract or transaction, and may vote thereat on any such contract
or transaction, with like force and effect as if he were not such
director, officer, trustee, employee or stockholder of such other
corporation or association or not so interested or a member of a
partnership so interested.
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(b) Specifically, but without limitation of the foregoing,
the Corporation may enter into a management or supervisory contract
and other contracts with, and may otherwise do business with
Templeton Investment Counsel Limited, a United Kingdom corporation,
or any of its parent, subsidiary or affiliated companies,
notwithstanding that the Board of Directors of the Corporation may
be composed in part of directors, officers, partners or employees
of any of said companies, and officers of the Corporation may have
been or may be or become directors, officers, partners or employees
of any of said companies, and in the absence of fraud the
Corporation and said companies may deal freely with each other, and
neither such management or supervisory contract nor any other
contract or transaction between the Corporation and any of said
companies shall be invalidated or in any way affected thereby, nor
shall any Director or officer of the Corporation be liable to the
Corporation or to any stockholder or creditor thereof or to any
other person for any loss incurred by it or him under or by reason
of any such contract or transaction, provided that nothing herein
shall protect any director or officer of the Corporation against
any liability to the Corporation or to its security holders to
which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross
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negligence or reckless disregard of the duties involved in
the conduct of his office.
(8) The computation of the net asset value of each share
of capital stock referred to in these Articles of Incorporation shall be
determined as required by the 1940 Act and except as so required, shall be
computed in accordance with the following rules:
(a) The net asset value of each share of capital stock of
the Corporation duly surrendered to the Corporation for redemption
pursuant to the provisions of paragraph (3) of Article FIFTH of
these Articles of Incorporation shall be determined as of the close
of business on the New York Stock Exchange next succeeding the time
when such capital stock is so surrendered.
(b) The net asset value of each share of the capital stock
of the Corporation for the purpose of the issue of such capital
stock shall be determined as of the close of business on the New
York Stock Exchange next succeeding the receipt of an order to
purchase such share.
(c) Unless and until otherwise determined by the Board of
Directors, the net asset value of the shares shall be computed as
of the close of trading on each day the New York Stock Exchange is
open for trading, by dividing the value of the Corporation's
securities plus any cash and other assets (including accrued
dividends and
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interest) less all liabilities (including accrued expenses) by the
number of shares outstanding, the result being adjusted to the
nearest whole cent. A security listed or traded on the New York
Stock Exchange, Toronto Stock Exchange, Tokyo or any other domestic
or foreign stock exchange which the Board of Directors may from
time to time approve for that purpose shall be valued at its last
sale price on that Exchange prior to the time when assets are
valued. If no sale is reported at that time, the previous last sale
shall be taken if it is between the current bid and asked prices.
If it is higher than the current asked price, the current asked
price shall be used, or if it is lower than the current bid price,
the current bid price shall be used. All other securities for which
over-the-counter market quotations are readily available shall be
valued at the mean between the last current bid and asked price.
Securities for which market quotations are not readily available
and other assets shall be valued at fair value as determined in
good faith by the Board of Directors.
(d) In addition to the foregoing, the Board of Directors
is empowered, in its absolute discretion, to establish other bases
or times, or both, for determining the net asset value of each
share of stock of the Corporation in accordance with the 1940 Act
and to
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authorize the voluntary purchase by the Corporation, either
directly or through an agent, of shares of capital stock of the
Corporation upon such terms and conditions and for such
consideration as the Board of Directors shall deem advisable in
accordance with the 1940 Act.
(e) Except as otherwise permitted by the 1940 Act, payment
of the net asset value of shares of capital stock of the
Corporation properly surrendered to it for redemption (less any
redemption fee) shall be made by the Corporation within seven days
after tender of such stock to the Corporation for such redemption
plus any period of time during which the right of the holders of
the shares of capital stock of the Corporation to redeem such
capital stock has been suspended. Any such payment may be made in
portfolio securities of the Corporation and/or cash, as the Board
of Directors shall deem, advisable, and no shareholder shall have a
right other than as determined by the Board of Directors, to have
his shares redeemed in kind.
(f) The Board of Directors is empowered to cause the
redemption of the shares held in any account if the aggregate net
asset value of such shares (taken at cost or value, as determined
by the Board) is less than $500, or such lesser amount as the Board
may fix, upon such notice to the shareholders in question, with
such permission to
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increase the investment in question and upon such other terms and
conditions as may be fixed by the Board of Directors in accordance
with the 1940 Act.
(g) In the event that any person advances the
organizational expenses of the Corporation, such advances shall
become an obligation of the Corporation, subject to such terms and
conditions as may be fixed by, and on a date fixed by, or
determined in accordance with criteria fixed by the Board of
Directors, to be amortized over a period or periods to be fixed by
the Board.
(h) Whenever any action is taken under this paragraph (8)
of this Article SEVENTH of these Articles of Incorporation under
any authorization to take action which is permitted by the 1940
Act, such action shall be deemed to have been properly taken if
such action is in accordance with the construction of the 1940 Act
then in effect as expressed in "no action" letters of the staff of
the Securities and Exchange Commission or any release, rule,
regulation or order under the 1940 Act or any decision of a court
of competent jurisdiction notwithstanding that any of the foregoing
shall later be found to be invalid or otherwise reversed or
modified by any of the foregoing.
(i) Any action which may be taken by the Board of
Directors of the Corporation under this paragraph (8) of
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this Article SEVENTH of these Articles of Incorporation may be
taken by the description thereof in the then effective prospectus
relating to the Corporation's shares under the Securities Act of
1933 rather than by formal resolution of the Board.
(j) Whenever under this paragraph (8) of this Article
SEVENTH of these Articles of Incorporation the Board of Directors
of the Corporation is permitted or required to place a value on
assets of the Corporation, such action may be delegated by the
Board and/or determined in accordance with a formula determined by
the Board, to the extent permitted by the 1940 Act.
EIGHTH:
(1) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer or other agent of the
Corporation against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith as determined by
indep-endent legal counsel and in a manner he reasonably believed to be
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in or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
(2) For purposes of paragraph (1) of this Article EIGHTH, the
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that any person did not act in good faith as
determined by independent legal counsel and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
(3) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer or other agent of the Corporation against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith as determined by
independent legal counsel and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation.
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<PAGE>
(4) No person shall be indemnified under paragraph (3) of this
Article EIGHTH in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the Corporation unless and only to the extent that
the court of law in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which said court shall deem proper, provided such
director, officer or other agent is not found to be grossly negligent in the
performance of his duty to the Corporation and/or adjudged to be liable by
reason of his willful misconduct.
(5) Any indemnification under paragraphs (1) or (3) of this Article
EIGHTH (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer or other agent is proper in the circumstances because such
determination is based upon an opinion of independent legal counsel.
(6) Expenses incurred in defending a civil or criminal action, suit
or proceeding may be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding as authorized by the Board of Directors
provided that (i) such advances shall be limited to amounts used or to be used
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for the preparation and/or presentation of a defense to the action, suit or
proceeding (including costs connected with preparation of a settlement); (ii)
any advances must be accompanied by a written promise by, or on behalf of, the
person in question to repay that amount of the advance which exceeds the amount
which it is ultimately determined that he is entitled to receive from the
Corporation by reason of indemnification; (iii) such promise shall be secured by
a surety bond or other suitable insurance; and (iv) such surety bond or other
insurance shall be paid for by the person in question.
(7) The indemnification provided hereunder shall not be deemed
exclusive of any other rights to which those who are required to be, or who may
be, indemnified hereunder might be entitled under any other provision hereof,
agreement, vote of shareholders or vote of disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director, officer or other agent, and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(8) The Corporation may purchase and maintain insurance on behalf
of any person who is or was a director, officer or other agent of the
Corporation against any liability asserted against him and incurred by him in
any such capacity arising out of his status as such. However, in no event will
the Corporation
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<PAGE>
purchase insurance to indemnify any such person for any act for which the
Corporation itself is not permitted to indemnify him.
(9) Nothing herein contained shall protect or purport to protect
any director, officer or other agent of the Corporation against any liability to
the Corporation or to its security holders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
NINTH: The duration of the Corporation shall be
perpetual.
TENTH: From time to time, any of the provisions of these Articles
of Incorporation may be amended, altered or repealed, upon the vote of the
holders of a majority of the shares of capital stock of the Corporation at the
time outstanding and entitled to vote, and other provisions which might, under
the laws of the State of Maryland at the time in force, be lawfully contained in
these Articles of Incorporation may be added or inserted upon the vote of the
holders of a majority of the shares of capital stock of the Corporation at the
time outstanding and entitled to vote, and all rights at any time conferred upon
the stockholders of the Corporation by these Articles of Incorporation are
granted subject to the provisions of this Article TENTH.
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ELEVENTH: No Director or officer shall have any personal
liability to the Corporation or its stockholders for monetary
damages except:
(1) To the extent that it is proved that the person actually
received an improper benefit or profit in money, property, or services, for the
amount of the benefit or profit in money, property, or services actually
received.
(2) To the extent that a judgment or other final adjudication
adverse to the person is entered in a proceeding based on a finding in the
proceeding that the person's action, or failure to act, was the result of active
and deliberate dishonesty and was material to the cause of action adjudicated in
the proceeding.
Nothing in this Article ELEVENTH shall protect any Director or
officer of the Corporation against any liability to the Corporation or its
stockholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
No amendment, modification or repeal of this Article ELEVENTH shall
adversely affect any right or protection of a Director or officer that exists at
the time of such amendment, modification or repeal.
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IN WITNESS WHEREOF, TEMPLETON FUNDS, INC. has caused these Articles
of Restatement to be signed in its name and on its behalf by its duly authorized
officers who acknowledge that these Articles of Restatement are the act of the
Corporation, that to the best of their knowledge, information and belief, the
matters and facts set forth herein as to authorization and approval are true in
all material respects and that this statement is made under the penalty of
perjury.
TEMPLETON FUNDS, INC.
[Corporate Seal]
By: /s/ DANIEL CALABRIA
Daniel Calabria
Vice President
ATTEST:
/s/ THOMAS M. MISTELE
Thomas M. Mistele
Secretary
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TEMPLETON FUNDS, INC.
ARTICLES SUPPLEMENTARY
TEMPLETON FUNDS, INC., a Maryland corporation registered under
the Investment Company Act of 1940 and having its principal office in the State
of Maryland in Baltimore City, Maryland (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The Board of Directors of the Corporation, at a meeting
duly convened and held on October 21, 1995, adopted a resolution to increase the
total number of Shares of stock which the Corporation shall have the authority
to issue to THREE BILLION TWO HUNDRED MILLION (3,200,000,000) Common Shares of
the par value of ONE DOLLAR ($1.00) per Share and of the aggregate par value of
THREE BILLION TWO HUNDRED MILLION DOLLARS ($3,200,000,000).
SECOND: Immediately prior to the effectiveness of the Articles
Supplementary of the Corporation as hereinabove set forth, the Corporation had
authority to issue two billion seven hundred million (2,700,000,000) shares of
common stock, par value $1.00 per share, of which the Board of Directors had (i)
classified 800,000,000 Shares as World Fund Class I shares of Common Stock and
classified 400,000,000 Shares as World Fund Class II shares of Common Stock, and
(ii) classified 1,000,000,000 Shares as Foreign Fund Class I shares of Common
Stock and classified 500,000,000 Shares as Foreign Fund Class II shares of
Common Stock. As amended hereby, the Corporation's Articles of Incorporation
authorize the issuance of 3,200,000,000 Common Shares of the par value of $1.00
per Share and having an aggregate par value of $3,200,000,000, of which the
Board of
<PAGE>
Directors has classified 800,000,000 Shares as World Fund Class I shares,
400,000,000 Shares as World Fund Class II shares, 1,500,000,000 Shares as
Foreign Fund Class I shares and 500,000,000 Shares as Foreign Fund Class II
shares. The preferences, rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption of the two
classes of shares, as set forth in the Articles of Incorporation of the
Corporation as heretofore amended and supplemented, are not changed by these
Articles Supplementary.
THIRD: The Shares of the Corporation authorized and classified
pursuant to Article First of these Articles Supplementary have been so
authorized and classified by the Board of Directors under the authority
contained in the Charter of the Corporation. The total number of Shares of
capital stock the Corporation has authority to issue has been increased by the
Board of Directors in accordance with Section 2-105(c) of the Maryland General
Corporation Law.
<PAGE>
IN WITNESS WHEREOF, Templeton Funds, Inc. has caused these
Articles Supplementary to be signed in its name on its behalf by its authorized
officers who acknowledge that these Articles Supplementary are the act of the
Corporation, that to the best of their knowledge, information and belief, all
matters and facts set forth herein relating to the authorization and approval of
these Articles Supplementary are true in all material respects and that this
statement is made under the penalties of perjury.
Date: October 25, 1995
TEMPLETON FUNDS, INC.
[CORPORATE SEAL]
By:/s/ JOHN R. KAY
John R. Kay
Vice President
Attest:
/s/ THOMAS M. MISTELE
Thomas M. Mistele
Secretary
TEMPLETON FUNDS, INC.
ARTICLES SUPPLEMENTARY
TEMPLETON FUNDS, INC., a Maryland corporation registered under
the Investment Company Act of 1940 and having its principal office in the State
of Maryland in Baltimore City, Maryland (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The Board of Directors of the Corporation, at a meeting
duly convened and held on October 3, 1990, adopted a resolution to increase the
total number of Shares of stock which the Corporation shall have the authority
to issue to SEVEN HUNDRED FIFTY MILLION (750,000,000) Common Shares of the par
value of ONE DOLLAR ($1.00) per Share and of the aggregate par value of SEVEN
HUNDRED FIFTY MILLION DOLLARS ($750,000,000). The Board of Directors also
adopted a resolution redesignating as "World Fund Shares" the 360,000,000 Shares
previously designated as "Common Shares," classifying an additional 240,000,000
authorized but unissued Shares as World Fund Shares, and classifying an
additional 110,000,000 authorized but unissued Shares as Foreign Fund Shares.
SECOND: The Shares of the Corporation authorized and
classified pursuant to Article First of these Articles Supplementary have been
so authorized and classified by the Board of Directors under the authority
contained in the Charter of the Corporation. The total number of Shares of
capital stock the Corporation has authority to issue has been increased by the
Board
<PAGE>
of Directors in accordance with Section 2-105(c) of the Maryland
General Corporation Law.
THIRD: Immediately prior to the effectiveness of the Articles
Supplementary of the Corporation as hereinabove set forth, the Corporation had
the authority to issue 400,000,000 Common Shares of the par value of $1.00 per
Share and having an aggregate par value of $400,000,000, of which the Board of
Directors had classified 360,000,000 Shares as Common Shares, and of which the
Board of Directors had classified 40,000,000 Shares as Foreign Fund Shares. As
amended hereby, the Corporation's Articles of Incorporation authorize the
issuance of 750,000,000 Common Shares of the par value of $1.00 per Share and
having an aggregate par value of $750,000,000, of which the Board of Directors
has classified 600,000,000 Shares as World Fund Shares and 150,000,000 Shares as
Foreign Fund Shares. The preferences, rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption of the World Fund Shares (including the 360,000,000 Shares previously
designated as "Common Shares") and the Foreign Fund Shares, as set forth in the
Articles of Incorporation of the Corporation as heretofore amended and
supplemented, are not changed by these Articles Supplementary.
IN WITNESS WHEREOF, Templeton Funds, Inc. has caused these
Articles Supplementary to be signed in its name on its behalf by its authorized
officers who acknowledge that these Articles
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Supplementary are the act of the Corporation, that to the best of their
knowledge, information and belief, all matters and facts set forth herein
relating to the authorization and approval of these Articles Supplementary are
true in all material respects and that this statement is made under the
penalties of perjury.
Date: October 24, 1990
TEMPLETON FUNDS, INC.
By:/s/ JOHN WM. GALBRAITH
John Wm. Galbraith
Vice President
Attest:
/s/ THOMAS M. MISTELE
Thomas M. Mistele
Secretary
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TEMPLETON FUNDS, INC.
ARTICLES SUPPLEMENTARY
TEMPLETON FUNDS, INC., a Maryland corporation registered under
the Investment Company Act of 1940 and having its principal office in the State
of Maryland in Baltimore City, Maryland (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The Board of Directors of the Corporation, at a meeting
duly convened and held on October 16, 1993, adopted a resolution to increase the
total number of Shares of stock which the Corporation shall have the authority
to issue to EIGHT HUNDRED FIFTY MILLION (850,000,000) Common Shares of the par
value of ONE DOLLAR ($1.00) per Share and of the aggregate par value of EIGHT
HUNDRED FIFTY MILLION DOLLARS ($850,000,000). The Board of Directors also
adopted a resolution classifying as "Foreign Fund Shares" 100,000,000 authorized
and unissued Common Shares.
SECOND: Immediately prior to the effectiveness of the Articles
Supplementary of the Corporation as hereinabove set forth, the Corporation had
the authority to issue 750,000,000 Common Shares of the par value of $1.00 per
Share and having an aggregate par value of $750,000,000, of which the Board of
Directors had classified 600,000,000 Shares as World Fund Shares, and of which
the Board of Directors had classified 150,000,000 Shares as Foreign Fund Shares.
As amended hereby, the Corporation's Articles of Incorporation authorize the
issuance of 850,000,000 Common Shares
<PAGE>
of the par value of $1.00 per Share and having an aggregate par value of
$850,000,000, of which the Board of Directors has classified 600,000,000 Shares
as World Fund Shares and 250,000,000 Shares as Foreign Fund Shares. The
preferences, rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the World Fund Shares
and the Foreign Fund Shares, as set forth in the Articles of Incorporation of
the Corporation as heretofore amended and supplemented, are not changed by these
Articles Supplementary.
THIRD: The Shares of the Corporation authorized and classified
pursuant to Article First of these Articles Supplementary have been so
authorized and classified by the Board of Directors under the authority
contained in the Charter of the Corporation. The total number of Shares of
capital stock the Corporation has authority to issue has been established by the
Board of Directors in accordance with Section 2-105(c) of the Maryland General
Corporation Law.
IN WITNESS WHEREOF, Templeton Funds, Inc. has caused these
Articles Supplementary to be signed in its name on its behalf by its authorized
officers who acknowledge that these Articles Supplementary are the act of the
Corporation, that to the best of their knowledge, information and belief, all
matters and facts set forth herein relating to the authorization and approval of
these
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<PAGE>
Articles Supplementary are true in all material respects and that this statement
is made under the penalties of perjury.
Date: October 16, 1993
TEMPLETON FUNDS, INC.
By: /s/ HAROLD F. MCELRAFT
Harold F. McElraft
Vice President
Attest:
/s/THOMAS M. MISTELE
Thomas M. Mistele
Secretary
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TEMPLETON FUNDS, INC.
ARTICLES SUPPLEMENTARY
TEMPLETON FUNDS, INC., a Maryland corporation registered under
the Investment Company Act of 1940 and having its principal office in the State
of Maryland in Baltimore City, Maryland (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The Board of Directors of the Corporation, at a meeting
duly convened and held on December 6, 1993, adopted a resolution to increase the
total number of Shares of stock which the Corporation shall have the authority
to issue to ONE BILLION THREE HUNDRED FIFTY MILLION (1,350,000,000) Common
Shares of the par value of ONE DOLLAR ($1.00) per Share and of the aggregate par
value of ONE BILLION THREE HUNDRED FIFTY MILLION DOLLARS ($1,350,000,000). The
Board of Directors also adopted a resolution classifying as "Foreign Fund
Shares" 500,000,000 authorized and unissued Common Shares.
SECOND: Immediately prior to the effectiveness of the Articles
Supplementary of the Corporation as hereinabove set forth, the Corporation had
the authority to issue 850,000,000 Common Shares of the par value of $1.00 per
Share and having an aggregate par value of $850,000,000, of which the Board of
Directors had classified 600,000,000 Shares as World Fund Shares, and of which
the Board of Directors had classified 250,000,000 Shares as Foreign Fund Shares.
As amended hereby, the Corporation's Articles of
<PAGE>
Incorporation authorize the issuance of 1,350,000,000 Common Shares of the par
value of $1.00 per Share and having an aggregate par value of $1,350,000,000, of
which the Board of Directors has classified 600,000,000 Shares as World Fund
Shares and 750,000,000 Shares as Foreign Fund Shares. The preferences, rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of the World Fund Shares and the Foreign Fund
Shares, as set forth in the Articles of Incorporation of the Corporation as
heretofore amended and supplemented, are not changed by these Articles
Supplementary.
THIRD: The Shares of the Corporation authorized and classified
pursuant to Article First of these Articles Supplementary have been so
authorized and classified by the Board of Directors under the authority
contained in the Charter of the Corporation. The total number of Shares of
capital stock the Corporation has authority to issue has been increased by the
Board of Directors in accordance with Section 2-105(c) of the Maryland General
Corporation Law.
IN WITNESS WHEREOF, Templeton Funds, Inc. has caused these
Articles Supplementary to be signed in its name on its behalf by its authorized
officers who acknowledge that these Articles Supplementary are the act of the
Corporation, that to the best of their knowledge, information and belief, all
matters and facts set forth herein relating to the authorization and approval of
these
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<PAGE>
Articles Supplementary are true in all material respects and that this statement
is made under the penalties of perjury.
Date: February 16, 1994
TEMPLETON FUNDS, INC.
By:/s/ HAROLD F. MCELRAFT
Harold F. McElraft
Vice President
Attest:
/s/ THOMAS M. MISTELE
Thomas M. Mistele
Secretary
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BY-LAWS
-of-
TEMPLETON FUNDS, INC.
(As amended and restated March 1, 1991)
ARTICLE I
NAME OF COMPANY, LOCATION OF OFFICES AND SEAL.
SECTION 1. NAME. The name of the Company is Templeton
Funds, Inc.
SECTION 2. PRINCIPAL OFFICES. The principal office of the
Company in the State of Maryland shall be located in Baltimore, Maryland. The
Company may, in addition, establish and maintain such other offices and places
of business within or outside the State of Maryland as the Board of Directors
may from time to time determine.
SECTION 3. SEAL. The corporate seal of the Company shall be
circular in form and shall bear the name of the Company, the year of its
incorporation and the words "Corporate Seal, Maryland." The form of the seal
shall be subject to alteration by the Board of Directors and the seal may be
used by causing it or a facsimile to be impressed or affixed or printed or
otherwise reproduced. Any officer or Director of the Company shall have
authority to affix the corporate seal of the Corporation to any document
requiring the same.
<PAGE>
ARTICLE II
STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of the Stockholders
shall be held at such place within the United States, whether within or outside
the State of Maryland as the Board of Directors shall determine, which shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
SECTION 2. ANNUAL MEETINGS. The Company shall not be required
to hold an annual meeting of Stockholders in any year in which the election of
Directors is not required to be acted upon under the Investment Company Act of
1940. Otherwise, annual meetings of Stockholders for the election of Directors
and the transaction of such other business as may properly come before the
meeting shall be held at such time and place within the United States as the
Board of Directors shall select.
SECTION 3. SPECIAL MEETINGS. Special meetings of the
Stockholders for any purpose or purposes, unless otherwise prescribed by statute
or by the Articles of Incorporation, may be called by resolution of the Board of
Directors or by the President, and shall be called by the President or Secretary
at the request in writing of a majority of the Board of Directors or at the
request in writing by Stockholders owning 10% in amount of the entire capital
stock of the Company issued and outstanding at
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<PAGE>
the time of the call, provided that (1) such request shall state the purpose of
such meeting and the matters proposed to be acted on, and (2) the Stockholders
requesting such meeting shall have paid to the Company the reasonably estimated
cost of preparing and mailing the notice thereof, which the Secretary shall
determine and specify to such Stockholders. No special meeting shall be called
upon the request of Stockholders to consider any matter which is substantially
the same as a matter voted upon at any special meeting of the Stockholders held
during the preceding 12 months, unless requested by the holders of a majority of
all shares entitled to be voted at such meeting.
SECTION 4. NOTICE. Written notice of every meeting of
Stockholders, stating the purpose or purposes for which the meeting is called,
the time when and the place where it is to be held, shall be served, either
personally or by mail, not less than ten nor more than ninety days before the
meeting, upon each Stockholder as of the record date fixed for the meeting and
who is entitled to vote at such meeting. If mailed (1) such notice shall be
directed to a Stockholder at his address as it shall appear on the books of the
Company (unless he shall have filed with the Transfer Agent of the Company a
written request that notices intended for him be mailed to some other address,
in which case it shall be mailed to the address designated in such request) and
(2) such notice shall be deemed to have been given as of the date when it is
deposited in the United States mail
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<PAGE>
with first class postage thereon prepaid. Irregularities in the notice or in the
giving thereof, as well as the accidental omission to give notice of any meeting
to, or the non-receipt of any such notice by, any of the Stockholders shall not
invalidate any action otherwise properly taken by or at any such meeting. Notice
of any Stockholders' meeting need not be given to any Stockholder who shall sign
a written waiver of such notice either before or after the time of such meeting,
which waiver shall be filed with the records of such meeting, or to any
Stockholder who is present at such meeting in person or by proxy.
SECTION 5. QUORUM, ADJOURNMENT OF MEETINGS. The presence at
any Stockholders' meeting, in person or by proxy, of Stockholders entitled to
cast a majority of the votes entitled to be cast shall be necessary and
sufficient to constitute a quorum for the transaction of business. The holders
of a majority of shares entitled to vote at the meeting and present in person or
by proxy, whether or not sufficient to constitute a quorum, or, any officer
present entitled to preside or act as Secretary of such meeting may adjourn the
meeting without determining the date of the new meeting or from time to time
without further notice to a date not more than 120 days after the original
record date. Any business that might have been transacted at the meeting
originally called may be transacted at such adjourned meeting at which a quorum
is present.
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<PAGE>
SECTION 6. VOTE OF THE MEETING. When a quorum is present or
represented at any meeting, the vote of the holders of a majority of the stock
entitled to vote thereat present in person or represented by proxy shall decide
any question brought before such meeting, unless the question is one upon which
by express provisions of applicable statutes, of the Articles of Incorporation,
or of these By-Laws, a different vote is required, in which case such express
provisions shall govern and control the decision of such question.
SECTION 7. VOTING RIGHTS OF STOCKHOLDERS. Each Stockholder of
record having the right to vote shall be entitled at every meeting of the
Stockholders of the Company to one vote for each share of stock having voting
power standing in the name of such Stockholder on the books of the Company on
the record date fixed in accordance with Section 5 of Article VII of these
By-Laws, with pro-rata voting rights for any fractional shares, and such votes
may be cast either in person or by written proxy.
SECTION 8. PROXIES. Every proxy must be executed in writing by
the Stockholder or by his duly authorized attorney-in-fact. No proxy shall be
valid after the expiration of eleven months from the date of its execution
unless it shall have specified therein its duration. Every proxy shall be
revocable at the pleasure of the person executing it or of his personal
representatives or assigns. Proxies shall be delivered prior to the meeting to
the Secretary of the Company or to the person
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<PAGE>
acting as Secretary of the meeting before being voted. A proxy with respect to
stock held in the name of two or more persons shall be valid if executed by one
of them unless at or prior to exercise of such proxy the Company receives a
specific written notice to the contrary from any one of them. A proxy purporting
to be executed by or on behalf of a Stockholder shall be deemed valid unless
challenged at or prior to its exercise.
SECTION 9. STOCK LEDGER AND LIST OF STOCKHOLDERS. It shall be
the duty of the Secretary or Assistant Secretary of the Company to cause an
original or duplicate stock ledger to be maintained at the office of the
Company's transfer agent.
SECTION 10. ACTION WITHOUT MEETING. Any action to be taken by
Stockholders may be taken without a meeting if (1) all Stockholders entitled to
vote on the matter consent to the action in writing, (2) all Stockholders
entitled to notice of the meeting but not entitled to vote at it sign a written
waiver of any right to dissent and (3) said consents and waivers are filed with
the records of the meetings of Stockholders. Such consent shall be treated for
all purposes as a vote of the meeting.
ARTICLE III
DIRECTORS
SECTION 1. BOARD OF 3 TO 15 DIRECTORS. The Board of
Directors shall consist of not less than three (3) nor more than
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<PAGE>
fifteen (15) Directors, all of whom shall be of full age and at least 40% of
whom shall be persons who are not interested persons of the Company as defined
in the Investment Company Act of 1940, provided that prior to the issuance of
stock by the Company, the Board of Directors may consist of less than three (3)
Directors, subject to the provisions of Maryland law. Directors shall be elected
at the annual meeting of the Stockholders, if held, and each Director shall be
elected to serve for one year and until his successor shall be elected and shall
qualify or until his earlier death, resignation or removal. Directors need not
be Stockholders. The Directors shall have power from time to time, and at any
time when the Stockholders as such are not assembled in a meeting, regular or
special, to increase or decrease their own number. If the number of Directors be
increased, the additional Directors may be elected by a majority of the
Directors in office at the time of the increase. If such additional Directors
are not so elected by the Directors in office at the time they increase the
number of places on the Board, or if the additional Directors are elected by the
existing Directors, prior to the first meeting of the Stockholders of the
Company, then in either of such events the additional Directors shall be elected
or reelected by the Stockholders at their next annual meeting or at an earlier
special meeting called for that purpose.
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<PAGE>
The number of Directors may also be increased or decreased by
vote of the Stockholders at any regular or special meeting called for that
purpose. In the event the Stockholders should vote a decrease in the number of
Directors, they shall determine by a majority vote at such meeting which of the
Directors shall be removed and which of the then existing vacancies on the Board
shall be eliminated. If the Stockholders vote an increase in the Board they
shall by plurality vote elect Directors to the newly created places as well as
fill any then existing vacancies on the Board.
The Board of Directors may elect, but shall not be required to
elect, a Chairman of the Board who must be Director.
SECTION 2. VACANCIES. If the office of any Director or
Directors becomes vacant for any reason (other than an increase in the number of
places on the Board as provided in Section 1 of Article III), the Directors in
office, although less than a quorum, shall continue to act and may, by a
majority vote, choose a successor or successors, who shall hold office for the
unexpired term in respect to which such vacancy occurred or until the next
election of Directors (if immediately after filling any such vacancy at least
two-thirds of the Directors then holding office shall have been elected by the
Stockholders), or any vacancy may be filled by the Stockholders at any meeting
thereof.
SECTION 3. MAJORITY TO BE ELECTED BY STOCKHOLDERS. If
at any time, less than a majority of the Directors in office
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<PAGE>
shall consist of Directors elected by Stockholder, a meeting of the Stockholders
shall be called within 60 days for the purpose of electing Directors to fill any
vacancies in the Board of Directors (unless the Securities and Exchange
Commission or any court of competent jurisdiction shall by order extend such
period).
SECTION 4. REMOVAL. At any meeting of Stockholders duly called
and at which a quorum is present, the Stockholders may, by the affirmative vote
of the holders of a majority of the votes entitled to be cast thereon, remove
any Director or Directors from office, with or without cause, and may elect a
successor or successors to fill any resulting vacancies for the unexpired terms
of the removed Directors.
SECTION 5. POWERS OF THE BOARD. The business of this Company
shall be managed under the direction of its Board of Directors, which may
exercise or give authority to exercise all powers of the Company and do all such
lawful acts and things as are not by statute, by the Articles of Incorporation
or by these By-Laws required to be exercised or done by the Stockholders.
SECTION 6. PLACE OF MEETINGS. The Directors may hold their
meetings at the principal office of the Company or at such other places, either
within or without the State of Maryland, as they may from time to time
determine.
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<PAGE>
SECTION 7. REGULAR MEETINGS. Regular meetings of the
Board may be held at such date and time as shall from time to
time be determined by resolution of the Board.
SECTION 8. SPECIAL MEETINGS. Special meetings of the Board may
be called by order of the President on one day's notice given to each Director
either in person or by mail, telephone, telegram, telefax, telex, cable or
wireless to each Director at his residence or regular place of business. Special
meetings will be called by the President or Secretary in a like manner on the
written request of a majority of the Directors.
SECTION 9. WAIVER OF NOTICE. No notice of any meting of the
Board of Directors or a committee of the Board need be given to any Director who
is present at the meeting or who waives notice of such meeting in writing (which
waiver shall be filed with the records of such meeting), either before or after
the time of the meeting.
SECTION 10. QUORUM OF ONE-THIRD. At all meetings of the Board
the presence of one-third of the entire number of Directors then in office (but
not less than two Directors) shall be necessary to constitute a quorum and
sufficient for the transaction of business, and any act of a majority present at
a meeting at which there is a quorum shall be the act of the Board of Directors,
except as may be otherwise specifically provided by statute, by the Articles of
Incorporation or by these By-Laws. If a quorum shall not be present at any
meeting of Directors, the
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<PAGE>
Directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
SECTION 11. INFORMAL ACTION BY DIRECTORS AND COMMITTEES. Any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may, except as otherwise required by
statute, be taken without a meeting if a written consent to such action is
signed by all members of the Board, or of such committee, as the case may be and
filed with the minutes of the proceedings of the Board or committee. Subject to
the Investment Company Act of 1940, members of the Board of Directors or a
committee thereof may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time.
SECTION 12. EXECUTIVE COMMITTEE. There may be an
Executive Committee of two or more Directors appointed by the
Board who may meet at stated times or on notice to all by any of
their own number. The Executive Committee shall consult with and
advise the Officers of the Company in the management of its
business and exercise such powers of the Board of Directors as
may be lawfully delegated by the Board of the Directors.
Vacancies shall be filled by the Board of Directors at any
regular or special meeting. The Executive Committee shall keep
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<PAGE>
regular minutes of its proceedings and report the same to the
Board when required.
SECTION 13. OTHER COMMITTEES. The Board of Directors, by the
affirmative vote of a majority of the entire Board, may appoint other committees
which shall in each case consist of such number of members (not less than two)
and shall have and may exercise, to the extent permitted by law, such powers as
the Board may determine in the resolution appointing them. A majority of all
members of any such committee may determine its action, and fix the time and
place of its meetings, unless the Board of Directors shall otherwise provide.
The Board of Directors shall have power at any time to change the members and,
to the extent permitted by law, the powers of any such committee, to fill
vacancies, and to discharge any such committee.
SECTION 14. ADVISORY BOARD. There may be an Advisory Board of
any number of individuals appointed by the Board of Directors who may meet at
stated times or on notice to all by any of their own number or by the President.
The Advisory Board shall be composed of Stockholders or representatives of
Stockholders. The Advisory Board will have no power to require the Company to
take any specific action. Its purpose shall be solely to consider matters of
general policy and to represent the Stockholders in all matters except those
involving the purchase or sale of specific securities. A majority of the
Advisory Board, if appointed, must consist of Stockholders who are not
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<PAGE>
otherwise affiliated or interested persons of the Company or of any affiliate of
the Company as those terms are defined in the Investment Company Act of 1940.
SECTION 15. COMPENSATION OF DIRECTORS. The Board may, by
resolution, determine what compensation and reimbursement of expenses of
attendance at meetings, if any, shall be paid to Directors in connection with
their service on the Board. Nothing herein contained shall be construed to
preclude any Director from serving the Company in any other capacity or from
receiving compensation therefor.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The Officers of the Company shall be
fixed by the Board of Directors and shall include a President, a Vice-President,
a Secretary and a Treasurer. Any two of the aforesaid offices, except those of
President and Vice President, may be held by the same person.
SECTION 2. APPOINTMENT OF OFFICERS. The Directors, at their
first meeting after each annual meeting of Stockholders, shall appoint a
President and the other Officers who need not be members of the Board.
SECTION 3. ADDITIONAL OFFICERS. The Board, at any
regular or special meeting, may appoint such other Officers and
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<PAGE>
agents as it shall deem necessary who shall exercise such powers and perform
such duties as shall be determined from time to time by the Board.
SECTION 4. SALARIES OF OFFICERS. The salaries of all
Officers of the Company shall be fixed by the Board of Directors.
SECTION 5. TERM, REMOVAL, VACANCIES. The Officers of the
Company shall hold office for one year and until their successors are chosen and
qualify in their stead. Any Officer elected or appointed by the Board of
Directors may be removed at any time by the affirmative vote of a majority of
the Directors. If the office of any Officer becomes vacant for any reason, the
vacancy shall be filled by the Board of Directors.
SECTION 6. PRESIDENT. The President shall be the chief
executive officer of the Company; he shall, subject to the supervision of the
Board of Directors, have general responsi-bility for the management of the
business of the Company and shall see that all orders and resolutions of the
Board are carried into effect.
SECTION 7. VICE-PRESIDENT. The Vice-President (senior in
service), at the request or in the absence or disability of the President shall
perform the duties and exercise the powers of the President and shall perform
such other duties as the Board of Directors shall prescribe.
SECTION 8. TREASURER. The Treasurer shall have the
custody of the corporate funds and securities and shall keep full
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<PAGE>
and accurate accounts of receipts and disbursements in books belonging to the
Company and shall deposit all moneys and other valuable effects in the name and
to the credit of the Company in such depositories as may be designated by the
Board of Directors. He shall disburse the funds of the Company as may be ordered
by the Board, taking proper vouchers for such disbursements, and shall render to
the President and Directors at the regular meetings of the Board, or whenever
they may require it, an account of all his transactions as Treasurer and of the
financial condition of the Company.
Any Assistant Treasurer may perform such duties of the
Treasurer as the Treasurer of the Board of Directors may assign, and, in the
absence of the Treasurer, he may perform all the duties of the Treasurer.
SECTION 9. SECRETARY. The Secretary shall attend meetings of
the Board and meetings of the Stockholders and record all votes and the minutes
of all proceedings in books to be kept for that purpose. He shall give or cause
to be given notice of all meetings of Stockholders and special meetings of the
Board of Directors and shall perform such other duties as may be prescribed by
the Board of Directors. He shall keep in safe custody the seal of the Company
and affix it to any instrument when authorized by the Board of Directors.
Any Assistant Secretary may perform such duties of the
Secretary as the Secretary or the Board of Directors may assign,
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<PAGE>
and, in the absence of the Secretary, may perform all the duties
of the Secretary.
SECTION 10. SUBORDINATE OFFICERS. The Board of Directors from
time to time may appoint such other officers or agents as it may deem advisable,
each of whom shall have such title, hold office for such period, have such
authority and perform such duties as the Board of Directors may determine. The
Board of Directors from time to time may delegate to one or more officers or
agents the power to appoint any such subordinate officers or agents and to
prescribe their respective rights, terms of office, authorities and duties.
SECTION 11. SURETY BONDS. The Board of Directors may require
any officer or agent of the Company to execute a bond (including, without
limitation, any bond required by the Investment Company Act of 1940, as amended,
and the rules and regulations of the Securities and Exchange Commission) to the
Company in such sum and with such surety or sureties as the Board of Directors
may determine, conditioned upon the faithful performance of his duties to the
Company, including responsibility for negligence and for the accounting of any
of the Company's property, funds or securities that may come into his hands.
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<PAGE>
ARTICLE V
INDEMNIFICATION
SECTION 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The
Company shall indemnify its Directors to the fullest extent that indemnification
of directors is permitted by the Maryland General Corporation Law. The Company
shall indemnify its Officers to the same extent as its Directors and to such
further extent as is consistent with law. The Company shall indemnify its
Directors and Officers who while serving as Directors or Officers also serve at
the request of the Company as a director, officer, partner, trustee, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust,
other enterprise or employee benefit plan to the fullest extent consistent with
law. The indemnification and other rights provided by this Article shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executors and administrators of such a
person. This Article shall not protect any such person against any liability to
the Company or any Stockholder thereof to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office
("disabling conduct").
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<PAGE>
SECTION 2. ADVANCES. Any current or former director or officer
of the Company seeking indemnification within the scope of this Article shall be
entitled to advances from the Company for payment of the reasonable expenses
incurred by him in connection with the matter as to which he is seeking
indemnification in the manner and to the fullest extent permissible under the
Maryland General Corporation Law. The person seeking indemnification shall
provide to the Company a written affirmation of his good faith belief that the
standard of conduct necessary for indemnification by the Company has been met
and a written undertaking to repay any such advance if it should ultimately be
determined that the standard of conduct has not been met. In addition, at least
one of the following additional conditions shall be met: (a) the person seeking
indemnification shall provide a security in form and amount acceptable to the
Company for his undertaking; (b) the Company is insured against losses arising
by reason of the advance; or (c) a majority of a quorum of Directors of the
Company who are neither interested persons as defined in the Investment Company
Act of 1940, nor parties to the proceeding ("disinterested non-party
Directors"), or independent legal counsel, in a written opinion, shall have
determined, based on a review of facts readily available to the Company at the
time the advance is proposed to be made, that there is reason to believe that
the person seeking
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<PAGE>
indemnification will ultimately be found to be entitled to
indemnification.
SECTION 3. PROCEDURE. At the request of any person claiming
indemnification under this Article, the Board of Directors shall determine, or
cause to be determined, in a manner consistent with the Maryland General
Corporation Law, whether the standards required by this Article have been met.
Indemnification shall be made only following: (a) a final decision on the merits
by a court or other body before whom the proceeding was brought that the person
to be indemnified was not liable by reason of disabling conduct or (b) in the
absence of such a decision, a reasonable determination, based upon a review of
the facts, that the person to be indemnified was not liable by reason of
disabling conduct by (i) the vote of a majority of a quorum of disinterested
non-party Directors or (ii) an independent legal counsel in a written opinion.
SECTION 4. INDEMNIFICATION OF EMPLOYEES AND AGENTS. Employees
and agents who are not Officers or Directors of the Company may be indemnified,
and reasonable expenses may be advanced to such employees or agents, as may be
provided by action of the Board of Directors or by contract, subject to any
limitations imposed by the Investment Company Act of 1940.
SECTION 5. OTHER RIGHTS. The Board of Directors may
make further provision consistent with law for indemnification
and advance of expenses to Directors, Officers, employees and
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<PAGE>
agents by resolution, agreement or otherwise. The indemnification provided by
this Article shall not be deemed exclusive of any other right, with respect to
indemnification or otherwise, to which those seeking indemnification may be
entitled under any insurance or other agreement or resolution of Stockholders or
disinterested Directors or otherwise. The rights provided to any person by this
Article shall be enforceable against the Company by such person who shall be
presumed to have relied upon it in serving or continuing to serve as a director,
officer, employee, or agent as provided above.
SECTION 6. AMENDMENTS. References in this Article are to the
Maryland General Corporation Law and to the Investment Company Act of 1940 as
from time to time amended. No amendment of these By-laws shall effect any right
of any person under this Article based on any event, omission or proceeding
prior to the amendment.
SECTION 7. INSURANCE. The Company may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the Company or who, while a director, officer, employee, or agent of
the Company, is or was serving at the request of the Company as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise, or employee
benefit plan against any liability asserted against and incurred by such person
in any such capacity
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<PAGE>
or arising out of such person's position; provided, that no insurance may be
purchased which would indemnify any Director or Officer of the Company against
any liability to the Company or to its security holders to which he would
otherwise be subject by reason of disabling conduct.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. WAIVER OF NOTICE. Whenever by statute, the
provisions of the Articles of Incorporation or these ByLaws, the Stockholders or
the Board of Directors are authorized to take any action at any meeting after
notice, such notice may be waived, in writing, before or after the holding of
the meeting, by the person or persons entitled to such notice, or, in the case
of a Stockholder, by his attorney thereunto authorized.
SECTION 2. CHECKS. All checks or demands for money and notes
of the Company shall be signed by such Officer or Officers or such other person
or persons as the Board of Directors may from time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the
Company shall be determined by resolution of the Board of
Directors.
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<PAGE>
SECTION 4. ACCOUNTANT. The Company shall employ an independent
public accountant or a firm of independent public accountants as its Accountant
to examine the accounts of the Company and to sign and certify financial
statements filed by the Company. The employment of the Accountant shall be
conditioned upon the right of the Company to terminate the employment forthwith
without any penalty by vote of a majority of the outstanding voting securities
at any Stockholders' meeting called for that purpose.
ARTICLE VII
CAPITAL STOCK
SECTION 1. CERTIFICATE OF STOCK. The interest of each
Stockholder of the Company may be evidenced by certificates for shares of stock
in such form as the Board of Directors may from time to time prescribe. The
certificates shall be numbered and entered in the books of the Company as they
are issued. They shall exhibit the holder's name and the number of shares and no
certificate shall be valid unless it has been signed by the President or a
Vice-President and the Treasurer or an Assistant Treasurer or the Secretary or
an Assistant Secretary and bears the corporate seal. Such seal may be a
facsimile, engraved or printed. Where any such certificate is signed by a
Transfer Agent or by a Registrar, the signatures of any such Officer may
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<PAGE>
be facsimile, engraved or printed. In case any of the Officers of the Company
whose manual or facsimile signature appears on any stock certificate delivered
to a Transfer Agent of the Company shall cease to be such Officer prior to the
issuance of such certificate, the Transfer Agent may nevertheless countersign
and deliver such certificate as though the person signing the same or whose
facsimile signature appears thereon had not ceased to be such Officer, unless
written instructions of the Company to the contrary are delivered to the
Transfer Agent.
SECTION 2. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board
of Directors, or the President together with the Treasurer or Secretary, may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Company, alleged to have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate of
stock to be lost, stolen or destroyed, or by his legal representative. When
authorizing such issue of a new certificate, the Board of Directors, or the
President and Treasurer or Secretary, may, in its or their discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate, or his legal representative, to advertise the
same in such manner as it or they shall require and/or give the Company a bond
in such sum and with such surety or sureties as it or they may direct as
indemnity against any claim that may be made against the Company
- 23 -
<PAGE>
with respect to the certificate alleged to have been lost, stolen or destroyed
or such newly issued certificate.
SECTION 3. TRANSFER OF STOCK. Shares of the Company shall be
transferable on the books of the Company by the holder thereof in person or by
his duly authorized attorney or legal representative upon surrender and
cancellation of a certificate or certificates for the same number of shares of
the same class, duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, with such proof of the authenticity of the
signature as the Company or its agents may reasonably require. The Board of
Directors may, from time to time, adopt rules and regulations with reference to
the method of transfer of the shares of stock of the Company.
SECTION 4. REGISTERED HOLDER. The Company shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person
whether or not it shall have express or other notice thereof, except as
expressly provided by statute.
SECTION 5. RECORD DATE. The Board of Directors may fix a time
not less than 10 nor more than 90 days prior to the date of any meeting of
Stockholders or prior to the last day on which the consent or dissent of
Stockholders may be effectively expressed for any purpose without a meeting, as
the time as of
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<PAGE>
which Stockholders entitled to notice of and to vote at such a meeting or whose
consent or dissent is required or may be expressed for any purpose, as the case
may be, shall be determined; and all persons who were holders of record of
voting stock at such time and no other shall be entitled to notice of and to
vote at such meeting or to express their consent or dissent, as the case may be.
If no record date has been fixed, the record date for the determination of
Stockholders entitled to notice of or to vote at a meeting of Stockholders shall
be the later of the close of business on the day on which notice of the meeting
is mailed or the thirtieth day before the meeting, or, if notice is waived by
all Stockholders, at the close of business on the tenth day next preceding the
day on which the meeting is held. The Board of Directors may also fix a time not
exceeding 90 days preceding the date fixed for the payment of any dividend or
the making of any distribution, or for the delivery of evidences of rights, or
evidences of interests arising out of any change, conversion or exchange of
capital stock, as a record time for the determination of the Stockholder
entitled to receive any such dividend, distribution, rights or interests.
SECTION 6. STOCK LEDGERS. The stock ledgers of the
Company, containing the names and addresses of the Stockholders
and the number of shares held by them respectively, shall be kept
at the principal offices of the Company or at the offices of the
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<PAGE>
transfer agent of the Company or at such other location as may be authorized by
the Board of Directors from time to time.
SECTION 7. TRANSFER AGENTS AND REGISTRARS. The Board of
Directors may from time to time appoint or remove transfer agents and/or
registrars of transfers (if any) of shares of stock of the Company, and it may
appoint the same person as both transfer agent and registrar. Upon any such
appointment being made, all certificates representing shares of capital stock
thereafter issued shall be countersigned by one of such transfer agents or by
one of such registrars of transfers (if any) or by both and shall not be valid
unless so countersigned. If the same person shall be both transfer agent and
registrar, only one countersignature by such person shall be required.
SECTION 8. DIVIDENDS. Dividends upon the capital stock of the
Company, subject to any provisions of the Articles of Incorporation relating
thereto, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law.
SECTION 9. RESERVE BEFORE DIVIDENDS. Before payment of any
dividend, there may be set aside out of the net profits of the Company available
for dividends such sum or sums as the Directors from time to time in their
absolute discretion think proper as a reserve fund to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Company, or for such other purpose as the Directors shall think conducive to the
interests of the Company, and the Directors may
- 26 -
<PAGE>
modify or abolish any such reserve in the manner in which it was
created.
SECTION 10. NO PRE-EMPTIVE RIGHTS. Shares of stock
shall not possess pre-emptive rights to purchase additional
shares of stock when offered.
SECTION 11. FRACTIONAL SHARES. Fractional shares
entitle the holder to the same voting and other rights and
privileges as whole shares on a pro-rata basis.
ARTICLE VIII
AMENDMENTS
SECTION 1. BY STOCKHOLDERS. By-Laws may be adopted, amended or
repealed, by vote of the holders of a majority of the Company's stock, as
defined by the Investment Company Act of 1940, at any annual or special meeting
of the Stockholders at which a quorum is present or represented, provided notice
of the proposed amendment shall have been contained in the notice of the
meeting.
SECTION 2. BY DIRECTORS. The Directors may adopt, amend or
repeal any By-Law (which is not inconsistent with any By-Law adopted, amended or
repealed by the Company's Stockholders in accordance with Section 1 of this
Article VIII) by majority vote of all of the Directors in office at any regular
meeting, or
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<PAGE>
at any special meeting, in accordance with the requirements of
applicable law.
ARTICLE IX
CUSTODY OF SECURITIES
SECTION 1. EMPLOYMENT OF A CUSTODIAN. The Company shall place
and at all times maintain in the custody of a Custodian (including any
sub-custodian for the Custodian, which may be a foreign bank which meets
applicable requirements of law) all funds, securities and similar investments
owned by the Company. The Custodian (and any sub-custodian) shall be a bank
having not less than $2,000,000 aggregate capital, surplus and undivided profits
or such other financial institution as shall be permitted by rule or order of
the United States Securities and Exchange Commission. The Custodian shall be
appointed from time to time by the Directors, who shall fix its remuneration.
SECTION 2. ACTION UPON TERMINATION OF CUSTODIAN AGREEMENT.
Upon termination of a Custodian Agreement or inability of the Custodian to
continue to serve, the Directors shall promptly appoint a successor custodian,
but in the event that no successor custodian can be found who has the required
qualifications and is willing to serve, the Directors shall call as promptly as
possible a special meeting of the Shareholders to determine whether the Company
shall function without a custodian
- 28 -
<PAGE>
or shall be liquidated. If so directed by vote of the holders of a majority of
the outstanding voting securities, the Custodian shall deliver and pay over all
funds, securities and similar investments held by it as specified in such vote.
SECTION 3. PROVISIONS OF CUSTODIAN AGREEMENT. The
following provisions shall apply to the employment of a Custodian
and to any contract entered into with the Custodian so employed:
The Directors shall cause to be delivered to the Custodian all
securities owned by the Company or to which it may become
entitled, and shall order the same to be delivered by the
Custodian only in completion of a sale, exchange, transfer,
pledge, loan of portfolio securities to another person, or
other disposition thereof, all as the Directors may generally
or from time to time require or approve or to a successor
Custodian; and the Directors shall cause all funds owned by
the Company or to which it may become entitled to be paid to
the Custodian, and shall order the same disbursed only for
investment against delivery of the securities acquired, or the
return of cash held as collateral for loans of portfolio
securities, or in payment of expenses, including management
compensation, and liabilities of the Company, including
distributions to shareholders, or to a successor Custodian. In
connection with the Company's purchase or sale of
- 29 -
<PAGE>
futures contracts, the Custodian shall transmit, prior to
receipt on behalf of the Company of any securities or other
property, funds from the Company's custodian account in order
to furnish to and maintain funds with brokers as margin to
guarantee the performance of the Company's futures obligations
in accordance with the applicable requirements of commodities
exchanges and brokers.
ARTICLE X
MISCELLANEOUS
SECTION 1. MISCELLANEOUS.
(a) Except as hereinafter provided, no Officer or Director of
the Company and no partner, officer, director or shareholder of the Investment
Adviser of the Company or of the Distributor of the Company, and no Investment
Adviser or Distributor of the Company, shall take long or short positions in the
securities issued by the Company.
(1) The foregoing provisions shall not prevent
the Distributor from purchasing Shares from the Company if such purchases are
limited (except for reasonable allowances for clerical errors, delays and errors
of transmission and cancellation of orders) to purchases for the purpose of
filling orders for such Shares received by the Distributor, and provided
- 30 -
<PAGE>
that orders to purchase from the Company are entered with the Company or the
Custodian promptly upon receipt by the Distributor of purchase orders for such
Shares, unless the Distributor is otherwise instructed by its customer.
(2) The foregoing provision shall not prevent the
Distributor from purchasing Shares of the Company as agent for the account of
the Company.
(3) The foregoing provision shall not prevent the
purchase from the Company or from the Distributor of Shares issued by the
Company, by any officer, or Director of the Company or by any partner, officer,
director or shareholder of the Investment Adviser of the Company or of the
Distributor of the Company at the price available to the public generally at the
moment of such purchase, or as described in the then currently effective
Prospectus of the Company.
(4) The foregoing shall not prevent the
Distributor, or any affiliate thereof, of the Company from purchasing Shares
prior to the effectiveness of the first registration statement relating to the
Shares under the Securities Act of 1933.
(b) The Company shall not lend assets of the Company to any
officer or Director of the Company, or to any partner, officer, director or
shareholder of, or person financially interested in, the Investment Adviser of
the Company, or the
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<PAGE>
Distributor of the Company, or to the Investment Adviser of the Company or to
the Distributor of the Company.
(c) The Company shall not impose any restrictions upon the
transfer of the Shares of the Company except as provided in the Articles of
Incorporation, but this requirement shall not prevent the charging of customary
transfer agent fees.
(d) The Company shall not permit any officer or Director of
the Company, or any partner, officer or director of the Investment Adviser or
Distributor of the Company, to deal for or on behalf of the Company with himself
as principal or agent, or with any partnership, association or corporation in
which he has a financial interest; provided that the foregoing provisions shall
not prevent (a) Officers and Directors of the Company or partners, officers or
directors of the Investment Adviser or Distributor of the Company from buying,
holding or selling Shares in the Company, or from being partners, officers or
directors or otherwise financially interested in the Investment Adviser or
Distributor of the Company; (b) purchases or sales of securities or other
property by the Company from or to an affiliated person or to the Investment
Adviser or Distributor of the Company if such transaction is exempt from the
applicable provisions of the 1940 Act; (c) purchases of investments for the
portfolio of the Company or sales of investments owned by the Company through a
security dealer who is, or one or more of whose partners, share-holders,
officers or directors is, an Officer or Director of the
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<PAGE>
Company, or a partner, officer or director of the Investment Adviser or
Distributor of the Company, if such transactions are handled in the capacity of
broker only and commissions charged do not exceed customary brokerage charges
for such services; (d) employment of legal counsel, registrar, Transfer Agent,
dividend disbursing agent or Custodian who is, or has a partner, share-holder,
officer, or director who is, an officer or Director of the Company, or a
partner, officer or director of the Investment Adviser or Distributor of the
Company, if only customary fees are charged for services to the Company; (e)
sharing statistical research, legal and management expenses and office hire and
expenses with any other investment company in which an officer or Director of
the Company, or a partner, officer or director of the Investment Adviser or
Distributor of the Company, is an officer or director or otherwise financially
interested.
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<PAGE>
TEMPLETON FUNDS, INC.
700 Central Avenue
St. Petersburg, Florida 33701-3628
Franklin Templeton Distributors, Inc.
700 Central Avenue
St. Petersburg, Florida 33701-3628
Re: Amended and Restated Distribution Agreement
Gentlemen:
We, TEMPLETON FUNDS, INC. (the "Company"), comprised of TEMPLETON WORLD FUND AND
TEMPLETON FOREIGN FUND, (each a "Fund" and collectively the "Funds"") are a
Maryland corporation operating as an open-end management investment company or
"mutual fund", which is registered under the Investment Company Act of 1940 (the
"1940 Act") and whose shares are registered under the Securities Act of 1933
(the "1933 Act"). We desire to issue one or more series or classes of our
authorized but unissued shares of capital stock or beneficial interest (the
"Shares") to authorized persons in accordance with applicable Federal and State
securities laws. The Funds' Shares may be made available in one or more separate
series, each of which may have one or more classes.
You have informed us that your company is registered as a broker-dealer under
the provisions of the Securities Exchange Act of 1934 and that your company is a
member of the National Association of Securities Dealers, Inc. You have
indicated your desire to act as the exclusive selling agent and distributor for
the Shares. We have been authorized to execute and deliver this Distribution
Agreement ("Agreement") to you by a resolution of our Board of Directors
("Board") passed at a meeting at which a majority of Board members, including a
majority who are not otherwise interested persons of the Company and who are not
interested persons of our investment adviser, its related organizations or with
you or your related organizations, were present and voted in favor of the said
resolution approving this Agreement.
1. APPOINTMENT OF UNDERWRITER. Upon the execution of this Agreement and
in consideration of the agreements on your part herein expressed and upon the
terms and conditions set forth herein, we hereby appoint you as the exclusive
sales agent for our Shares and agree that we will deliver such Shares as you may
sell. You agree to use your best efforts to promote the sale of Shares, but are
not obligated to sell any specific number of Shares.
However, the Fund and each series retain the right to make direct sales
of its Shares without sales charges consistent with the terms of the then
current prospectus and applicable law, and to engage in other legally authorized
transactions in its Shares which do not involve the sale of Shares to the
general public. Such other transactions may include, without limitation,
transactions between the Fund or any series or class and its shareholders only,
transactions involving the reorganization of the Fund or any series, and
transactions involving the merger or combination of the Fund or any series with
another corporation or trust.
2. INDEPENDENT CONTRACTOR. You will undertake and discharge your
obligations hereunder as an independent contractor and shall have no authority
or power to obligate or bind us by your actions, conduct or contracts except
that you are authorized to promote the sale of Shares. You may appoint
sub-agents or distribute through dealers or otherwise as you may determine from
time to time, but this Agreement shall not be construed as authorizing any
dealer or other person to accept orders for sale or repurchase on our behalf or
otherwise act as our agent for any purpose.
3. OFFERING PRICE. Shares shall be offered for sale at a price
equivalent to the net asset value per share of that series and class plus any
applicable percentage of the public offering price as sales commission or as
otherwise set forth in our then current prospectus. On each business day on
<PAGE>
which the New York Stock Exchange is open for business, we will furnish you with
the net asset value of the Shares of each available series and class which shall
be determined in accordance with our then effective prospectus. All Shares will
be sold in the manner set forth in our then effective prospectus and statement
of additional information, and in compliance with applicable law.
4. COMPENSATION.
A. SALES COMMISSION. You shall be entitled to charge a sales
commission on the sale or redemption, as appropriate, of each series and class
of each Funds' Shares in the amount of any initial, deferred or contingent
deferred sales charge as set forth in our then effective prospectus. You may
allow any sub-agents or dealers such commissions or discounts from and not
exceeding the total sales commission as you shall deem advisable, so long as any
such commissions or discounts are set forth in our current prospectus to the
extent required by the applicable Federal and State securities laws. You may
also make payments to sub-agents or dealers from your own resources, subject to
the following conditions: (a) any such payments shall not create any obligation
for or recourse against the Funds or any series or class, and (b) the terms and
conditions of any such payments are consistent with our prospectus and
applicable federal and state securities laws and are disclosed in our prospectus
or statement of additional information to the extent such laws may require.
B. DISTRIBUTION PLANS. You shall also be entitled to
compensation for your services as provided in any Distribution Plan adopted as
to any series and class of any Fund's Shares pursuant to Rule 12b-1 under the
1940 Act.
5. TERMS AND CONDITIONS OF SALES. Shares shall be offered for sale only
in those jurisdictions where they have been properly registered or are exempt
from registration, and only to those groups of people which the Board may from
time to time determine to be eligible to purchase such shares.
6. ORDERS AND PAYMENT FOR SHARES. Orders for Shares shall be directed
to the Funds' shareholder services agent, for acceptance on behalf of the Fund.
At or prior to the time of delivery of any of our Shares you will pay or cause
to be paid to the custodian of the Funds' assets, for our account, an amount in
cash equal to the net asset value of such Shares. Sales of Shares shall be
deemed to be made when and where accepted by the Funds' shareholder services
agent. The Funds' custodian and shareholder services agent shall be identified
in its prospectus.
7. PURCHASES FOR YOUR OWN ACCOUNT. You shall not purchase our Shares
for your own account for purposes of resale to the public, but you may purchase
Shares for your own investment account upon your written assurance that the
purchase is for investment purposes and that the Shares will not be resold
except through redemption by us.
8. SALE OF SHARES TO AFFILIATES. You may sell our Shares at net asset
value to certain of your and our affiliated persons pursuant to the applicable
provisions of the federal securities statutes and rules or regulations
thereunder (the "Rules and Regulations"), including Rule 22d-1 under the 1940
Act, as amended from time to time.
9. ALLOCATION OF EXPENSES. We will pay the expenses:
(a) Of the preparation of the audited and certified
financial statements of our company to be included in
any Post-Effective Amendments ("Amendments") to our
Registration Statement under the 1933 Act or 1940
Act, including the prospectus and statement of
additional information included therein;
(b) Of the preparation, including legal fees, and
printing of allAmendments or supplements filed
with the Securities and
<PAGE>
Exchange Commission, including the copies of the
prospectuses included in the Amendments and the first
10 copies of the definitive prospectuses or
supplements thereto, other than those necessitated by
your (including your "Parent's") activities or Rules
and Regulations related to your activities where such
Amendments or supplements result in expenses which we
would not otherwise have incurred;
(c) Of the preparation, printing and distribution of any
reports or communications which we send to our
existing shareholders; and
(d) Of filing and other fees to Federal and State
securities regulatory authorities necessary to
continue offering our Shares.
You will pay the expenses:
(a) Of printing the copies of the prospectuses and any
supplements thereto and statements of additional
information which are necessary to continue to offer
our Shares;
(b) Of the preparation, excluding legal fees, and
printing of all Amendments and supplements to our
prospectuses and statements of additional information
if the Amendment or supplement arises from your
(including your "Parent's") activities or Rules and
Regulations related to your activities and those
expenses would not otherwise have been incurred by
us;
(c) Of printing additional copies, for use by you as
sales literature, of reports or other communications
which we have prepared for distribution to our
existing shareholders; and
(d) Incurred by you in advertising, promoting and selling
our Shares.
10. FURNISHING OF INFORMATION. We will furnish to you such information
with respect to each series and class of Shares, in such form and signed by such
of our officers as you may reasonably request, and we warrant that the
statements therein contained, when so signed, will be true and correct. We will
also furnish you with such information and will take such action as you may
reasonably request in order to qualify our Shares for sale to the public under
the Blue Sky Laws of jurisdictions in which you may wish to offer them. We will
furnish you with annual audited financial statements of our books and accounts
certified by independent public accountants, with semi-annual financial
statements prepared by us, with registration statements and, from time to time,
with such additional information regarding our financial condition as you may
reasonably request.
11. CONDUCT OF BUSINESS. Other than our currently effective prospectus,
you will not issue any sales material or statements except literature or
advertising which conforms to the requirements of Federal and State securities
laws and regulations and which have been filed, where necessary, with the
appropriate regulatory authorities. You will furnish us with copies of all such
materials prior to their use and no such material shall be published if we shall
reasonably and promptly object.
You shall comply with the applicable Federal and State laws
and regulations where our Shares are offered for sale and conduct your affairs
with us and with dealers, brokers or investors in accordance with the Rules of
Fair Practice of the National Association of Securities Dealers, Inc.
<PAGE>
12. REDEMPTION OR REPURCHASE WITHIN SEVEN DAYS. If Shares are tendered
to us for redemption or repurchase by us within seven business days after your
acceptance of the original purchase order for such Shares, you will immediately
refund to us the full sales commission (net of allowances to dealers or brokers)
allowed to you on the original sale, and will promptly, upon receipt thereof,
pay to us any refunds from dealers or brokers of the balance of sales
commissions reallowed by you. We shall notify you of such tender for redemption
within 10 days of the day on which notice of such tender for redemption is
received by us.
13. OTHER ACTIVITIES. Your services pursuant to this Agreement
shall not be deemed to be exclusive, and you may render similar services and act
as an underwriter, distributor or dealer for other investment companies in the
offering of their shares.
14. TERM OF AGREEMENT. This Agreement shall become effective on the
date of its execution, and shall remain in effect for a period of two (2) years.
The Agreement is renewable annually thereafter, with respect to the Fund or, if
the Fund has more than one series, with respect to each series, for successive
periods not to exceed one year (i) by a vote of (a) a majority of the
outstanding voting securities of the Fund or, if the Fund has more than one
series, of each series, or (b) by a vote of the Board, AND (ii) by a vote of a
majority of the members of the Board who are not parties to the Agreement or
interested persons of any parties to the Agreement (other than as members of the
Board), cast in person at a meeting called for the purpose of voting on the
Agreement.
This Agreement may at any time be terminated by the Fund or by
any series without the payment of any penalty, (i) either by vote of the Board
or by vote of a majority of the outstanding voting securities of the Fund or any
series on 90 days' written notice to you; or (ii) by you on 90 days' written
notice to the Fund; and shall immediately terminate with respect to the Fund and
each series in the event of its assignment.
15. SUSPENSION OF SALES. We reserve the right at all times to
suspendor limit the public offering of Shares upon two days' written notice to
you.
16. MISCELLANEOUS. This Agreement shall be subject to the laws of the
State of California and shall be interpreted and construed to further promote
the operation of the Fund as an open-end investment company. This Agreement
shall supersede all Distribution Agreements and Amendments previously in effect
between the parties. As used herein, the terms "Net Asset Value," "Offering
Price," "Investment Company," "Open-End Investment Company," "Assignment,"
"Principal Underwriter," "Interested Person," "Parent," "Affiliated Person," and
"Majority of the Outstanding Voting Securities" shall have the meanings set
forth in the 1933 Act or the 1940 Act and the Rules and Regulations thereunder.
Nothing herein shall be deemed to protect you against any liability to us or to
our securities holders to which you would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of your
duties hereunder, or by reason of your reckless disregard of your obligations
and duties hereunder.
If the foregoing meets with your approval, please acknowledge your acceptance by
signing each of the enclosed copies, whereupon this will become a binding
agreement as of the date set forth below.
Very truly yours,
Templeton Funds, Inc.
By:_______________________________
<PAGE>
Accepted:
Franklin Templeton Distributors, Inc.
By:__________________________________
DATED: May 1, 1995
SPECIMEN
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
DEALER AGREEMENT
Effective: XXXXX YY, 1995
Dear Securities Dealer:
Franklin/Templeton Distributors, Inc. ("we" or "us") invites you to
participate in the distribution of shares of the mutual funds in the Franklin
Templeton Group of Funds (the "Funds") for which we now or in the future serve
as principal underwriter, subject to the terms of this Agreement. We will notify
you from time to time of the Funds which are eligible for distribution and the
terms of compensation under this Agreement. This Agreement supersedes any prior
dealer agreements between us, under paragraph 18, below.
1. LICENSING.
(a) You represent that you are a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD") and are presently licensed
to the extent necessary by the appropriate regulatory agency of each state
in which you will offer and sell shares of the Funds. You agree that
termination or suspension of such membership with the NASD, or of your
license to do business by any state or federal regulatory agency, at any
time shall terminate or suspend this Agreement forthwith and shall require
you to notify us in writing of such action. If you are not a member of the
NASD but are a dealer subject to the laws of a foreign country, you agree
to conform to the rules of fair practice of such association. This
Agreement is in all respects subject to Rule 26 of the Rules of Fair
Practice of the NASD which shall control any provision to the contrary in
this Agreement.
(b) You agree to notify us immediately in writing if at any time you are
not a member in good standing of the Securities Investor Protection
Corporation ("SIPC").
2. SALES OF FUND SHARES. You may offer and sell shares of each Fund and class
only at the public offering price which shall be applicable to, and in effect at
the time of, each transaction. The procedures relating to all orders and the
handling of them shall be subject to the terms of the then current prospectus
and statement of additional information (hereafter, the "prospectus") and new
account application, including amendments, for each such Fund, and our written
instructions from time to time. This Agreement is not exclusive, and either
party may enter into similar agreements with third parties.
3. DUTIES OF DEALER: IN GENERAL. You agree:
(a) To act as principal, or as agent on behalf of your
customers, in all transactions in shares of the Funds except as
provided in paragraph 4 hereof. You shall not have any
<PAGE>
SPECIMEN
authority to act as agent for the issuer (the Funds), for the Principal
Underwriter, or for any other dealer in any respect, nor will you represent
to any third party that you have such authority or are acting in such
capacity.
(b) To purchase shares only from us or from your customers.
(c) To enter orders for the purchase of shares of the Funds only from us
and only for the purpose of covering purchase orders you have already
received from your customers or for your own bona fide investment.
(d) To maintain records of all sales and redemptions of shares made through
you and to furnish us with copies of such records on request.
(e) To distribute prospectuses and reports to your customers in compliance
with applicable legal requirements, except to the extent that we expressly
undertake to do so on your behalf.
(f) That you will not withhold placing customers' orders for shares so as
to profit yourself as a result of such withholding or place orders for
shares in amounts just below the point at which sales charges are reduced
so as to benefit from a higher sales charge applicable to an amount below
the breakpoint.
(g) That if any shares confirmed to you hereunder are repurchased or
redeemed by any of the Funds within seven business days after such
confirmation of your original order, you shall forthwith refund to us the
full concession allowed to you on such orders. We shall forthwith pay to
the appropriate Fund our share, if any, of the "charge" on the original
sale and shall also pay to such Fund the refund from you as herein
provided. We shall notify you of such repurchase or redemption within a
reasonable time after settlement. Termination or cancellation of this
Agreement shall not relieve you or us from the requirements of this
subparagraph.
(h) That if payment for the shares purchased is not received within the
time customary or the time required by law for such payment, the sale may
be canceled forthwith without any responsibility or liability on our part
or on the part of the Funds, or at our option, we may sell the shares which
you ordered back to the Funds, in which latter case we may hold you
responsible for any loss to the Fund or loss of profit suffered by us
resulting from your failure to make payment as aforesaid. We shall have no
liability for any check or other item returned unpaid to you after you have
paid us on behalf of a purchaser. We may refuse to liquidate the investment
unless we receive the purchaser's signed authorization for the liquidation.
(i) That you shall assume responsibility for any loss to a Fund(s) caused
by a correction made subsequent to trade date, provided such correction was
not based on any error, omission
<PAGE>
SPECIMEN
or negligence on our part, and that you will immediately pay such loss to
the Fund(s) upon notification.
(j) That if on a redemption which you have ordered, instructions in proper
form, including outstanding certificates are not received within the time
customary or the time required by law, the redemption may be canceled
forthwith without any responsibility or liability on our part or on the
part of any Fund, or at our option, we may buy the shares redeemed on
behalf of the Fund, in which latter case we may hold you responsible for
any loss to the Fund or loss of profit suffered by us resulting from your
failure to settle the redemption.
4. DUTIES OF DEALER: RETIREMENT ACCOUNTS. In connection with orders for the
purchase of shares on behalf of an Individual Retirement Account, Self-Employed
Retirement Plan or other retirement accounts, by mail, telephone, or wire, you
shall act as agent for the custodian or trustee of such plans (solely with
respect to the time of receipt of the application and payments) and shall not
place such order until you have received from your customer payment for such
purchase and, if such purchase represents the first contribution to such a plan,
the completed documents necessary to establish the plan. You agree to indemnify
us and Franklin Templeton Trust Company and/or Templeton Funds Trust Company as
applicable for any claim, loss, or liability resulting from incorrect investment
instructions received from you which cause a tax liability or other tax penalty.
5. CONDITIONAL ORDERS; CERTIFICATES. We will not accept from you any
conditional orders for shares of any of the Funds. Delivery of certificates for
shares purchased shall be made by the Funds only against constructive receipt of
the purchase price, subject to deduction for your concession and our portion of
the sales charge, if any, on such sale. No certificates will be issued unless
specifically requested.
6. DEALER COMPENSATION.
(a) On each purchase of shares by you from us, the total sales charges and
your dealer concessions shall be as stated in each Fund's then current
prospectus, subject to NASD rules and applicable state and federal laws.
Such sales charges and dealer concessions are subject to reductions under a
variety of circumstances as described in the Funds' prospectuses. To obtain
these reductions, we must be notified when the sale takes place which would
qualify for the reduced charge. If you fail to notify us of the
applicability of a reduction in the sales charge at the time the trade is
placed, neither we nor any of the Funds will be liable for amounts
necessary to reimburse any investor for the reduction which should have
been effected.
(b) In accordance with the Funds' prospectuses, we or our
affiliates may, but are not obligated to, make payments to
<PAGE>
SPECIMEN
dealers from our own resources as compensation for certain sales which are
made at net asset value and are not subject to any contingent deferred
sales charges ("Qualifying Sales"). If you notify us of a Qualifying Sale,
we may make a contingent advance payment up to the maximum amount available
for payment on the sale. If any of the shares purchased in a Qualifying
Sale are redeemed within twelve months of the end of the month of purchase,
we shall be entitled to recover any advance payment attributable to the
redeemed shares by reducing any account payable or other monetary
obligation we may owe to you or by making demand upon you for repayment in
cash. We reserve the right to withhold advances to any dealer, if for any
reason we believe that we may not be able to recover unearned advances from
such dealer.
7. REDEMPTIONS. Redemptions or repurchases of shares will be made at the net
asset value of such shares, less any applicable deferred sales or redemption
charges, in accordance with the applicable prospectuses. Except as permitted by
applicable law, you agree not to purchase any shares from your customers at a
price lower than the redemption or repurchase prices then computed by the Funds.
You shall, however, be permitted to sell shares for the account of the record
owner to the Funds at the repurchase price then currently in effect for such
shares and may charge the owner a fair commission for handling the transaction.
8. EXCHANGES. Telephone exchange orders will be effective only for shares in
plan balance (uncertificated shares) or for which share certificates have been
previously deposited and may be subject to any fees or other restrictions set
forth in the applicable prospectuses. You may charge the shareholder a fair
commission for handling an exchange transaction. Exchanges from a Fund sold with
no sales charge to a Fund which carries a sales charge, and exchanges from a
Fund sold with a sales charge to a Fund which carries a higher sales charge may
be subject to a sales charge in accordance with the terms of each Fund's
prospectus. You will be obligated to comply with any additional exchange
policies described in each Fund's prospectus, including without limitation any
policy restricting or prohibiting "Timing Accounts" as therein defined.
9. TRANSACTION PROCESSING. All orders are subject to acceptance by us and by
the Fund or its transfer agent, and become effective only upon confirmation by
us. If required by law, each transaction shall be confirmed in writing on a
fully disclosed basis and if confirmed by us, a copy of each confirmation shall
be sent simultaneously to you if you so request. All sales are made subject to
receipt of shares by us from the Funds. We reserve the right in our discretion,
without notice, to suspend the sale of shares or withdraw the offering of shares
entirely. Telephone orders will be effected at the price(s) next computed on the
day they are received from you if, as set forth in each Fund's current
prospectus, they are received prior to the time the price of its shares is
calculated. Orders received after that time will be
<PAGE>
SPECIMEN
effected at the price(s) computed on the next business day. All
orders must be accompanied by payment in U.S. dollars. Orders
payable by check must be drawn payable in U.S. dollars on a U.S.
bank, for the full amount of the investment.
10. MULTIPLE CLASSES. We may from time to time provide to you written
compliance guidelines or standards relating to the sale or distribution of Funds
offering multiple classes of shares with different sales charges and
distribution-related operating expenses. In addition, you will be bound by any
applicable rules or regulations of government agencies or self-regulatory
organizations generally affecting the sale or distribution of mutual funds
offering multiple classes of shares.
11. RULE 12B-1 PLANS. You are also invited to participate in
all Plans adopted by the Funds (the "Plan Funds") pursuant to Rule
12b-1 under the 1940 Act.
To the extent you provide administrative and other services, including, but
not limited to, furnishing personal and other services and assistance to your
customers who own shares of a Plan Fund, answering routine inquiries regarding a
Fund, assisting in changing account designations and addresses, maintaining such
accounts or such other services as a Fund may require, to the extent permitted
by applicable statutes, rules, or regulations, we shall pay you a Rule 12b-1
servicing fee. To the extent that you participate in the distribution of Fund
shares which are eligible for a Rule 12b-1 distribution fee, we shall also pay
you a Rule 12b-1 distribution fee. All Rule 12b-1 servicing and distribution
fees shall be based on the value of shares attributable to customers of your
firm and eligible for such payment, and shall be calculated on the basis and at
the rates set forth in the compensation schedule then in effect. Without prior
approval by a majority of the outstanding shares of a Fund, the aggregate annual
fees paid to you pursuant to each Plan shall not exceed the amounts stated as
the "annual maximums" in each Fund's prospectus, which amount shall be a
specified percent of the value of the Fund's net assets held in your customers'
accounts which are eligible for payment pursuant to this Agreement (determined
in the same manner as each Fund uses to compute its net assets as set forth in
its effective Prospectus).
You shall furnish us and each Fund with such information as shall reasonably
be requested by the Boards of Directors, Trustees or Managing General Partners
(hereinafter referred to as "Directors") of such Funds with respect to the fees
paid to you pursuant to the Schedule. We shall furnish to the Boards of
Directors of the Plan Funds, for their review on a quarterly
<PAGE>
SPECIMEN
basis, a written report of the amounts expended under the Plans and the purposes
for which such expenditures were made.
The Plans and provisions of any agreement relating to such Plans must be
approved annually by a vote of the Plan Funds' Directors, including such persons
who are not interested persons of the Plan Funds and who have no financial
interest in the Plans or any related agreement ("Rule 12b-1 Directors"). The
Plans or the provisions of this Agreement relating to such Plans may be
terminated at any time by the vote of a majority of the Plan Funds' Boards of
Directors, including Rule 12b-1 Directors, or by a vote of a majority of the
outstanding shares of the Plan Funds, on sixty (60) days' written notice,
without payment of any penalty. The Plans or the provisions of this Agreement
may also be terminated by any act that terminates the Underwriting Agreement
between us and the Plan Funds, and/or the management or administration agreement
between Franklin Advisers, Inc. or Templeton Investment Counsel, Inc. or their
affiliates and the Plan Funds. In the event of the termination of the Plans for
any reason, the provisions of this Agreement relating to the Plans will also
terminate.
Continuation of the Plans and provisions of this Agreement relating to such
Plans are conditioned on Rule 12b-1 Directors being ultimately responsible for
selecting and nominating any new Rule 12b-1 Directors. Under Rule 12b-1,
Directors of any of the Plan Funds have a duty to request and evaluate, and
persons who are party to any agreement related to a Plan have a duty to furnish,
such information as may reasonably be necessary to an informed determination of
whether the Plan or any agreement should be implemented or continued.
Parties to this Agreement who provide services to Plan Funds in the promotion
of shares of such Funds should be aware that under Rule 12b-1 Plan Funds are
permitted to implement or continue Plans or the provisions of this Agreement
relating to such Plans from year-to-year only if, based on certain legal
considerations, the board is able to conclude that the Plans will benefit the
Plan Funds. Absent such yearly determination the Plans and the provisions of
this Agreement relating to the Plans must be terminated as set forth above. In
addition, any obligation assumed by a Fund pursuant to this Agreement shall be
limited in all cases to the assets of such Fund and no person shall seek
satisfaction thereof from shareholders of a Fund.
<PAGE>
SPECIMEN
You agree to waive payment of any amounts payable to you by us under a Fund's
Plan of Distribution pursuant to Rule 12b-1 until such time as we are in receipt
of such fee from the Fund.
The provisions of the Rule 12b-1 Plans between the Plan Funds and us, insofar
as they relate to Plans, shall control over the provisions of this Agreement in
the event of any inconsistency.
12. REGISTRATION OF SHARES. Upon request, we shall notify you of the states
or other jurisdictions in which Fund shares are currently registered or
qualified for sale to the public. We shall have no obligation to register or
qualify, or to maintain registration or qualification of, Fund shares in any
state or other jurisdiction. We shall have no responsibility, under the laws
regulating the sale of securities in any U.S. or foreign jurisdiction, for the
qualification or status of persons selling Fund shares or for the manner of sale
of Fund shares. Except as stated in this paragraph, we shall not, in any event,
be liable or responsible for the issue, form, validity, enforceability and value
of such shares or for any matter in connection therewith, and no obligation not
expressly assumed by us in this Agreement shall be implied. Nothing in this
Agreement, however, shall be deemed to be a condition, stipulation or provision
binding any person acquiring any security to waive compliance with any provision
of the Securities Act of 1933, or of the rules and regulations of the Securities
and Exchange Commission, or to relieve the parties hereto from any liability
arising under the Securities Act of 1933.
13. ADDITIONAL REGISTRATIONS. If it is necessary to register or qualify the
shares in any foreign jurisdictions in which you intend to offer the shares, it
will be your responsibility to arrange for and to pay the costs of such
registration or qualification; prior to any such registration or qualification
you will notify us of your intent and of any limitations that might be imposed
on the Funds and you agree not to proceed with such registration or
qualification without the written consent of the Funds and of ourselves.
14. FUND INFORMATION. No person is authorized to give any
information or make any representations concerning shares of the
Funds except those contained in the current prospectus, or
statement of additional information issued by the Fund or by us
as information supplemental to such prospectus or statement of
additional information. We will supply prospectuses, reasonable
<PAGE>
SPECIMEN
quantities of supplemental sale literature, sales bulletins, and additional
information as issued. You agree not to use other advertising or sales material
relating to the Funds except that which (a) conforms to the requirements of any
applicable laws or regulations of any government or authorized agency in the
U.S. or any other country, having jurisdiction over the offering or sale of
shares of the Funds, and (b) is approved in writing by us in advance of such
use. Such approval may be withdrawn by us in whole or in part upon notice to
you, and you shall, upon receipt of such notice, immediately discontinue the use
of such sales literature, sales material and advertising. You are not authorized
to modify or translate any such materials without our prior written consent.
15. INDEMNIFICATION. You further agree to indemnify, defend and hold harmless
the Principal Underwriter, the Funds, their officers, directors and employees
from any and all losses, claims, liabilities and expenses, whether or not
resulting in any liability to any of the parties indemnified under this
subparagraph, arising out of (1) any alleged violation of any statute or
regulation (including without limitation the securities laws and regulations of
the United States or any state or foreign country) or any alleged tort or breach
of contract, in or related to the offer and sale by you of shares of the Funds
pursuant to this Agreement (except to the extent that our negligence or failure
to follow correct instructions received from you is the cause of such loss,
claim, liability or expense), (2) any redemption or exchange pursuant to
telephone instructions received from you or your agent or employees, or (3) the
breach by you of any of the terms and conditions of this Agreement.
16. TERMINATION; SUCCESSION; AMENDMENT. Each party to this Agreement may
cancel its participation in this Agreement by giving written notice to the other
parties. Such notice shall be deemed to have been given and to be effective on
the date on which it was either delivered personally to the other parties or any
officer or member thereof, or was mailed postpaid or delivered to a telegraph
office for transmission to the other parties' Chief Legal Officers at the
addresses shown herein or in the most recent NASD Manual. This Agreement shall
terminate immediately upon the appointment of a Trustee under the Securities
Investor Protection Act or any other act of insolvency by you. The termination
of this Agreement by any of the foregoing means shall have no effect upon
transactions entered into prior to the effective date of termination. A trade
placed
<PAGE>
SPECIMEN
by you subsequent to your voluntary termination of this Agreement will not serve
to reinstate the Agreement. Reinstatement, except in the case of a temporary
suspension of a dealer will only be effective upon written notification by us.
Unless terminated, this Agreement shall be binding upon each party's successors
or assigns. This Agreement may be amended by us at any time by written notice to
you and your placing of an order or acceptance of payments of any kind after the
effective date and receipt of notice of any such Amendment shall constitute your
acceptance of such Amendment.
17. SETOFF; DISPUTE RESOLUTION. Should any of your concession accounts with
us have a debit balance, we may offset and recover the amount owed from any
other account you have with us, without notice or demand to you. In the event of
a dispute concerning any provision of this Agreement, either party may require
the dispute to be submitted to binding arbitration under the commercial
arbitration rules of the NASD or the American Arbitration Association. Judgment
upon any arbitration award may be entered by any state or federal court having
jurisdiction. This Agreement shall be construed in accordance with the laws of
the State of California, not including any provision which would require the
general application of the law of another jurisdiction.
18. ACCEPTANCE; CUMULATIVE EFFECT. This Agreement is cumulative and
supersedes any agreement previously in effect. It shall be binding upon the
parties hereto when signed by us and accepted by you. If you have a current
dealer agreement with us, your first trade or acceptance of payments from us
after receipt of this Agreement, as it may be amended pursuant to paragraph 16,
above, shall constitute your acceptance of its terms. Otherwise, your signature
below shall constitute your acceptance of its terms.
Date:
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:
(Signature)
Name: Greg Johnson
Title: President
<PAGE>
SPECIMEN
777 Mariners Island Blvd.
San Mateo, CA 94404
Attention: Chief Legal Officer (for legal notices only)
700 Central Avenue
St. Petersburg, Florida 33701-3628
KEY PHONE NUMBERS FOR FRANKLIN TEMPLETON FUNDS
DEPARTMENT NAME
TELEPHONE NO.
HOURS OF OPERATION (PACIFIC
TIME) (MONDAY THROUGH
FRIDAY)SHAREHOLDER SERVICES
1-800/632-2301
6:00 A.M. TO 5:00 P.M.DEALER SERVICES
1-800/524-4040
6:00 A.M. TO 5:00 P.M.FUND INFORMATION
1-800/DIAL BEN
6:00 A.M. TO 8:00 P.M., 8:30
A.M. TO 5:00 P.M. (SATURDAY)RETIREMENT PLANS
1-800/527-2020
6:00 A.M. TO 5:00 P.M.TDD (HEARING IMPAIRED)
1-800/851-0637
6:00 A.M. TO 5:00 P.M.
<PAGE>
SPECIMEN
<PAGE>
SPECIMEN
[Note to Graphics: Please put this on a different page with some
marking to indicate that it's part of one agreement. Our idea is
to send only the part above the page break to current dealers,
and to attach a signature page for new dealers.]
[DEALER NAME]
By:
(Signature)
Name:
Title:
Address:
Attention: Chief Legal Officer
Telephone:
NASD CRD #
Franklin Templeton Dealer # _________________________________
(Internal Use Only)
<PAGE>
CUSTODY AGREEMENT
RESTATED AS OF FEBRUARY 11, 1986
AGREEMENT dated as of this 1st day of June, 1984, amended
September 1, 1985 and amended and restated as of February 10, 1986, between THE
CHASE MANHATTAN BANK, N.A. ("Chase"), having its principal place of business at
1 Chase Manhattan Plaza, New York, New York 10081, and TEMPLETON FUNDS, INC.
("the Company"), a series investment company registered under the Investment
Company Act of 1940 ("Act of 1940"), having its principal place of business at
405 Central Avenue, St. Petersburg, Florida 33731, on behalf of Templeton World
Fund (the "Fund"), a separate mutual fund forming part of the Company.
WHEREAS, the Company wishes to appoint Chase as custodian of
the securities and assets of the Fund, and Chase is willing to act as custodian
under the terms and conditions hereinafter set forth;
NOW, THEREFORE, the Company and its successors and assigns on
behalf of the Fund and Chase and its successors and assigns, hereby agree as
follows:
1. APPOINTMENT AS CUSTODIAN. Chase agrees to act as custodian
for the Fund, as provided herein, in connection with (a) cash ("Cash") received
from time to time from, or for the account of, the Fund for credit to the Fund's
deposit account or accounts administered by Chase, Chase Branches and Domestic
Securities Depositories (as hereinafter defined), and/or Foreign Banks and
Foreign securities Depositories (as hereinafter defined) (the "Deposit Account")
and (b) all stocks, shares,
<PAGE>
2
<PAGE>
bonds, debentures notes, mortgages, or other obligations for the payment of
money and any certificates, receipts, warrants, or other instruments
representing rights to receive, purchase, or subscribe for the same or
evidencing or representing any other rights or interests therein and other
similar property ("Securities") from time to time received by Chase and/or any
Chase Branch, Domestic Securities Depository, Foreign Bank or Foreign Securities
Depository for the account of the Fund (the "Custody Account"); and (c) original
margin and variation margin payments in a segregated account for futures
contracts, and U.S. and Canadian government obligations purchased with a
simultaneous agreement by the seller to repurchase them within 7 days plus
accrued interest deposited in a separate segregated account (the "Segregated
Accounts").
All cash held in the Deposit Account or in the Segregated Accounts in
connection with which Chase agrees to act as custodian is hereby denominated as
a special deposit which shall be held in trust for the benefit of the Fund and
to which Chase, Chase Branches and Domestic Securities Depositories and/or
Foreign Banks and Foreign Securities Depositories shall have no ownership
rights, and Chase will so indicate on its books and records pertaining to the
Deposit Account and the Segregated Accounts. All cash held in auxiliary accounts
that may be carried for the Fund with Chase (including a Money Market Account,
Redemption Account, Distribution Account and Imprest
3
<PAGE>
Account) is not so denominated as a special deposit and title thereto is held by
Chase subject to the claims of creditors.
2. AUTHORIZATION TO USE BOOK ENTRY SYSTEM, DOMESTIC
SECURITIES DEPOSITORIES, BRANCH OFFICES, FOREIGN BANKS AND
FOREIGN SECURITIES DEPOSITORIES. Chase is hereby authorized to
appoint and utilize, subject to the provisions of Section 4
hereof:
(a) The Book Entry System and The Depository Trust Company;
and also such other Domestic Securities Depositories selected by Chase
and as to which Chase has received a certified copy of a resolution of
the Company's Board of Directors authorizing deposits therein;
(b) Chase's foreign branch offices in the United Kingdom, Hong
Kong, Singapore, and Tokyo, and such other foreign branch offices of
Chase located in countries approved by the Board of Directors of the
Company as to which Chase shall have given prior notice to the Company;
(c) Foreign Banks which Chase shall have selected, which are
located in countries approved by the Board of Directors of the Company,
and as to which banks Chase shall have given prior notice to the
Company; and
(d) Foreign Securities Depositories which Chase shall have
selected and as to which Chase has received a certified copy of a
resolution of the Company's Board of Directors authorizing deposits
therein;
4
<PAGE>
to hold Securities and Cash at any time owned by the Company on behalf of the
Fund, it being understood that no such appointment or utilization shall in any
way relieve Chase of its responsibilities as provided for in this Agreement.
Foreign branch offices of Chase are appointed and utilized by Chase are herein
referred to as "Chase Branches." Unless otherwise agreed to in writing, (a) each
Chase Branch, each Foreign Bank and each Foreign Securities Depository shall be
selected by Chase to hold only Securities as to which the principal trading
market or principal location as to which such Securities are to be presented for
payment is located outside the United States; and (b) Chase and each Chase
Branch, Foreign Bank and Foreign Securities Depository will promptly transfer or
cause to be transferred to Chase, to be held in the United States, Securities
and/or Cash that are then being held outside the United States upon request of
the Company and/or of the Securities and Exchange Commission. Utilization by
Chase of Chase Branches, Domestic Securities Depositories, Foreign Banks and
Foreign Securities Depositories shall be in accordance with provisions as from
time to time amended, of an operating agreement to be entered into between Chase
and the Company on behalf of the Fund (the "Operating Agreement").
3. DEFINITIONS. As used in this Agreement the
following terms shall have the following meanings:
(a) "Authorized Persons of the Fund" shall mean such
officers or employees of the Company or any other person or
5
<PAGE>
persons as shall have been designated by a resolution of the Board of Directors
of the Company, a certified copy of which has been filed with Chase, to act as
Authorized Persons hereunder. Such persons shall continue to be Authorized
Persons of the Fund, authorized to act either singly or together with one or
more other of such persons as provided in such resolution, until such time as
the Company shall have filed with Chase a written notice of the Company
supplementing, amending, or revoking the authority of such persons.
(b) "Book-Entry system" shall mean the Federal
Reserve/Treasury book-entry system for United States and federal agency
securities, its successor or successors and its nominee or nominees.
(c) "Domestic Securities Depository" shall mean The Depository
Trust Company, a clearing agency registered with the Securities and Exchange
Commission, its successor or successors and its nominee or nominees; and
(subject to the receipt by Chase of a certified copy of a resolution of the
Company's Board of Directors specifically approving deposits therein as provided
in Section 2(a) of this Agreement) any other person authorized to act as a
depository under the Act of 1940, its successor or successors and its nominee or
nominees.
(d) "Foreign Bank" shall mean any banking institution
organized under the laws of a jurisdiction other than the United States or of
any state thereof.
6
<PAGE>
(e) A "Foreign Securities Depository" shall mean any system
for the central handling of securities abroad where all securities of any
particular class or series of any issuer deposited within the system are treated
as fungible and may be transferred or pledged by bookkeeping without physical
delivery of the securities by any Chase Branch or Foreign Bank.
(f) "Written Instructions" shall mean instructions in writing
signed by Authorized Persons of the Fund giving such instructions, and/or such
other forms of communications as from time to time shall be agreed upon in
writing between the Company on behalf of the Fund and Chase.
4. SELECTION OF COUNTRIES IN WHICH SECURITIES MAY BE HELD.
Chase shall not cause Securities and Cash to be held in any country outside the
United States until the Company has directed the holding of the Fund's assets in
such country. Chase represents that it has been advised by the Company that in
making such a determination the Company may consider, among other factors, the
following:
(a) comparative operational efficiencies of custody;
(b) clearance and settlement and the costs thereof;
and
(c) political and other risks, other than those risks
specifically assumed by Chase.
5. RESPONSIBILITY OF CHASE TO SELECT CUSTODIANS IN
INDIVIDUAL FOREIGN COUNTRIES. The responsibility for selecting
the Chase Branch, Foreign Bank or Foreign Securities Depository
7
<PAGE>
to hold the Fund's Securities and Cash in individual countries authorized by the
Company on behalf of the Fund shall be that of Chase. Chase generally shall
utilize Chase Branches where available. In locations where there are no Chase
Branches providing custodial services, Chase shall select as its agent a Foreign
Bank, which may be an affiliate or subsidiary of Chase. To facilitate the
clearance and settlement of securities transactions, Chase represents that,
subject to the approval of the Company, it may deposit Securities in a Foreign
Securities Depository in which Chase is a participant. In situations in which
Chase is not a participant in a Foreign Securities Depository, Chase may,
subject to the approval of the Company, authorize a Foreign Bank acting as its
subcustodian to deposit the Securities in a Foreign Securities Depository in
which the Foreign Bank is a participant. Notwithstanding the foregoing, such
selection by Chase of a Foreign Bank or Foreign Securities Depository shall not
become effective until Chase has been advised by the Company that a majority of
the Company's Board f Directors:
(i) Have approved Chase's selection of the particular
Foreign Bank or Foreign Securities Depository, as the case may
be, as consistent with the best interests of the Fund and its
Shareholders:
(ii) Have approved as consistent with the best
interests of the Fund and its Shareholders a written
8
<PAGE>
contract prepared by Chase which will govern the manner in
which such Foreign Bank will maintain the Fund's assets.
6. CONDITIONS ON SELECTION OF FOREIGN BANK OR FOREIGN
SECURITIES DEPOSITORY. Chase shall authorize the holding of
Securities and Cash by a Chase Branch, Foreign Bank or Foreign
Securities Depository only:
(a) to the extent that the Securities and Cash are not subject
to any right, charge, security interest, lien or claim of any
kind in favor of any such Foreign Bank or Foreign Securities
Depository, except for their safe custody or administration,
and (b) to the extent that the beneficial ownership of
Securities is freely transferable without the payment of money
or value other than for safe custody or administration.
7. CHASE BRANCHES AND FOREIGN BANKS NOT AGENTS OF FUND. Chase
Branches, Foreign Banks and Foreign Securities Depositories shall be subject to
the instructions of Chase and/or the Foreign Bank and not to those of the
Company. Chase warrants and represents that all such instructions shall afford
protection to the Fund at least equal to that afforded for Securities held
directly by Chase. Any Chase Branch, Foreign Bank or Foreign Securities
Depository shall act solely as agent of Chase or of
9
<PAGE>
such Foreign Bank.
8. CUSTODY ACCOUNT. Securities held in the Custody Account
shall be physically segregated at all times from those of any other person or
persons except that (a) with respect to Securities held by Chase Branches, such
Securities may be placed in an omnibus account for the customers of Chase, and
Chase shall maintain separate book entry records for each such omnibus account,
and such Securities shall be deemed for the purpose of this Agreement to be held
by Chase in the Custody Account; (b) with respect to Securities deposited by
Chase with a Foreign Bank, a Domestic Securities Depository or a Foreign
Securities Depository, Chase shall identify on its books as belonging to the
Fund the Securities shown on Chase's account on the books of the Foreign Bank,
Domestic Securities Depository or Foreign Securities Depository and (c) with
respect to Securities deposited by a Foreign Bank with a Foreign Securities
Depository, Chase shall cause the Foreign Bank to identify on its books as
belonging to Chase, as agent, the Securities shown on the Foreign Bank's account
on the books of the Foreign Securities Depository. All Securities of the Fund
maintained by Chase pursuant to this Agreement shall be subject only to the
instructions of Chase, Chase Branches or their agents. Chase shall only deposit
Securities with a Foreign Bank in accounts that include only assets held by
Chase for its customers.
8a. SEGREGATED ACCOUNT FOR FUTURES CONTRACTS. With
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<PAGE>
respect to every futures contract purchased, sold or cleared for the Custody
Account, Chase agrees, pursuant to Written Instructions, to:
(i) deposit original margin and variation margin
payments in a segregated account maintained by Chase;
and
(ii) perform all other obligations attendant to
transactions or positions in such futures contracts, as such
payments or performance may be required by law or the
executing broker.
8b. SEGREGATED ACCOUNT FOR REPURCHASE AGREEMENTS. With respect
to purchases for the Custody Account from banks (including Chase) or
broker-dealers of United States or Canadian government obligations with a
simultaneous agreement by the seller to repurchase them within no more than 7
days at the original purchase price plus accrued interest, pursuant to Written
Instructions, to:
(i) deposit such securities and repurchase
agreements in a segregated account maintained by Chase; and
(ii) promptly show on Chase's records that such securities and
repurchase agreements are being held on behalf of the Fund and deliver to the
Fund a written confirmation to that
11
<PAGE>
effect.
9. DEPOSIT ACCOUNT. Subject to the provisions of this
Agreement, the Company authorizes Chase to establish and maintain in each
country or other jurisdiction in which the principal trading market for any
Securities is located or in which any Securities are to be presented for
payment, an account or accounts, which may include nostro accounts with Chase
Branches and omnibus accounts of Chase at Foreign Banks, for receipt of cash in
the Deposit Account, in such currencies as directed by Written Instructions. For
purposes of this Agreement, cash so held in any such account shall be evidenced
by separate book entries maintained by Chase at its office in London and shall
be deemed to be Cash held by Chase in the Deposit Account. Unless Chase receives
Written Instructions to the contrary, cash received or credited by Chase or any
other Chase Branch, Foreign Bank or Foreign Securities Depository for the
Deposit Account in a currency other than United States dollars shall be
converted promptly into United States dollars whenever it is practicable to do
so through customary banking channels (including without limitation the
effecting of such conversions at Chase's preferred rates through Chase, its
affiliates or Chase Branches), and shall be automatically transmitted back to
Chase in the United States.
10. SETTLEMENT PROCEDURES. Settlement procedures for
transactions in Securities delivered to, held in, or to be
delivered from the Custody Account in Chase Branches, Domestic
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<PAGE>
Securities Depositories, Foreign Banks and Foreign Securities Depositories,
including receipts and payments of cash held in any nostro account or omnibus
account for the Deposit Account as described in Section 9, shall be carried out
in accordance with the provisions of the Operating Agreement. It is understood
that such settlement procedures may vary, as provided in the Operating
Agreement, from securities market to securities market, to reflect particular
settlement practices in such markets.
Chase shall make or cause the appropriate Chase Branch or
Foreign Bank to make payments of Cash held in the Deposit Account only:
(a) in connection with the purchase of Securities for the
account of the Fund and only against the receipt of such Securities by Chase or
by another appropriate Chase Branch, Domestic Securities Depository, Foreign
Bank or Foreign Securities Depository, or otherwise as provided in the Operating
Agreement, each such payment to be made at prices confirmed by Written
Instructions, or
(b) in connection with any dividend, interim dividend
or other distribution declared by the Company on behalf of the
Fund, or
(c) as directed by the Company by Written Instructions setting
forth the name and address of the person to whom the payment is to be made and
the purpose for which the payment is to be made.
Upon the receipt by Chase of Written Instructions
13
<PAGE>
specifying the Securities to be so transferred or delivered, which instructions
shall name the person or persons to whom transfers or deliveries of such
Securities shall be made and shall indicate the time(s) for such transfers or
deliveries, Securities held in the Custody Account shall be transferred,
exchanged, or delivered by Chase, any Chase Branch, Domestic Securities
Depository, Foreign Bank, or Foreign Securities Depository, as the case may be,
against payment in Cash or Securities, or otherwise as provided in the Operating
Agreement, only:
(a) upon sale of such Securities for the account of the Fund
and receipt of such payment in the amount shown in a broker's confirmation of
sale of the Securities or other proper authorization received by Chase before
such payment is made, as confirmed by Written Instructions;
(b) in exchange for or upon conversion into other Securities
alone or other Securities and Cash pursuant to any plan of merger,
consolidation, reorganization, recapitalization, readjustment, or tender offer;
(c) upon exercise of conversion, subscription,
purchase, or other similar rights represented by such Securities;
or
(d) otherwise as directed by the Company by Written
Instructions which shall set forth the amount and purpose of such
transfer or delivery.
Until Chase receives Written Instructions to the
14
<PAGE>
contrary, Chase shall and shall cause each Chase Branch, Domestic Securities
Depository, Foreign Bank and Foreign Securities Depository holding Securities or
Cash to take the following actions in accordance with procedures established in
the
Operating Agreement.
(a) collect and timely deposit in the Deposit Account all
income due-or payable with respect to any Securities and take any action which
may be necessary and proper in connection with the collection and receipt of
such income;
(b) present timely for payment all Securities in the Custody
Account which are called, redeemed, or retired or otherwise become payable and
all coupons and other income items which call for payment upon presentation and
to receive and credit to the Deposit Account Cash so paid for the account of the
Fund except that, if such Securities are convertible, such Securities shall not
be presented for payment until two business days preceding the date on which
such conversion rights would expire unless Chase previously shall have received
Written Instructions with respect thereto;
(c) present for exchange all Securities in the
Custody Account converted pursuant to their terms into other
Securities;
(d) in respect of securities in the Custody Account, execute
in the name of the Fund such ownership and other certificates as may be required
to obtain payments in respect thereto, provided that Chase shall have requested
and the Company
15
<PAGE>
shall have furnished to Chase any information necessary in
connection with such certificates;
(e) exchange interim receipts or temporary Securities
in the Custody Account for definitive Securities; and
(f) receive and hold in the Custody Account all Securities
received as a distribution on Securities held in the Custody Account as a result
of a stock dividend, share split-up or reorganization, recapitalization,
readjustment or other rearrangement or distribution of rights or similar
Securities issued with respect to any Securities held in the Custody Account.
11. RECORDS. Chase hereby agrees that Chase and any Chase
Branch or Foreign Bank shall create, maintain, and retain all records relating
to their activities and obligations as custodian for the Fund under this
Agreement in such manner as will meet the obligations of the Company under the
Act of 1940, particularly Section 31 thereof and Rules 31a-1 and 31a-2
thereunder, and Federal, state and foreign tax laws and other legal or
administrative rules or procedures, in each case as currently in effect and
applicable to the Company on behalf of the Fund. All records so maintained in
connection with the performance of its duties under this Agreement shall remain
the property of the Company and, in the event of termination of this Agreement,
shall be delivered in accordance with the provisions of Section 19.
Chase hereby agrees, subject to restrictions under
16
<PAGE>
applicable laws, that the books and records of Chase and any Chase Branch
pertaining to their actions under this Agreement shall be open to the physical,
on-premises inspection and audit at reasonable times by the independent
accountants ("Accountants") employed by, or other representatives of, the
Company. Chase hereby agrees that, subject to restrictions under applicable
laws, access shall be afforded to the Accountants to such of the books and
records of any Foreign Bank, Domestic Securities Depository or Foreign
Securities Depository with respect to Securities and Cash as shall be required
by the Accountants in connection with their examination of the books and records
pertaining to the affairs of the Fund. Chase also agrees that as the Company may
reasonably request from time to time, Chase shall provide the Accountants with
information with respect to Chase's and Chase Branches' systems of internal
accounting controls as they relate to the services provided under this
Agreement, and Chase shall use its best efforts to obtain and furnish similar
information with respect to each Domestic Securities Depository, Foreign Bank
and Foreign Securities Depository holding Securities and Cash.
12. REPORTS. Chase shall supply periodically, upon
the reasonable request of the Company on behalf of the Fund, such
statements, reports, and advices with respect to Cash in the
Deposit Account and the Securities in the Custody Account and
transactions in Securities from time to time received and/or
delivered for or from the Custody Account, as the case may be, as
17
<PAGE>
the Company shall require. Such statements, reports and advices shall include an
identification of the Chase Branch, Domestic Securities Depository, Foreign Bank
and Foreign Securities Depository having custody of the Securities and Cash, and
descriptions thereof.
13. REGISTRATION OF SECURITIES. Securities in the Custody
Account which are issued or issuable only in bearer form (except such securities
as are held in the Book-Entry System) shall be held by Chase, Chase Branches,
Domestic Securities Depositories, Foreign Banks or Foreign Securities
Depositories in that form. All other Securities in the Custody Account shall be
held in registered form in the name of Chase, or any Chase Branch, the
Book-Entry System, Domestic Securities Depository, Foreign Bank or Foreign
Securities Depository and their nominees, as custodian or nominee.
14. STANDARD OF CARE.
(a) GENERAL. Chase shall assume entire responsibility for all
Securities held in the Custody Account and Cash held in the Deposit Account,
cash or securities held in the Segregated Accounts and any of the Securities and
Cash while in the possession of Chase or any Chase Branch, Domestic Securities
Depository, Foreign Bank or Foreign Securities Depository, or in the possession
or control of any employees, agents or other personnel of Chase or any Chase
Branch, Domestic Securities Depository, Foreign Bank or Foreign Securities
Depository; and shall be liable to the Company for any loss to the Company or
the
18
<PAGE>
Fund occasioned by any destruction of the Securities or Cash so held or while in
such possession, by any robbery, burglary, larceny, theft or embezzlement by any
employees, agents or personnel of Chase or any Chase Branch, Domestic Securities
Depository, Foreign Bank or Foreign Securities Depository, and/or by virtue of
the disappearance of any of the Securities or Cash so held or while in such
possession, with or without any fault attributable to Chase ('fault attributable
to Chase' for the purposes of this Agreement being deemed to mean any negligent
act or omission, robbery, burglary, larceny, theft or embezzlement by any
employees or agents of Chase or any Chase Branch, Domestic Securities
Depository, Foreign Bank or Foreign Securities Depository). In the event of
Chase's discovery or notification of any such loss of Securities or Cash, Chase
shall promptly notify the Company and shall reimburse the Company to the extent
of the market value of the missing Securities or Cash as at the date of the
discovery of such loss. The Company shall not be obligated to establish any
negligence, misfeasance or malfeasance on Chase's part from which such loss
resulted, but Chase shall be obligated hereunder to make such reimbursement to
the Company after the discovery or notice of such loss, destruction or theft of
such Securities or Cash. Chase may at its option insure itself against loss from
any cause but shall be under no obligation to insure for the benefit of the
Company or the Fund.
(b) COLLECTIONS. All collections of funds or other
property paid or distributed in respect of Securities held in the
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<PAGE>
Custody Account shall be made at the risk of the Company. Chase shall have no
liability for any loss occasioned by delay in the actual receipt of notice by
Chase (or by any Chase Branch or Foreign Bank in the case of Securities or Cash
held outside of the United States) of any payment, redemption or other
transaction regarding Securities held in the Custody Account or Cash held in the
Deposit Account in respect of which Chase has agreed to take action in the
absence of Written Instructions to the contrary as provided in Section 10 of
this Agreement, which does not appear in any of the publications referred to in
Section 16 of this Agreement.
(c) EXCLUSIONS. Notwithstanding any other provision in this
Agreement to the contrary, Chase shall not be responsible for (i) losses
resulting from war or from the imposition of exchange control restrictions,
confiscation, expropriation, or nationalization of any securities or assets of
the issuer of such securities, or (ii) losses resulting from any negligent act
or omission of the Company, the Fund or any of their affiliates, or any robbery,
theft, embezzlement or fraudulent act by any employee or agent of the Company,
the Fund or any of their affiliates. Chase shall not be liable for any action
taken in good faith upon Written Instructions of Authorized Persons of the Fund
or upon any certified copy of any resolution of the Board of Directors of the
Company, and may rely on the genuineness of any such documents which it may in
good faith believe to be validly executed.
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<PAGE>
(d) LIMITATION ON LIABILITY UNDER SECTION 14(A).
Notwithstanding any other Provision in this Agreement to the contrary, it is
agreed that the extent of Chase's liability to the Company on behalf of the Fund
under Section 14(a) shall not exceed $80,000,000 (as of June 1, 1984), it being
understood and agreed that the foregoing limit of $80,000,000 applies on an
aggregated basis to all losses under Section 14(a) incurred by the Fund and is
subject to annual adjustment as set forth in Section 14(e). The Company agrees
that Chase's sole responsibility with respect to losses under Section 14(a)
shall be to pay to the Company on behalf of the Fund the amount of any such loss
as provided in Section 14(a) (subject to the limitation provided in the
preceding sentence). This limitation does not apply to any liability of Chase
under Section 14(f) of this Agreement.
(e) ANNUAL ADJUSTMENT OF LIMITATION OF LIABILITY. As
--------------------------------------------
soon as Practicable after each anniversary of the original June
1, 1984 date of this Agreement the Company on behalf of the Fund
shall provide Chase with the amount of the total net assets of
the Fund as of the close of business on such anniversary date (or
if the New York Stock Exchange is closed on such anniversary
date, then in that event as of the close of business on the next
day on which the New York Stock Exchange is open for business).
It is understood by the Parties to this Agreement that,
simultaneously with this Agreement, Chase is entering into substantially similar
custody agreements as follows: an agreement
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<PAGE>
with the Company on behalf of Templeton Foreign Fund; an agreement with
Templeton Global Funds, Inc. on behalf of Templeton Global I; an agreement with
Templeton Global Funds, Inc. on behalf of Templeton Global II; and an agreement
with Templeton Growth Fund, Ltd., all of which Funds have as their investment
advisers companies under the control and direction of John M. Templeton and the
same as or affiliated with the Investment Manager of the Fund; as well as any
substantially similar custody agreements of Chase with any additional mutual
funds under Templeton management which may hereafter be organized. Each of such
custody agreements with each of such other Templeton Funds contains (or will
contain) a "Standard of Care' section similar to this Section 14, except that
the limit of Chase's liability is in varying amounts for each Fund, with the
aggregate limits of liability in all of such agreements, including this custody
agreement, amounting to $150,000,000.
On each anniversary date of the original June 1, 1984 date of
this Agreement, and of the similar custody agreements with each other Templeton
Fund, Chase will total the net assets reported by each one of the Templeton
Funds, and will calculate the percentage of the aggregate net assets of all the
Templeton Funds that is represented by the net asset value of this Fund.
Thereupon Chase shall allocate to this Agreement with this Fund that proportion
of its total of $150,000,000 responsibility undertaking which is substantially
equal to the proportion which this Fund's net assets bears to the total net
assets of all such
22
<PAGE>
Templeton Funds subject to adjustments for claims paid as follows: all claims
previously paid to this Fund shall first be deducted from its proportionate
allocable share of the $150,000,000 Chase responsibility, and if the claims paid
to this Fund amount to more than its allocable share of the Chase
responsibility, then the excess of such claims paid to this Fund shall diminish
the balance of the $150,000,000 Chase responsibility available for the
proportionate shares of all of the other Templeton Funds having similar custody
agreements with Chase. Based on such calculation, and on such adjustment for
claims paid, if any, Chase thereupon shall notify the Company on behalf of the
Fund of such limit of liability under this Section 14 which will be available to
this Fund with respect to (1) losses in excess of payment allocations for
previous years and (2) losses discovered during the next year this Agreement
remains in effect and until a new determination of such limit of respon-sibility
is made on the next succeeding anniversary date.
(f) OTHER LIABILITY. Independently of Chase's liability to the
Company as provided in Section 14(a) above (it being understood that the
limitations in Section 14(d) do not apply to the provisions of this Section
14(f)), Chase shall be responsible for the performance of only such duties as
are set forth in this Agreement or contained in express instructions given to
Chase which are not contrary to the provisions of this Agreement. Chase will use
and require the same care with respect to the safekeeping of all Securities held
in the Custody Account
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<PAGE>
and Cash held in the Deposit Account as it uses in respect of its own similar
property, but it need not maintain any insurance for the benefit of the Company
or the Fund. With respect to Securities and Cash held outside of the United
States, Chase will be liable to the Company for any loss to the Company or the
Fund resulting from any disappearance or destruction of such Securities or Cash
while in the possession of Chase or any Chase Branch, Foreign Bank or Foreign
Securities Depository, to the same extent it would be liable to the Company if
Chase had retained physical possession of such Securities and Cash in New York.
It is specifically agreed that Chase's liability under this Section 14(f) is
entirely independent of Chase's liability under Section 14(a). Notwithstanding
any other provision in this Agreement to the contrary, in the event of any loss
giving rise to liability under this Section 14(f) that would also give rise to
liability under Section 14(a), the amount of such liability shall not be charged
against the amount of the limitation on liability provided in Section 14(d).
(g) COUNSEL; LEGAL EXPENSES. Chase shall be entitled to the
advice of counsel (who may be counsel for the Company) at the expense of the
Company in connection with carrying out Chase's duties hereunder and in no event
shall Chase be liable for any action taken or omitted to be taken by it in good
faith pursuant to advice of such counsel. If, in the absence of fault
attributable to Chase and in the course of or in connection with carrying out
its duties and obligations hereunder, any claims or
24
<PAGE>
legal proceedings are instituted against Chase or any Chase Branch by third
parties, the Company will hold Chase harmless against any claims, liabilities,
costs, damages or expenses incurred in connection therewith and, if the Company
so elects, the Company may assume the defense thereof with counsel satisfactory
to Chase, and thereafter shall not be responsible for any further legal fees
that may be incurred by Chase, provided, however, that all of the foregoing is
conditioned upon the Company's receipt from Chase of prompt and due notice of
any such claim or proceeding.
15. EXPROPRIATION INSURANCE. Chase represents that it does not
intend to obtain any insurance for the benefit of the Fund which protects
against the imposition of exchange control restrictions on the transfer from any
foreign jurisdiction of the proceeds of sale of any Securities or against
confiscation, expropriation or nationalization of any securities or the Assets
of the issuer of such securities by a government of any foreign country in which
the issuer of such securities is organized or in which securities are held for
safekeeping either by Chase, or any Chase Branch, Foreign Bank or Foreign
Securities Depository in such country. Chase has discussed the availability of
expro-priation insurance with the Company, and has advised the Company as to its
understanding of the position of the Staff of the Commission that any investment
company investing in securities of foreign issuers has the responsibility for
reviewing the possibility of the imposition of exchange control restrictions
25
<PAGE>
which would affect the liquidity of such investment company's assets and the
possibility of exposure to political risk, including the appropriateness of
insuring against such risk. The Company has acknowledged that it has the
responsibility to review the possibility of such risks and what, if any, action
should be taken.
16. PROXY, NOTICES, REPORTS, ETC. Chase shall watch for the
dates of expiration of (a) all purchase or sale rights (including warrants,
puts, calls and the like) attached to or inherent in any of the Securities held
in the Custody Account and (b) conversion rights and conversion price changes
for each convertible Security held in the Custody Account as published in
Telstat Services Inc., Standard & Poor's Financial Inc. and/or any other
publications listed in the Operating Agreement (it being understood that Chase
may give notice to the Company as provided in Section 21 as to any change,
addition and/or omission in the publications watched by Chase for these
purposes). If Chase or any Chase Branch; Foreign Bank or Foreign Securities
Depository shall receive any proxies, notices, reports, or other communications
relative to any of the Securities held in the Custody Account, Chase shall, on
its behalf or on the behalf of a Chase Branch, Foreign Bank or Foreign
securities Depository, promptly transmit in writing any such communication to
the Company. In addition, Chase shall notify the Company by person-to-person
collect telephone concerning any such notices relating to any matters specified
in the first sentence of this Section
26
<PAGE>
16.
As specifically requested by the Company, Chase shall execute
or deliver or shall cause the nominee in whose name Securities are registered to
execute and deliver to such person as may be designated by the Company proxies,
consents, authorizations and any other instruments whereby the authority of the
Company as owner of any Securities in the Custody Account registered in the name
of Chase or such nominee, as the case may be, may be exercised. Chase shall vote
Securities in accordance with Written Instructions timely received by Chase, or
such other person or persons as designated in or pursuant to the Operating
Agreement.
Chase and any Chase Branch shall have no liability for any
loss or liability occasioned by delay in the actual receipt by them or any
Foreign Bank or Foreign Securities Depository of notice of any payment or
redemption which does not appear in any of the publications referred to in the
first sentence of this Section 16.
27
<PAGE>
17. COMPENSATION. The Company on behalf of the Fund agrees to
pay to Chase from time to time such compensation for its services pursuant to
this Agreement as may be mutually agreed upon in writing from time to time and
Chase's out-of-pocket or incidental expenses, as from time to time shall be
mutually agreed upon by Chase and the Company. The Company shall have no
responsibility for the payment of services provided by any Domestic Securities
Depository, Chase Branch, Foreign Bank or Foreign Security Depository, such fees
being paid directly by Chase. In the event of any advance of Cash for any
purpose made by Chase pursuant to any Written Instruction, or in the event that
Chase or any nominee of Chase shall incur or be assessed any taxes in connection
with the performance of this Agreement, the Company shall indemnify and
reimburse Chase therefor, except such assessment of taxes, as results from the
negligence, fraud, or willful misconduct of Chase, any Domestic Securities
Depository, Chase Branch; Foreign Bank or Foreign Securities Depository, or as
constitutes a tax on income, gross receipts or the like of any one or more of
them. Chase shall have a lien on Securities in the Custody Account and on Cash
in the Deposit Account for any amount owing to Chase from time to time under
this Agreement upon due notice to the Company.
18. AGREEMENT SUBJECT TO APPROVAL OF THE COMPANY. It
is understood that this Agreement and any amendments shall be
subject to the approval of the Company.
28
<PAGE>
19. TERM. This Agreement shall remain in effect for a period
of one (1) year from the date of this Agreement and shall thereafter remain in
effect until terminated by either party upon 60 days' written notice to the
other, sent by registered mail. Notwithstanding the preceding sentence, however,
if at any time after the execution of this Agreement Chase shall provide written
notice to the Company, by registered mail, of the amount needed to meet a
substantial increase in the cost of maintaining its present type and level of
bonding and insurance coverage in connection with Chase's undertakings in
Section 14(a), (d) and (e) of this Agreement, said Section 14(a), (d) and (e) of
this Agreement shall cease to apply 60 days after the providing of such notice
by Chase, unless prior to the expiration of such 60 days the Company on behalf
of the Fund agrees in writing to assume the amount needed for such purpose.
Chase, upon the date this Agreement terminates pursuant to notice which has been
given in a timely fashion, shall, and/or shall cause each Domestic Securities
Depository, Chase Branch, Foreign Bank and Foreign Securities Depository to,
deliver the Securities in the Custody Account and pay the Cash in the Deposit
Account to the Company on behalf of the Fund unless Chase has received from the
Company 60 days prior to the date on which this Agreement is to be terminated
Written Instructions specifying the name(s) of the person(s) to whom the
Securities in the Custody Account shall be delivered and to whom the Cash in the
Deposit Account shall be paid. Concurrently with the delivery of such
Securities, Chase
29
<PAGE>
shall deliver to the Company, on behalf of the Fund, or such other person as the
Company shall instruct, the records referred to in Section 11 which are in the
possession or control of Chase or any Domestic Securities Depository, Chase
Branch, Foreign Bank or Foreign Securities Depository, or in the event that
Chase is unable to obtain such records in their original form Chase shall
deliver true copies of such records.
20. AUTHORIZATION OF CHASE TO EXECUTE NECESSARY DOCUMENTS. In
connection with the performance of its duties hereunder, the Company hereby
authorizes and directs Chase and each Chase Branch acting on behalf of Chase,
and Chase hereby agrees, to execute and deliver in the name of the Fund, or
cause such other Chase Branch to execute and deliver in the name of the Fund,
such certificates, instruments, and other documents as shall be reasonably
necessary in connection with such performance, provided that the Company shall
have furnished to Chase any information necessary in connection therewith.
21. NOTICES. Any notice or other communication
authorized or required by this Agreement to be given to the
parties shall be sufficiently given (except to the extent
otherwise specifically provided) if addressed and mailed postage
prepaid or delivered to it at its office at the address set forth
below:
30
<PAGE>
If to the Company on behalf of the Fund, then to
Templeton World Fund
Templeton Funds, Inc.
405 Central Avenue
P.O. Box 3942
St. Petersburg, Florida 33731
Attention: John Wm. Galbraith, Treasurer
If to Chase, then to
The Chase Manhattan Bank, N.A.
1211 Avenue of the Americas
33rd Floor
New York, New York 10036
Attention: David M. Mann, V.P.
or such other person or such other address as any party shall have furnished to
the other party in writing.
22. NON-ASSIGNABILITY OF AGREEMENT. This Agreement shall not
be assignable by either party hereto; provided, however, that any corporation
into which the Company or Chase, as the case may be, may be merged or converted
or with which it may be consolidated, or any corporation succeeding to all or
substantially all of the trust business of Chase shall succeed to the respective
rights and shall assume the respective duties of the Company or of Chase, as the
case may be, hereunder.
23. GOVERNING LAW. This Agreement shall be governed
by the laws of the State of New York.
31
<PAGE>
THE CHASE MANHATTAN BANK, N.A.
By:/s/ CATHERINE A. LEE
Catherine A. Lee
Vice President
TEMPLETON FUNDS, INC., on behalf of
TEMPLETON WORLD FUND
By:/s/ THOMAS L. HANSBERGER
Thomas L. Hansberger
President
32
<PAGE>
CUSTODY AGREEMENT
RESTATED AS OF FEBRUARY 11, 1986
AGREEMENT dated as of this 1st day of June, 1984, amended
September 1, 1985 and amended and restated as of February 10, 1986, between THE
CHASE MANHATTAN BANK, N.A. ("Chase"), having its principal place of business at
1 Chase Manhattan Plaza, New York, New York 10081, and TEMPLETON FUNDS, INC.
("the Company"), a series investment company registered under the Investment
Company Act of 1940 ("Act of 1940"), having its principal place of business at
405 Central Avenue, St. Petersburg, Florida 33731, on behalf of Templeton
Foreign Fund (the "Fund"), a separate mutual fund forming part of the Company.
WHEREAS, the Company wishes to appoint Chase as custodian of
the securities and assets of the Fund, and Chase is willing to act as custodian
under the terms and conditions hereinafter set forth;
NOW, THEREFORE, the Company and its successors and assigns on
behalf of the Fund and Chase and its successors and assigns, hereby agree as
follows:
1. APPOINTMENT AS CUSTODIAN. Chase agrees to act as custodian
for the Fund, as provided herein, in connection with (a) cash ("Cash") received
from time to time from, or for the account of, the Fund for credit to the Fund's
deposit account or accounts administered by Chase, Chase Branches and Domestic
Securities Depositories (as hereinafter defined), and/or Foreign Banks and
Foreign securities Depositories (as hereinafter
<PAGE>
defined) (the "Deposit Account") and (b) all stocks, shares, bonds, debentures
notes, mortgages, or other obligations for the payment of money and any
certificates, receipts, warrants, or other instruments representing rights to
receive, purchase, or subscribe for the same or evidencing or representing any
other rights or interests therein and other similar property ("Securities") from
time to time received by Chase and/or any Chase Branch, Domestic Securities
Depository, Foreign Bank or Foreign Securities Depository for the account of the
Fund (the "Custody Account"); and (c) original margin and variation margin
payments in a segregated account for futures contracts, and U.S. and Canadian
government obligations purchased with a simultaneous agreement by the seller to
repurchase them within 7 days plus accrued interest deposited in a separate
segregated account (the "Segregated Accounts").
All cash held in the Deposit Account or in the Segregated Accounts in
connection with which Chase agrees to act as custodian is hereby denominated as
a special deposit which shall be held in trust for the benefit of the Fund and
to which Chase, Chase Branches and Domestic Securities Depositories and/or
Foreign Banks and Foreign Securities Depositories shall have no ownership
rights, and Chase will so indicate on its books and records pertaining to the
Deposit Account and the Segregated Accounts. All cash held in auxiliary accounts
that may be carried for the Fund with Chase (including a Money Market
2
<PAGE>
Account, Redemption Account, Distribution Account and Imprest Account) is not so
denominated as a special deposit and title thereto is held by Chase subject to
the claims of creditors.
2. AUTHORIZATION TO USE BOOK ENTRY SYSTEM, DOMESTIC
SECURITIES DEPOSITORIES, BRANCH OFFICES, FOREIGN BANKS AND
FOREIGN SECURITIES DEPOSITORIES. Chase is hereby authorized to
appoint and utilize, subject to the provisions of Section 4
hereof:
(a) The Book Entry System and The Depository Trust Company;
and also such other Domestic Securities Depositories selected by Chase
and as to which Chase has received a certified copy of a resolution of
the Company's Board of Directors authorizing deposits therein;
(b) Chase's foreign branch offices in the United Kingdom, Hong
Kong, Singapore, and Tokyo, and such other foreign branch offices of
Chase located in countries approved by the Board of Directors of the
Company as to which Chase shall have given prior notice to the Company;
(c) Foreign Banks which Chase shall have selected, which are
located in countries approved by the Board of Directors of the Company,
and as to which banks Chase shall have given prior notice to the
Company; and
(d) Foreign Securities Depositories which Chase shall have
selected and as to which Chase has received a certified copy of a
resolution of the Company's Board of Directors
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authorizing deposits therein;
to hold Securities and Cash at any time owned by the Company on behalf of the
Fund, it being understood that no such appointment or utilization shall in any
way relieve Chase of its responsibilities as provided for in this Agreement.
Foreign branch offices of Chase are appointed and utilized by Chase are herein
referred to as "Chase Branches." Unless otherwise agreed to in writing, (a) each
Chase Branch, each Foreign Bank and each Foreign Securities Depository shall be
selected by Chase to hold only Securities as to which the principal trading
market or principal location as to which such Securities are to be presented for
payment is located outside the United States; and (b) Chase and each Chase
Branch, Foreign Bank and Foreign Securities Depository will promptly transfer or
cause to be transferred to Chase, to be held in the United States, Securities
and/or Cash that are then being held outside the United States upon request of
the Company and/or of the Securities and Exchange Commission. Utilization by
Chase of Chase Branches, Domestic Securities Depositories, Foreign Banks and
Foreign Securities Depositories shall be in accordance with provisions as from
time to time amended, of an operating agreement to be entered into between Chase
and the Company on behalf of the Fund (the "Operating Agreement").
3. DEFINITIONS. As used in this Agreement the
following terms shall have the following meanings:
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(a) "Authorized Persons of the Fund" shall mean such officers
or employees of the Company or any other person or persons as shall have been
designated by a resolution of the Board of Directors of the Company, a certified
copy of which has been filed with Chase, to act as Authorized Persons hereunder.
Such persons shall continue to be Authorized Persons of the Fund, authorized to
act either singly or together with one or more other of such persons as provided
in such resolution, until such time as the Company shall have filed with Chase a
written notice of the Company supplementing, amending, or revoking the authority
of such persons.
(b) "Book-Entry system" shall mean the Federal
Reserve/Treasury book-entry system for United States and federal agency
securities, its successor or successors and its nominee or nominees.
(c) "Domestic Securities Depository" shall mean The Depository
Trust Company, a clearing agency registered with the Securities and Exchange
Commission, its successor or successors and its nominee or nominees; and
(subject to the receipt by Chase of a certified copy of a resolution of the
Company's Board of Directors specifically approving deposits therein as provided
in Section 2(a) of this Agreement) any other person authorized to act as a
depository under the Act of 1940, its successor or successors and its nominee or
nominees.
(d) "Foreign Bank" shall mean any banking institution
organized under the laws of a jurisdiction other than the United
States or of any state thereof.
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(e) A "Foreign Securities Depository" shall mean any system
for the central handling of securities abroad where all securities of any
particular class or series of any issuer deposited within the system are treated
as fungible and may be transferred or pledged by bookkeeping without physical
delivery of the securities by any Chase Branch or Foreign Bank.
(f) "Written Instructions" shall mean instructions in writing
signed by Authorized Persons of the Fund giving such instructions, and/or such
other forms of communications as from time to time shall be agreed upon in
writing between the Company on behalf of the Fund and Chase.
4. SELECTION OF COUNTRIES IN WHICH SECURITIES MAY BE HELD.
Chase shall not cause Securities and Cash to be held in any country outside the
United States until the Company has directed the holding of the Fund's assets in
such country. Chase represents that it has been advised by the Company that in
making such a determination the Company may consider, among other factors, the
following:
(a) comparative operational efficiencies of custody;
(b) clearance and settlement and the costs thereof;
and
(c) political and other risks, other than those risks
specifically assumed by Chase.
5. RESPONSIBILITY OF CHASE TO SELECT CUSTODIANS IN
INDIVIDUAL FOREIGN COUNTRIES. The responsibility for selecting
the Chase Branch, Foreign Bank or Foreign Securities Depository
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to hold the Fund's Securities and Cash in individual countries authorized by the
Company on behalf of the Fund shall be that of Chase. Chase generally shall
utilize Chase Branches where available. In locations where there are no Chase
Branches providing custodial services, Chase shall select as its agent a Foreign
Bank, which may be an affiliate or subsidiary of Chase. To facilitate the
clearance and settlement of securities transactions, Chase represents that,
subject to the approval of the Company, it may deposit Securities in a Foreign
Securities Depository in which Chase is a participant. In situations in which
Chase is not a participant in a Foreign Securities Depository, Chase may,
subject to the approval of the Company, authorize a Foreign Bank acting as its
subcustodian to deposit the Securities in a Foreign Securities Depository in
which the Foreign Bank is a participant. Notwithstanding the foregoing, such
selection by Chase of a Foreign Bank or Foreign Securities Depository shall not
become effective until Chase has been advised by the Company that a majority of
the Company's Board f Directors:
(i) Have approved Chase's selection of the particular
Foreign Bank or Foreign Securities Depository, as the case may
be, as consistent with the best interests of the Fund and its
Shareholders:
(ii) Have approved as consistent with the best
interests of the Fund and its Shareholders a written
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contract prepared by Chase which will govern the manner in
which such Foreign Bank will maintain the Fund's assets.
6. CONDITIONS ON SELECTION OF FOREIGN BANK OR FOREIGN
SECURITIES DEPOSITORY. Chase shall authorize the holding of
Securities and Cash by a Chase Branch, Foreign Bank or Foreign
Securities Depository only:
(a) to the extent that the Securities and Cash are not subject
to any right, charge, security interest, lien or claim of any
kind in favor of any such Foreign Bank or Foreign Securities
Depository, except for their safe custody or administration,
and (b) to the extent that the beneficial ownership of
Securities is freely transferable without the payment of money
or value other than for safe custody or administration.
7. CHASE BRANCHES AND FOREIGN BANKS NOT AGENTS OF FUND. Chase
Branches, Foreign Banks and Foreign Securities Depositories shall be subject to
the instructions of Chase and/or the Foreign Bank and not to those of the
Company. Chase warrants and represents that all such instructions shall afford
protection to the Fund at least equal to that afforded for Securities held
directly by Chase. Any Chase Branch, Foreign Bank or Foreign Securities
Depository shall act solely as agent of Chase or of
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such Foreign Bank.
8. CUSTODY ACCOUNT. Securities held in the Custody Account
shall be physically segregated at all times from those of any other person or
persons except that (a) with respect to Securities held by Chase Branches, such
Securities may be placed in an omnibus account for the customers of Chase, and
Chase shall maintain separate book entry records for each such omnibus account,
and such Securities shall be deemed for the purpose of this Agreement to be held
by Chase in the Custody Account; (b) with respect to Securities deposited by
Chase with a Foreign Bank, a Domestic Securities Depository or a Foreign
Securities Depository, Chase shall identify on its books as belonging to the
Fund the Securities shown on Chase's account on the books of the Foreign Bank,
Domestic Securities Depository or Foreign Securities Depository and (c) with
respect to Securities deposited by a Foreign Bank with a Foreign Securities
Depository, Chase shall cause the Foreign Bank to identify on its books as
belonging to Chase, as agent, the Securities shown on the Foreign Bank's account
on the books of the Foreign Securities Depository. All Securities of the Fund
maintained by Chase pursuant to this Agreement shall be subject only to the
instructions of Chase, Chase Branches or their agents. Chase shall only deposit
Securities with a Foreign Bank in accounts that include only assets held by
Chase for its customers.
8a. SEGREGATED ACCOUNT FOR FUTURES CONTRACTS. With
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<PAGE>
respect to every futures contract purchased, sold or cleared for the Custody
Account, Chase agrees, pursuant to Written Instructions, to:
(i) deposit original margin and variation margin
payments in a segregated account maintained by Chase;
and
(ii) perform all other obligations attendant to
transactions or positions in such futures contracts, as such
payments or performance may be required by law or the
executing broker.
8b. SEGREGATED ACCOUNT FOR REPURCHASE AGREEMENTS. With respect
to purchases for the Custody Account from banks (including Chase) or
broker-dealers of United States or Canadian government obligations with a
simultaneous agreement by the seller to repurchase them within no more than 7
days at the original purchase price plus accrued interest, pursuant to Written
Instructions, to:
(i) deposit such securities and repurchase
agreements in a segregated account maintained by Chase; and
(ii) promptly show on Chase's records that such securities and
repurchase agreements are being held on behalf of the Fund and deliver to the
Fund a written confirmation to that
11
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effect.
9. DEPOSIT ACCOUNT. Subject to the provisions of this
Agreement, the Company authorizes Chase to establish and maintain in each
country or other jurisdiction in which the principal trading market for any
Securities is located or in which any Securities are to be presented for
payment, an account or accounts, which may include nostro accounts with Chase
Branches and omnibus accounts of Chase at Foreign Banks, for receipt of cash in
the Deposit Account, in such currencies as directed by Written Instructions. For
purposes of this Agreement, cash so held in any such account shall be evidenced
by separate book entries maintained by Chase at its office in London and shall
be deemed to be Cash held by Chase in the Deposit Account. Unless Chase receives
Written Instructions to the contrary, cash received or credited by Chase or any
other Chase Branch, Foreign Bank or Foreign Securities Depository for the
Deposit Account in a currency other than United States dollars shall be
converted promptly into United States dollars whenever it is practicable to do
so through customary banking channels (including without limitation the
effecting of such conversions at Chase's preferred rates through Chase, its
affiliates or Chase Branches), and shall be automatically transmitted back to
Chase in the United States.
10. SETTLEMENT PROCEDURES. Settlement procedures for
transactions in Securities delivered to, held in, or to be
delivered from the Custody Account in Chase Branches, Domestic
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Securities Depositories, Foreign Banks and Foreign Securities Depositories,
including receipts and payments of cash held in any nostro account or omnibus
account for the Deposit Account as described in Section 9, shall be carried out
in accordance with the provisions of the Operating Agreement. It is understood
that such settlement procedures may vary, as provided in the Operating
Agreement, from securities market to securities market, to reflect particular
settlement practices in such markets.
Chase shall make or cause the appropriate Chase Branch or
Foreign Bank to make payments of Cash held in the Deposit Account only:
(a) in connection with the purchase of Securities for the
account of the Fund and only against the receipt of such Securities by Chase or
by another appropriate Chase Branch, Domestic Securities Depository, Foreign
Bank or Foreign Securities Depository, or otherwise as provided in the Operating
Agreement, each such payment to be made at prices confirmed by Written
Instructions, or
(b) in connection with any dividend, interim dividend
or other distribution declared by the Company on behalf of the
Fund, or
(c) as directed by the Company by Written Instructions setting
forth the name and address of the person to whom the payment is to be made and
the purpose for which the payment is to be made.
Upon the receipt by Chase of Written Instructions
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<PAGE>
specifying the Securities to be so transferred or delivered, which instructions
shall name the person or persons to whom transfers or deliveries of such
Securities shall be made and shall indicate the time(s) for such transfers or
deliveries, Securities held in the Custody Account shall be transferred,
exchanged, or delivered by Chase, any Chase Branch, Domestic Securities
Depository, Foreign Bank, or Foreign Securities Depository, as the case may be,
against payment in Cash or Securities, or otherwise as provided in the Operating
Agreement, only:
(a) upon sale of such Securities for the account of the Fund
and receipt of such payment in the amount shown in a broker's confirmation of
sale of the Securities or other proper authorization received by Chase before
such payment is made, as confirmed by Written Instructions;
(b) in exchange for or upon conversion into other Securities
alone or other Securities and Cash pursuant to any plan of merger,
consolidation, reorganization, recapitalization, readjustment, or tender offer;
(c) upon exercise of conversion, subscription,
purchase, or other similar rights represented by such Securities;
or
(d) otherwise as directed by the Company by Written
Instructions which shall set forth the amount and purpose of such
transfer or delivery.
Until Chase receives Written Instructions to the
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<PAGE>
contrary, Chase shall and shall cause each Chase Branch, Domestic Securities
Depository, Foreign Bank and Foreign Securities Depository holding Securities or
Cash to take the following actions in accordance with procedures established in
the
Operating Agreement.
(a) collect and timely deposit in the Deposit Account all
income due-or payable with respect to any Securities and take any action which
may be necessary and proper in connection with the collection and receipt of
such income;
(b) present timely for payment all Securities in the Custody
Account which are called, redeemed, or retired or otherwise become payable and
all coupons and other income items which call for payment upon presentation and
to receive and credit to the Deposit Account Cash so paid for the account of the
Fund except that, if such Securities are convertible, such Securities shall not
be presented for payment until two business days preceding the date on which
such conversion rights would expire unless Chase previously shall have received
Written Instructions with respect thereto;
(c) present for exchange all Securities in the
Custody Account converted pursuant to their terms into other
Securities;
(d) in respect of securities in the Custody Account, execute
in the name of the Fund such ownership and other certificates as may be required
to obtain payments in respect thereto, provided that Chase shall have requested
and the Company
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<PAGE>
shall have furnished to Chase any information necessary in
connection with such certificates;
(e) exchange interim receipts or temporary Securities
in the Custody Account for definitive Securities; and
(f) receive and hold in the Custody Account all Securities
received as a distribution on Securities held in the Custody Account as a result
of a stock dividend, share split-up or reorganization, recapitalization,
readjustment or other rearrangement or distribution of rights or similar
Securities issued with respect to any Securities held in the Custody Account.
11. RECORDS. Chase hereby agrees that Chase and any Chase
Branch or Foreign Bank shall create, maintain, and retain all records relating
to their activities and obligations as custodian for the Fund under this
Agreement in such manner as will meet the obligations of the Company under the
Act of 1940, particularly Section 31 thereof and Rules 31a-1 and 31a-2
thereunder, and Federal, state and foreign tax laws and other legal or
administrative rules or procedures, in each case as currently in effect and
applicable to the Company on behalf of the Fund. All records so maintained in
connection with the performance of its duties under this Agreement shall remain
the property of the Company and, in the event of termination of this Agreement,
shall be delivered in accordance with the provisions of Section 19.
Chase hereby agrees, subject to restrictions under
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<PAGE>
applicable laws, that the books and records of Chase and any Chase Branch
pertaining to their actions under this Agreement shall be open to the physical,
on-premises inspection and audit at reasonable times by the independent
accountants ("Accountants") employed by, or other representatives of, the
Company. Chase hereby agrees that, subject to restrictions under applicable
laws, access shall be afforded to the Accountants to such of the books and
records of any Foreign Bank, Domestic Securities Depository or Foreign
Securities Depository with respect to Securities and Cash as shall be required
by the Accountants in connection with their examination of the books and records
pertaining to the affairs of the Fund. Chase also agrees that as the Company may
reasonably request from time to time, Chase shall provide the Accountants with
information with respect to Chase's and Chase Branches' systems of internal
accounting controls as they relate to the services provided under this
Agreement, and Chase shall use its best efforts to obtain and furnish similar
information with respect to each Domestic Securities Depository, Foreign Bank
and Foreign Securities Depository holding Securities and Cash.
12. REPORTS. Chase shall supply periodically, upon
the reasonable request of the Company on behalf of the Fund, such
statements, reports, and advices with respect to Cash in the
Deposit Account and the Securities in the Custody Account and
transactions in Securities from time to time received and/or
delivered for or from the Custody Account, as the case may be, as
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<PAGE>
the Company shall require. Such statements, reports and advices shall include an
identification of the Chase Branch, Domestic Securities Depository, Foreign Bank
and Foreign Securities Depository having custody of the Securities and Cash, and
descriptions thereof.
13. REGISTRATION OF SECURITIES. Securities in the Custody
Account which are issued or issuable only in bearer form (except such securities
as are held in the Book-Entry System) shall be held by Chase, Chase Branches,
Domestic Securities Depositories, Foreign Banks or Foreign Securities
Depositories in that form. All other Securities in the Custody Account shall be
held in registered form in the name of Chase, or any Chase Branch, the
Book-Entry System, Domestic Securities Depository, Foreign Bank or Foreign
Securities Depository and their nominees, as custodian or nominee.
14. STANDARD OF CARE.
(a) GENERAL. Chase shall assume entire responsibility for all
Securities held in the Custody Account and Cash held in the Deposit Account,
cash or securities held in the Segregated Accounts and any of the Securities and
Cash while in the possession of Chase or any Chase Branch, Domestic Securities
Depository, Foreign Bank or Foreign Securities Depository, or in the possession
or control of any employees, agents or other personnel of Chase or any Chase
Branch, Domestic Securities Depository, Foreign Bank or Foreign Securities
Depository; and shall be liable to the Company for any loss to the Company or
the
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Fund occasioned by any destruction of the Securities or Cash so held or while in
such possession, by any robbery, burglary, larceny, theft or embezzlement by any
employees, agents or personnel of Chase or any Chase Branch, Domestic Securities
Depository, Foreign Bank or Foreign Securities Depository, and/or by virtue of
the disappearance of any of the Securities or Cash so held or while in such
possession, with or without any fault attributable to Chase ('fault attributable
to Chase' for the purposes of this Agreement being deemed to mean any negligent
act or omission, robbery, burglary, larceny, theft or embezzlement by any
employees or agents of Chase or any Chase Branch, Domestic Securities
Depository, Foreign Bank or Foreign Securities Depository). In the event of
Chase's discovery or notification of any such loss of Securities or Cash, Chase
shall promptly notify the Company and shall reimburse the Company to the extent
of the market value of the missing Securities or Cash as at the date of the
discovery of such loss. The Company shall not be obligated to establish any
negligence, misfeasance or malfeasance on Chase's part from which such loss
resulted, but Chase shall be obligated hereunder to make such reimbursement to
the Company after the discovery or notice of such loss, destruction or theft of
such Securities or Cash. Chase may at its option insure itself against loss from
any cause but shall be under no obligation to insure for the benefit of the
Company or the Fund.
(b) COLLECTIONS. All collections of funds or other
property paid or distributed in respect of Securities held in the
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Custody Account shall be made at the risk of the Company. Chase shall have no
liability for any loss occasioned by delay in the actual receipt of notice by
Chase (or by any Chase Branch or Foreign Bank in the case of Securities or Cash
held outside of the United States) of any payment, redemption or other
transaction regarding Securities held in the Custody Account or Cash held in the
Deposit Account in respect of which Chase has agreed to take action in the
absence of Written Instructions to the contrary as provided in Section 10 of
this Agreement, which does not appear in any of the publications referred to in
Section 16 of this Agreement.
(c) EXCLUSIONS. Notwithstanding any other provision in this
Agreement to the contrary, Chase shall not be responsible for (i) losses
resulting from war or from the imposition of exchange control restrictions,
confiscation, expropriation, or nationalization of any securities or assets of
the issuer of such securities, or (ii) losses resulting from any negligent act
or omission of the Company, the Fund or any of their affiliates, or any robbery,
theft, embezzlement or fraudulent act by any employee or agent of the Company,
the Fund or any of their affiliates. Chase shall not be liable for any action
taken in good faith upon Written Instructions of Authorized Persons of the Fund
or upon any certified copy of any resolution of the Board of Directors of the
Company, and may rely on the genuineness of any such documents which it may in
good faith believe to be validly executed.
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(d) LIMITATION ON LIABILITY UNDER SECTION 14(A).
Notwithstanding any other Provision in this Agreement to the contrary, it is
agreed that the extent of Chase's liability to the Company on behalf of the Fund
under Section 14(a) shall not exceed $80,000,000 (as of June 1, 1984), it being
understood and agreed that the foregoing limit of $80,000,000 applies on an
aggregated basis to all losses under Section 14(a) incurred by the Fund and is
subject to annual adjustment as set forth in Section 14(e). The Company agrees
that Chase's sole responsibility with respect to losses under Section 14(a)
shall be to pay to the Company on behalf of the Fund the amount of any such loss
as provided in Section 14(a) (subject to the limitation provided in the
preceding sentence). This limitation does not apply to any liability of Chase
under Section 14(f) of this Agreement.
(e) ANNUAL ADJUSTMENT OF LIMITATION OF LIABILITY. As
--------------------------------------------
soon as Practicable after each anniversary of the original June
1, 1984 date of this Agreement the Company on behalf of the Fund
shall provide Chase with the amount of the total net assets of
the Fund as of the close of business on such anniversary date (or
if the New York Stock Exchange is closed on such anniversary
date, then in that event as of the close of business on the next
day on which the New York Stock Exchange is open for business).
It is understood by the Parties to this Agreement that,
simultaneously with this Agreement, Chase is entering into substantially similar
custody agreements as follows: an agreement
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<PAGE>
with the Company on behalf of Templeton Foreign Fund; an agreement with
Templeton Global Funds, Inc. on behalf of Templeton Global I; an agreement with
Templeton Global Funds, Inc. on behalf of Templeton Global II; and an agreement
with Templeton Growth Fund, Ltd., all of which Funds have as their investment
advisers companies under the control and direction of John M. Templeton and the
same as or affiliated with the Investment Manager of the Fund; as well as any
substantially similar custody agreements of Chase with any additional mutual
funds under Templeton management which may hereafter be organized. Each of such
custody agreements with each of such other Templeton Funds contains (or will
contain) a "Standard of Care' section similar to this Section 14, except that
the limit of Chase's liability is in varying amounts for each Fund, with the
aggregate limits of liability in all of such agreements, including this custody
agreement, amounting to $150,000,000.
On each anniversary date of the original June 1, 1984 date of
this Agreement, and of the similar custody agreements with each other Templeton
Fund, Chase will total the net assets reported by each one of the Templeton
Funds, and will calculate the percentage of the aggregate net assets of all the
Templeton Funds that is represented by the net asset value of this Fund.
Thereupon Chase shall allocate to this Agreement with this Fund that proportion
of its total of $150,000,000 responsibility undertaking which is substantially
equal to the proportion which this Fund's net assets bears to the total net
assets of all such
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Templeton Funds subject to adjustments for claims paid as follows: all claims
previously paid to this Fund shall first be deducted from its proportionate
allocable share of the $150,000,000 Chase responsibility, and if the claims paid
to this Fund amount to more than its allocable share of the Chase
responsibility, then the excess of such claims paid to this Fund shall diminish
the balance of the $150,000,000 Chase responsibility available for the
proportionate shares of all of the other Templeton Funds having similar custody
agreements with Chase. Based on such calculation, and on such adjustment for
claims paid, if any, Chase thereupon shall notify the Company on behalf of the
Fund of such limit of liability under this Section 14 which will be available to
this Fund with respect to (1) losses in excess of payment allocations for
previous years and (2) losses discovered during the next year this Agreement
remains in effect and until a new determination of such limit of respon-sibility
is made on the next succeeding anniversary date.
(f) OTHER LIABILITY. Independently of Chase's liability to the
Company as provided in Section 14(a) above (it being understood that the
limitations in Section 14(d) do not apply to the provisions of this Section
14(f)), Chase shall be responsible for the performance of only such duties as
are set forth in this Agreement or contained in express instructions given to
Chase which are not contrary to the provisions of this Agreement. Chase will use
and require the same care with respect to the safekeeping of all Securities held
in the Custody Account
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<PAGE>
and Cash held in the Deposit Account as it uses in respect of its own similar
property, but it need not maintain any insurance for the benefit of the Company
or the Fund. With respect to Securities and Cash held outside of the United
States, Chase will be liable to the Company for any loss to the Company or the
Fund resulting from any disappearance or destruction of such Securities or Cash
while in the possession of Chase or any Chase Branch, Foreign Bank or Foreign
Securities Depository, to the same extent it would be liable to the Company if
Chase had retained physical possession of such Securities and Cash in New York.
It is specifically agreed that Chase's liability under this Section 14(f) is
entirely independent of Chase's liability under Section 14(a). Notwithstanding
any other provision in this Agreement to the contrary, in the event of any loss
giving rise to liability under this Section 14(f) that would also give rise to
liability under Section 14(a), the amount of such liability shall not be charged
against the amount of the limitation on liability provided in Section 14(d).
(g) COUNSEL; LEGAL EXPENSES. Chase shall be entitled to the
advice of counsel (who may be counsel for the Company) at the expense of the
Company in connection with carrying out Chase's duties hereunder and in no event
shall Chase be liable for any action taken or omitted to be taken by it in good
faith pursuant to advice of such counsel. If, in the absence of fault
attributable to Chase and in the course of or in connection with carrying out
its duties and obligations hereunder, any claims or
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<PAGE>
legal proceedings are instituted against Chase or any Chase Branch by third
parties, the Company will hold Chase harmless against any claims, liabilities,
costs, damages or expenses incurred in connection therewith and, if the Company
so elects, the Company may assume the defense thereof with counsel satisfactory
to Chase, and thereafter shall not be responsible for any further legal fees
that may be incurred by Chase, provided, however, that all of the foregoing is
conditioned upon the Company's receipt from Chase of prompt and due notice of
any such claim or proceeding.
15. EXPROPRIATION INSURANCE. Chase represents that it does not
intend to obtain any insurance for the benefit of the Fund which protects
against the imposition of exchange control restrictions on the transfer from any
foreign jurisdiction of the proceeds of sale of any Securities or against
confiscation, expropriation or nationalization of any securities or the Assets
of the issuer of such securities by a government of any foreign country in which
the issuer of such securities is organized or in which securities are held for
safekeeping either by Chase, or any Chase Branch, Foreign Bank or Foreign
Securities Depository in such country. Chase has discussed the availability of
expro-priation insurance with the Company, and has advised the Company as to its
understanding of the position of the Staff of the Commission that any investment
company investing in securities of foreign issuers has the responsibility for
reviewing the possibility of the imposition of exchange control restrictions
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<PAGE>
which would affect the liquidity of such investment company's assets and the
possibility of exposure to political risk, including the appropriateness of
insuring against such risk. The Company has acknowledged that it has the
responsibility to review the possibility of such risks and what, if any, action
should be taken.
16. PROXY, NOTICES, REPORTS, ETC. Chase shall watch for the
dates of expiration of (a) all purchase or sale rights (including warrants,
puts, calls and the like) attached to or inherent in any of the Securities held
in the Custody Account and (b) conversion rights and conversion price changes
for each convertible Security held in the Custody Account as published in
Telstat Services Inc., Standard & Poor's Financial Inc. and/or any other
publications listed in the Operating Agreement (it being understood that Chase
may give notice to the Company as provided in Section 21 as to any change,
addition and/or omission in the publications watched by Chase for these
purposes). If Chase or any Chase Branch; Foreign Bank or Foreign Securities
Depository shall receive any proxies, notices, reports, or other communications
relative to any of the Securities held in the Custody Account, Chase shall, on
its behalf or on the behalf of a Chase Branch, Foreign Bank or Foreign
securities Depository, promptly transmit in writing any such communication to
the Company. In addition, Chase shall notify the Company by person-to-person
collect telephone concerning any such notices relating to any matters specified
in the first sentence of this Section
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16.
As specifically requested by the Company, Chase shall execute
or deliver or shall cause the nominee in whose name Securities are registered to
execute and deliver to such person as may be designated by the Company proxies,
consents, authorizations and any other instruments whereby the authority of the
Company as owner of any Securities in the Custody Account registered in the name
of Chase or such nominee, as the case may be, may be exercised. Chase shall vote
Securities in accordance with Written Instructions timely received by Chase, or
such other person or persons as designated in or pursuant to the Operating
Agreement.
Chase and any Chase Branch shall have no liability for any
loss or liability occasioned by delay in the actual receipt by them or any
Foreign Bank or Foreign Securities Depository of notice of any payment or
redemption which does not appear in any of the publications referred to in the
first sentence of this Section 16.
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17. COMPENSATION. The Company on behalf of the Fund agrees to
pay to Chase from time to time such compensation for its services pursuant to
this Agreement as may be mutually agreed upon in writing from time to time and
Chase's out-of-pocket or incidental expenses, as from time to time shall be
mutually agreed upon by Chase and the Company. The Company shall have no
responsibility for the payment of services provided by any Domestic Securities
Depository, Chase Branch, Foreign Bank or Foreign Security Depository, such fees
being paid directly by Chase. In the event of any advance of Cash for any
purpose made by Chase pursuant to any Written Instruction, or in the event that
Chase or any nominee of Chase shall incur or be assessed any taxes in connection
with the performance of this Agreement, the Company shall indemnify and
reimburse Chase therefor, except such assessment of taxes, as results from the
negligence, fraud, or willful misconduct of Chase, any Domestic Securities
Depository, Chase Branch; Foreign Bank or Foreign Securities Depository, or as
constitutes a tax on income, gross receipts or the like of any one or more of
them. Chase shall have a lien on Securities in the Custody Account and on Cash
in the Deposit Account for any amount owing to Chase from time to time under
this Agreement upon due notice to the Company.
18. AGREEMENT SUBJECT TO APPROVAL OF THE COMPANY. It
is understood that this Agreement and any amendments shall be
subject to the approval of the Company.
28
<PAGE>
19. TERM. This Agreement shall remain in effect for a period
of one (1) year from the date of this Agreement and shall thereafter remain in
effect until terminated by either party upon 60 days' written notice to the
other, sent by registered mail. Notwithstanding the preceding sentence, however,
if at any time after the execution of this Agreement Chase shall provide written
notice to the Company, by registered mail, of the amount needed to meet a
substantial increase in the cost of maintaining its present type and level of
bonding and insurance coverage in connection with Chase's undertakings in
Section 14(a), (d) and (e) of this Agreement, said Section 14(a), (d) and (e) of
this Agreement shall cease to apply 60 days after the providing of such notice
by Chase, unless prior to the expiration of such 60 days the Company on behalf
of the Fund agrees in writing to assume the amount needed for such purpose.
Chase, upon the date this Agreement terminates pursuant to notice which has been
given in a timely fashion, shall, and/or shall cause each Domestic Securities
Depository, Chase Branch, Foreign Bank and Foreign Securities Depository to,
deliver the Securities in the Custody Account and pay the Cash in the Deposit
Account to the Company on behalf of the Fund unless Chase has received from the
Company 60 days prior to the date on which this Agreement is to be terminated
Written Instructions specifying the name(s) of the person(s) to whom the
Securities in the Custody Account shall be delivered and to whom the Cash in the
Deposit Account shall be paid. Concurrently with the delivery of such
Securities, Chase
29
<PAGE>
shall deliver to the Company, on behalf of the Fund, or such other person as the
Company shall instruct, the records referred to in Section 11 which are in the
possession or control of Chase or any Domestic Securities Depository, Chase
Branch, Foreign Bank or Foreign Securities Depository, or in the event that
Chase is unable to obtain such records in their original form Chase shall
deliver true copies of such records.
20. AUTHORIZATION OF CHASE TO EXECUTE NECESSARY DOCUMENTS. In
connection with the performance of its duties hereunder, the Company hereby
authorizes and directs Chase and each Chase Branch acting on behalf of Chase,
and Chase hereby agrees, to execute and deliver in the name of the Fund, or
cause such other Chase Branch to execute and deliver in the name of the Fund,
such certificates, instruments, and other documents as shall be reasonably
necessary in connection with such performance, provided that the Company shall
have furnished to Chase any information necessary in connection therewith.
21. NOTICES. Any notice or other communication
authorized or required by this Agreement to be given to the
parties shall be sufficiently given (except to the extent
otherwise specifically provided) if addressed and mailed postage
prepaid or delivered to it at its office at the address set forth
below:
30
<PAGE>
If to the Company on behalf of the Fund, then to
Templeton Foreign Fund
Templeton Funds, Inc.
405 Central Avenue
P.O. Box 3942
St. Petersburg, Florida 33731
Attention: John Wm. Galbraith, Treasurer
If to Chase, then to
The Chase Manhattan Bank, N.A.
1211 Avenue of the Americas
33rd Floor
New York, New York 10036
Attention: David M. Mann, V.P.
or such other person or such other address as any party shall have furnished to
the other party in writing.
22. NON-ASSIGNABILITY OF AGREEMENT. This Agreement shall not
be assignable by either party hereto; provided, however, that any corporation
into which the Company or Chase, as the case may be, may be merged or converted
or with which it may be consolidated, or any corporation succeeding to all or
substantially all of the trust business of Chase shall succeed to the respective
rights and shall assume the respective duties of the Company or of Chase, as the
case may be, hereunder.
23. GOVERNING LAW. This Agreement shall be governed
by the laws of the State of New York.
31
<PAGE>
THE CHASE MANHATTAN BANK, N.A.
By: /s/ CATHERINE A. LEE
Catherine A. Lee
Vice President
TEMPLETON FUNDS, INC., on behalf of
TEMPLETON FOREIGN FUND
By: /s/ THOMAS L. HANSBERGER
Thomas L. Hansberger
President
32
<PAGE>
BUSINESS MANAGEMENT AGREEMENT BETWEEN
TEMPLETON FUNDS, INC. AND
TEMPLETON GLOBAL INVESTORS, INC.
AGREEMENT dated as of April 1, 1993, between TEMPLETON FUNDS,
INC., a registered open-end investment company (the "Company") comprised of two
series (Templeton World Fund and Templeton Foreign Fund) and any additional
series that may be created in the future (the "Funds"), and Templeton Global
Investors, Inc. ("TGII").
In consideration of the mutual promises herein made, the
parties hereby agree as follows:
(1) TGII agrees, during the life of this Agreement, to be
responsible for:
(a) providing office space, telephone, office
equipment and supplies for the Company;
(b) paying compensation of the Company's officers for
services rendered as such;
(c) authorizing expenditures and approving bills for
payment of behalf of the Company;
(d) supervising preparation of annual and semiannual
reports to Shareholders, notices of dividends,
capital gains distributions and tax credits, and
attending to routine correspondence and other
communications with individual Shareholders;
(e) daily pricing of the Funds' investment portfolios and
preparing and supervising publication of daily
quotations of the bid and asked prices of the Funds'
Shares, earnings reports and other financial data;
(f) monitoring relationships with organizations
serving the Company, including custodians,
transfer agents and printers;
(g) providing trading desk facilities for the Funds;
(h) supervising compliance by the Company with record-
keeping requirements under the Investment Company
Act of 1940 (the "1940 Act") and the regulations
thereunder, with state regulatory requirements,
maintenance of books and records for the Company
(other than those maintained by the custodian and
transfer agent), preparing and filing of tax
reports other than the Company's income tax
returns;
<PAGE>
(i) monitoring the qualifications of tax deferred
retirement plans providing for investment in
Shares of the Funds; and
(j) providing executive, clerical and secretarial help
needed to carry out the above responsibilities.
(2) The Company agrees, during the life of this Agreement, to pay to
TGII as compensation for the foregoing a monthly fee equal on an annual basis to
0.15% of the first $200 million of the combined average daily net assets of the
Funds during the month preceding each payment, reduced as follows: on such net
assets in excess of $200 million up to $700 million a monthly fee equal on an
annual basis to 0.135%; on such net assets in excess of $700 million up to $1.2
billion a monthly fee equal on an annual basis to 0.1%; and on such net assets
in excess of $1.2 billion a monthly fee equal on an annual basis to 0.075%.
(3) This Agreement shall remain in full force and effect through
December 31, 1993 and thereafter from year to year to the extent such
continuance is approved annually by the Board of Directors of the Company.
(4) This Agreement may be terminated by the Company at any time on
sixty (60) days' written notice without payment of penalty provided that such
termination by the Company shall be directed or approved by the vote of a
majority of the Directors of the Company in office at the time or by the vote of
a majority of the outstanding voting securities of the Company (as defined by
the 1940 Act); and shall automatically and immediately terminate in the event of
its assignment (as defined by the 1940 Act).
(5) In the absence of willful misfeasance, bad faith or gross
negligence on the part of TGII, or of reckless disregard of its obligations
hereunder, TGII shall not be subject to liability for any act or omission in the
course of, or connected with, rendering services hereunder.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their duly authorized officers and their
respective corporate seals to be hereunto duly affixed and attested.
TEMPLETON FUNDS, INC.
By: /s/ HAROLD F. MCELRAFT
Harold F. McElraft
Vice President
ATTEST:
/s/ THOMAS M. MISTELE
Thomas M. Mistele
Secretary
TEMPLETON GLOBAL INVESTORS, INC.
By: /s/ THOMAS L. HANSBERGER
Thomas L. Hansberger
President
ATTEST:
/s/ GREGORY E. MCGOWAN
Gregory E. McGowan
Secretary
-3-
TRANSFER AGENT AGREEMENT BETWEEN
TEMPLETON FUNDS, INC. AND
FRANKLIN TEMPLETON INVESTOR SERVICES, INC.
AGREEMENT dated as of September 1, 1993, and amended and restated as of
August 10, 1995, between TEMPLETON FUNDS, INC., a registered open-end investment
company with offices at 700 Central Avenue, St. Petersburg, Florida 33701 (the
"Company") on behalf of Templeton World Fund and Templeton Foreign Fund
(collectively, the "Funds") and FRANKLIN TEMPLETON INVESTOR SERVICES, INC., a
registered transfer agent with offices at 700 Central Avenue, St. Petersburg,
Florida 33701 ("FTIS").
W I T N E S S E T H:
That for and in consideration of the mutual promises hereinafter set
forth, the Company and FTIS agree as follows:
1. DEFINITIONS. Whenever used in this Agreement, the following
words and phrases, unless the context otherwise requires, shall have the
following meanings:
(a) "Articles of Incorporation" shall mean the Articles
of Incorporation of the Company as the same may be amended from time to time;
(b) "Authorized Person" shall be deemed to include any person,
whether or not such person is an officer or employee of the Company, duly
authorized to give Oral Instructions or Written Instructions on behalf of the
Company as indicated in a certificate furnished to FTIS pursuant to Section 4(c)
hereof as may be received by FTIS from time to time;
(c) "Custodian" refers to the custodian and any sub-custodian
of all securities and other property which the Company may from time to time
deposit, or cause to be deposited or held under the name or account of such
custodian pursuant to the Custody Agreement;
(d) "Oral Instructions" shall mean instructions, other than
written instructions, actually received by FTIS from a person reasonably
believed by FTIS to be an Authorized Person;
(e) "Shares" refers to shares of common stock, par value
$1.00 per share, of the Company; and
(f) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by FTIS to be an Authorized Person and
actually received by FTIS.
2. APPOINTMENT OF FTIS. The Company hereby appoints and constitutes
FTIS as transfer agent for Shares of the Company and as shareholder servicing
agent for the Company, and FTIS accepts such appointment and agrees to perform
the duties hereinafter set forth.
3. COMPENSATION.
(a) The Company will compensate or cause FTIS to be
compensated for the performance of its obligations hereunder in accordance with
the fees set forth in the written schedule of fees annexed hereto as Schedule A
and incorporated herein. Schedule A does not include out-of-pocket disbursements
of FTIS for which FTIS shall be entitled to bill the Company separately. FTIS
will bill the Company as soon as practicable after the end of each calendar
month, and said billings will be detailed in accordance with Schedule A. The
Company will promptly pay to FTIS the amount of such billing.
<PAGE>
Out-of-pocket disbursements shall include, but shall not be
limited to, the items specified in the written schedule of out-of-pocket
expenses annexed hereto as Schedule B and incorporated herein. Schedule B may be
modified by FTIS upon not less than 30 days' prior written notice to the
Company. Unspecified out-of-pocket expenses shall be limited to those
out-of-pocket expenses reasonably incurred by FTIS in the performance of its
obligations hereunder. Reimbursement by the Company for expenses incurred by
FTIS in any month shall be made as soon as practicable after the receipt of an
itemized bill from FTIS.
(b) Any compensation agreed to hereunder may be adjusted from
time to time by attaching to Schedule A of this Agreement a revised Fee
Schedule.
4. DOCUMENTS. In connection with the appointment of FTIS, the Company
shall, on or before the date this Agreement goes into effect, but in any case,
within a reasonable period of time for FTIS to prepare to perform its duties
hereunder, deliver or cause to be delivered to FTIS the following documents:
(a) If applicable, specimens of the certificates for the
Shares;
(b) All account application forms and other documents
relating to Shareholder accounts or to any plan, program or service
offered by the Company;
(c) A certificate identifying the Authorized Persons and
specimen signatures of Authorized Persons who will sign Written
Instructions; and
(d) All documents and papers necessary under the laws of
Florida, under the Company's Articles of Incorporation, and as may be required
for the due performance of FTIS's duties under this Agreement or for the due
performance of additional duties as may from time to time be agreed upon between
the Company and FTIS.
5. DISTRIBUTIONS PAYABLE IN SHARES. In the event that the Board of
Directors of the Company shall declare a distribution payable in Shares of
either Fund, the Company shall deliver or cause to be delivered to FTIS written
notice of such declaration signed on behalf of the Company by an officer
thereof, upon which FTIS shall be entitled to rely for all purposes, certifying
(i) the number of Shares of each Fund involved, and (ii) that all appropriate
action has been taken.
6. DUTIES OF THE TRANSFER AGENT. FTIS shall be responsible for
administering and/or performing transfer agent functions; for acting as service
agent in connection with dividend and distribution functions; and for performing
shareholder account and administrative agent functions in connection with the
issuance, transfer and redemption or repurchase (including coordination with the
Custodian) of Shares. The operating standards and procedures to be followed
shall be determined from time to time by agreement between the Company and FTIS.
Without limiting the generality of the foregoing, FTIS agrees to perform the
specific duties listed on Schedule C.
7. RECORDKEEPING AND OTHER INFORMATION. FTIS shall create and
maintain all necessary records in accordance with all applicable laws,
rules and regulations.
8. OTHER DUTIES. In addition, FTIS shall perform such other duties and
functions, and shall be paid such amounts therefor, as may from time to time be
agreed upon in writing between the Company and FTIS. Such other duties and
functions shall be reflected in a written amendment to Schedule C, and the
compensation for such other duties and functions shall be reflected in a written
amendment to Schedule A.
2
<PAGE>
9. RELIANCE BY TRANSFER AGENT; INSTRUCTIONS.
(a) FTIS will be protected in acting upon Written or Oral
Instructions reasonably believed to have been executed or orally communicated by
an Authorized Person and will not be held to have any notice of any change of
authority of any person until receipt of a Written Instruction thereof from an
officer of the Company. FTIS will also be protected in processing Share
certificates which it reasonably believes to bear the proper manual or facsimile
signatures of the officers of the Company and the proper countersignature of
FTIS.
(b) At any time FTIS may apply to any Authorized Person of the
Company for Written Instructions and may seek advice at the Company's expense
from legal counsel for the Company or from its own legal counsel, with respect
to any matter arising in connection with this Agreement, and it shall not be
liable for any action taken or not taken or suffered by it in good faith in
accordance with such Written Instructions or in accordance with the opinion of
counsel for the Company or for FTIS. Written Instructions requested by FTIS will
be provided by the Company within a reasonable period of time. In addition,
FTIS, or its officers, agents or employees, shall accept Oral Instructions or
Written Instructions given to them by any person representing or acting on
behalf of the Company only if said representative is known by FTIS, or its
officers, agents or employees, to be an Authorized Person.
10. ACTS OF GOD, ETC. FTIS will not be liable or responsible for delays
or errors by reason of circumstances beyond its control, including acts of civil
or military authority, national emergencies, labor difficulties, fire,
mechanical breakdown beyond its control, flood or catastrophe, acts of God,
insurrection, war, riots or failure beyond its control of transportation,
communication or power supply.
11. DUTY OF CARE AND INDEMNIFICATION. The Company will indemnify FTIS
against and hold it harmless from any and all losses, claims, damages,
liabilities or expenses (including reasonable counsel fees and expenses)
resulting from any claim, demand, action or suit not resulting from willful
misfeasance, bad faith or gross negligence on the part of FTIS, and arising out
of, or in connection with, its duties hereunder. In addition, the Company will
indemnify FTIS against and hold it harmless from any and all losses, claims,
damages, liabilities or expenses (including reasonable counsel fees and
expenses) resulting from any claim, demand, action or suit as a result of: (i)
any action taken in accordance with Written or Oral Instructions, or any other
instructions or Share certificates reasonably believed by FTIS to be genuine and
to be signed, countersigned or executed, or orally communicated by an Authorized
Person; (ii) any action taken in accordance with written or oral advice
reasonably believed by FTIS to have been given by counsel for the Company or by
its own counsel; (iii) any action taken as a result of any error or omission in
any record (including but not limited to magnetic tapes, computer printouts,
hard copies and microfilm copies) delivered, or caused to be delivered by the
Company to FTIS in connection with this Agreement; or (iv) any action taken in
accordance with oral instructions given under the Telephone Exchange and
Redemption Privileges, as described in the applicable Fund's current prospectus,
when believed by FTIS to be genuine.
In any case in which the Company may be asked to indemnify or hold FTIS
harmless, the Company shall be advised of all pertinent facts concerning the
situation in question and FTIS will use reasonable care to identify and notify
the Company promptly concerning any situation which presents or appears likely
to present a claim for indemnification against the Company. The Company shall
have the option to defend FTIS against any claim which may be the subject of
this indemnification, and, in the event that the Company so elects, such defense
shall be conducted by counsel chosen by the Company and satisfactory to FTIS,
and thereupon the Company shall take over complete defense of the claim and FTIS
shall sustain no further legal or other expenses in such situation for which it
seeks indemnification under this Section 11. FTIS will not confess any claim or
3
<PAGE>
make any compromise in any case in which the Company will be asked to provide
indemnification, except with the Company's prior written consent. The
obligations of the parties hereto under this Section shall survive the
termination of this Agreement.
12. TERM AND TERMINATION.
(a) This Agreement shall be effective as of the date first
written above and shall continue through December 31, 1993 and thereafter shall
continue automatically for successive annual periods ending on December 31 of
each year, provided such continuance is specifically approved at least annually
by (i) the Company's Board of Directors or (ii) a vote of a "majority" (as
defined in the Investment Company Act of 1940 (the "1940 Act")) of the Company's
outstanding voting securities taken in accordance with applicable provisions of
the 1940 Act, provided that in either event the continuance is also approved by
a majority of the Board of Directors who are not "interested persons" (as
defined in the 1940 Act) of any party to this Agreement, by vote cast in person
at a meeting called for the purpose of voting such approval;
(b) Either party hereto may terminate this Agreement by giving
to the other party a notice in writing specifying the date of such termination,
which shall be not less than 60 days after the date of receipt of such notice.
In the event such notice is given by the Company, it shall be accompanied by a
resolution of the Board of Directors of the Company, certified by the Secretary
of the Company, designating a successor transfer agent or transfer agents. Upon
such termination and at the expense of the Company, FTIS will deliver to such
successor a certified list of shareholders of the Company (with names and
addresses), an historical record of the account of each Shareholder and the
status thereof, and all other relevant books, records, correspondence, and other
data established or maintained by FTIS under this Agreement in a form reasonably
acceptable to the Company, and will cooperate in the transfer of such duties and
responsibilities, including provisions for assistance from FTIS's personnel in
the establishment of books, records and other data by such successor or
successors.
13. AMENDMENT. This Agreement may not be amended or modified in
any manner except by a written agreement executed by both parties.
14. SUBCONTRACTING. The Company agrees that FTIS may, in its
discretion, subcontract for certain of the services described under this
Agreement or the Schedules hereto; provided that the appointment of any
such agent shall not relieve FTIS of its responsibilities hereunder.
15. MISCELLANEOUS.
(a) Any notice or other instrument authorized or required by
this Agreement to be given in writing to the Company or FTIS shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.
To the Company:
Templeton Funds, Inc.
700 Central Avenue
St. Petersburg, Florida 33701
To FTIS:
Franklin Templeton Investor Services, Inc.
700 Central Avenue
St. Petersburg, Florida 33701
(b) This Agreement shall extend to and shall be binding upon
the parties hereto, and their respective successors and assigns; provided,
4
<PAGE>
however, that this Agreement shall not be assignable without the written consent
of the other party.
(c) This Agreement shall be construed in accordance with
the laws of the State of California.
(d) This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original; but such
counterparts shall, together, constitute only one instrument.
(e) The captions of this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective corporate officers thereunder duly authorized as of
the day and year first above written.
TEMPLETON FUNDS, INC.
BY: /s/ JOHN R. KAY
John R. Kay
Vice President
FRANKLIN TEMPLETON INVESTOR SERVICES,
INC.
BY: /s/ THOMAS M. MISTELE
Thomas M. Mistele
Vice President
5
<PAGE>
Schedule A
FEES
Shareholder account maintenance $13.74, adjusted as
(per annum, prorated payable of February 1 of each
monthly) year to reflect changes in the
Department of Labor Consumer
Price Index.
Cash withdrawal program No charge to the Funds.
Retirement plans No charge to the Funds.
Wire orders or express mailings of $15.00 fee may be charged for
redemption proceeds each wire order and each
express mailing.
February 1, 1995
<PAGE>
Schedule B
OUT-OF-POCKET EXPENSES
The Company shall reimburse FTIS monthly for the following out-of-
pocket expenses:
o postage and mailing
o forms
o outgoing wire charges
o telephone
o Federal Reserve charges for check clearance
o if applicable, magnetic tape and freight
o retention of records
o microfilm/microfiche
o stationary
o insurance
o if applicable, terminals, transmitting lines and any expenses
incurred in connection with such terminals and lines
o all other miscellaneous expenses reasonably incurred by FTIS
The Company agrees that postage and mailing expenses will be paid on
the day of or prior to mailing as agreed with FTIS. In addition, the Company
will promptly reimburse FTIS for any other expenses incurred by FTIS as to which
the Company and FTIS mutually agree that such expenses are not otherwise
properly borne by FTIS as part of its duties and obligations under the
Agreement.
<PAGE>
Schedule C
DUTIES
AS TRANSFER AGENT FOR INVESTORS IN THE COMPANY, FTIS WILL:
o Record in its transfer record, countersign as transfer agent,
and deliver certificates signed manually or by facsimile, by
the President or a Vice-President and by the Secretary or the
Assistant Secretary of the Company, in such names and for such
number of authorized but hitherto unissued Shares of the
Company as to which FTIS shall receive instructions; and
o Transfer on its records from time to time, when presented to
it for that purpose, certificates of said Shares, whether now
outstanding or hereafter issued, when countersigned by a duly
authorized transfer agent, and upon the cancellation of the
old certificates, record and countersign new certificates for
a corresponding aggregate number of Shares and deliver said
new certificates.
AS SHAREHOLDER SERVICE AGENT FOR INVESTORS IN THE COMPANY, FTIS WILL:
o Receive from the Company, from the Company's Principal
Underwriter or from a Shareholder, on a form acceptable to
FTIS, information necessary to record sales and redemptions
and to generate sale and/or redemption confirmations;
o Mail sale and/or redemption confirmations using standard
forms;
o Accept and process cash payments from investors, clear checks
which represent payments for the purchase of Shares;
o Requisition Shares in accordance with instructions of the
Principal Underwriter of the Shares of the Company;
o Produce periodic reports reflecting the accounts receivable
and the paid pending (free stock) items;
o Open, maintain and close Shareholder accounts;
o Establish registration of ownership of Shares in accordance
with generally accepted form;
o Maintain monthly records of (i) issued Shares and (ii) number
of Shareholders and their aggregate Shareholdings classified
according to their residence in each State of the United
States or foreign country;
o Accept and process telephone exchanges and redemptions for
Shares in accordance with a Fund's Telephone Exchange and
Redemption Privileges as described in the Fund's current
prospectus.
o Maintain and safeguard records for each Shareholder showing
name(s), address, number of any certificates issued, and
number of Shares registered in such name(s), together with
continuous proof of the outstanding Shares, and dealer
identification, and reflecting all current changes. On
request, provide information as to an investor's qualification
for Cumulative Quantity Discount. Provide all accounts with
confirmation statements reflecting the most recent
<PAGE>
transaction, and also provide year-end historical confirmation
statements;
o Provide on request a duplicate set of records for file
maintenance in the Company's office in St. Petersburg,
Florida;
o Out of money received in payment for Share sales, pay to the
Company's Custodian Account with the Custodian, the net asset
value per Share and pay to the Principal Underwriter its
commission;
o Redeem Shares and prepare and mail (or wire) liquidation
proceeds;
o Pass upon the adequacy of documents submitted by a Shareholder
or his legal representative to substantiate the transfer of
ownership of Shares from the registered owner to transferees;
o From time to time, make transfers upon the books of the
Company in accordance with properly executed transfer
instructions furnished to FTIS and make transfers of
certificates for such Shares as may be surrendered for
transfer properly endorsed, and countersign new certificates
issued in lieu thereof;
o Upon receipt of proper documentation, place stop transfers,
obtain necessary insurance forms, and reissue replacement
certificates against lost, stolen or destroyed Share
certificates;
o Check surrendered certificates for stop transfer restrictions.
Although FTIS cannot insure the genuineness of certificates
surrendered for cancellation, it will employ all due
reasonable care in deciding the genuineness of such
certificates and the guarantor of the signature(s) thereon;
o Cancel surrendered certificates and record and countersign new
certificates;
o Certify outstanding Shares to auditors;
o In connection with any meeting of Shareholders, upon receiving
appropriate detailed instructions and written materials
prepared by the Company and proxy proofs checked by the
Company, print proxy cards; deliver to Shareholders all
reports, prospectuses, proxy cards and related proxy materials
of suitable design for enclosing; receive and tabulate
executed proxies; and furnish a list of Shareholders for the
meeting;
o Answer routine correspondence and telephone inquiries about
individual accounts. Prepare monthly reports for
correspondence volume and correspondence data necessary for
the Company's Semi-Annual Report on Form N-SAR;
o Prepare and mail dealer commission statements and checks;
o Maintain and furnish the Company and its Shareholders with
such information as the Company may reasonably request for the
purpose of compliance by the Company with the applicable tax
and securities laws of applicable jurisdictions;
o Mail confirmations of transactions to investors and dealers in
a timely fashion;
C-2
<PAGE>
o Pay or reinvest income dividends and/or capital gains
distributions to Shareholders of record, in accordance with
the Company's and/or Shareholder's instructions, provided
that:
(a) The Company shall notify FTIS in writing
promptly upon declaration of any such
dividend and/or distribution, and in any
event at least forty-eight (48) hours before
the record date;
(b) Such notification shall include the
declaration date, the record date, the
payable date, the rate, and, if applicable,
the reinvestment date and the reinvestment
price to be used; and
(c) Prior to the payable date, the Company shall
furnish FTIS with sufficient fully and
finally collected funds to make such
distribution;
o Prepare and file annual United States information returns of
dividends and capital gains distributions (Form 1099) and mail
payee copies to Shareholders; report and pay United States
income taxes withheld from distributions made to nonresidents
of the United States, and prepare and mail to Shareholders the
notice required by the U.S. Internal Revenue Code as to
realized capital gains distributed and/or retained, and their
proportionate share of any foreign taxes paid by the Company;
o Prepare transfer journals;
o Set up wire order trades on file;
o Receive payment for trades and update the trade file;
o Produce delinquency and other trade file reports;
o Provide dealer commission statements and payments thereof for
the Principal Underwriter;
o Sort and print shareholder information by state, social code,
price break, etc.; and
o Mail promptly the Statement of Additional Information of the
Company to each Shareholder who requests it, at no cost to the
Shareholder.
In connection with the Company's Cash Withdrawal Program, FTIS will:
o Make payment of amounts withdrawn periodically by the
Shareholder pursuant to the Program by redeeming Shares, and
confirm such redemptions to the Shareholder; and
o Provide confirmations of all redemptions, reinvestment of
dividends and distributions, and any additional investments in
the Program, including a summary confirmation at the year-end.
In connection with Tax Deferred Retirement Plans involving the Company,
FTIS will:
o Receive and process applications, accept contributions, record
Shares issued and dividends reinvested;
o Make distributions when properly requested; and
o Furnish reports to regulatory authorities as required.
C-3
SUB-TRANSFER AGENT SERVICES AGREEMENT
AGREEMENT made as of March 1, 1992 by and between (i) each of the investment
companies listed herein (collectively the "FUNDS"); (ii) Templeton Funds Trust
Company ("TFTC"); and (iii) THE SHAREHOLDER SERVICES GROUP, INC. ("TSSG").
WITNESSETH
WHEREAS, the FUNDS are investment companies registered under the
Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, the FUNDS have engaged TFTC to act as their transfer agent,
dividend disbursing agent and shareholder servicing agent; and
WHEREAS, the FUNDS and TFTC have entered into a separate agreements
pursuant to which TFTC agreed to arrange for the performance of certain
administrative services for shareholders of the FUNDS who maintain shares of
such Funds; and
WHEREAS, TSSG, a transfer agent registered under the Securities
Exchange Act of 1934, has presented to the FUNDS the various shareholder
administrative services that may be performed by TSSG; and
WHEREAS, the FUNDS desire to retain TSSG in a sub-transfer agent
capacity to perform such services and TSSG is willing and able to furnish such
services on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, each party hereto severally agrees, as follows:
1. TSSG agrees to perform the shareholder administrative services and
functions specified in Exhibit A hereto (the "Services") for the benefit of the
shareholders of the FUNDS who maintain shares of any such FUND in brokerage
accounts with Shearson Lehman Brothers (the "Broker"), where the shareholders'
shares are included in the master account referred to in Exhibit A
(collectively, the "Broker Customers").
2. TSSG agrees that it will maintain and preserve all records as
required by law to be maintained and preserved in connection with providing the
services, and will otherwise comply with the law, rules and regulations
applicable to the services. Upon the written authorization of the Broker and the
FUND, TSSG shall provide copies of all the historical records relating to
transactions involving the FUNDS and Broker Customers, data formats for written
communication regarding that FUND to or from such customers and other materials,
in each case as may reasonably be requested to enable the FUND or its
representatives, including without limitation its auditors, investment advisor,
transfer agent
<PAGE>
or successor transfer agent or distributor, to monitor and review the Services,
or to copmly with any request of the board of directors, trustees or general
partners (collectively, the "Directors") of the FUNDS or of a governmental body,
self-regulatory organization or a shareholder. TSSG agrees that it will permit
the FUNDS to have reasonable access to its personnel and records in order to
facilitate the monitoring of the quality of the services. It is understood that
notwithstanding anything herein to the contrary, TSSG shall not be required to
provide the names, addresses and account numbers of Broker Customers to the
TFTC, the FUNDS or their representatives, unless applicable laws or regulations
otherwise require.
3. TSSG may contract with or establish relationships with third
parties, including, without limitation, the Broker, for the provision of
services or activities of TSSG required by the Agreement.
4. TSSG hereby agrees to notify promptly TFTC and the FUNDS if for any
reason TSSG is unable to perform fully and promptly any of its obligations under
this Agreement.
5. The provisions of this Agreement shall in no way limit the authority
of any of the FUNDS to take such actions as it may deem appropriate or advisable
in connection with all matters relating to the operations of such FUND and/or
sale of its shares.
6. In consideration of the performance of the services by TSSG,
hereunder, the FUNDS severally agree to compensate TSSG at the rate specified in
Schedule A, which rate may change pursuant to a written amendment to this
Agreement executed by and among the parties hereto. Payment shall be made
monthly based upon the number of shareholders of a FUND who hold shares of such
FUND in a broker's account for any part of the subject month. This number shall
be certified each year by independent public accountants of TSSG. The FUNDS also
agree to reimburse TSSG or its designated agent for postage and handling
expenses associated with teh distribution of proxies, prospectuses, reports and
other communications to shareholders prepared by the FUNDS or necessitated by
the actions of the FUNDS.
7. TSSG shall indemnify and hold harmless TFTC and the FUNDS from and
against any and all losses or liabilities that any one or more of them may
incur, including without limitation reasonable attorneys' fees, expenses and
cost, arising out of or related to the perofrmance or non-performance of TSSG of
its responsibilities under this Agreement, excluding, however, any such claims,
suits, loss, damage or cost caused by, materially contributed to or arising from
any noncompliance by TFTC or a FUND with its obligations under this Agreement,
as to which TFTC and each of the FUNDS shall indemnify, hold harmless and defend
TSSG on the same basis as set forth above.
8. This Agreement may be terminated at any time by each of
<PAGE>
TSSG, TFTC or by any FUNDS as to itself upon 30 days written notice to TSSG. The
provisions of paragraphs 2 and 7 shall continue in full force and effect after
termination of this Agreement. Notwithstanding the foregoing, this Agreement
shall not require TSSG to preserve any records relating to this Agreement beyond
the time periods otherwise required by the laws to which TSSG is subject.
9. Any other investment company affiliated with the FUNDS may become a
party to this Agreement by giving written notice to TSSG that it has elected to
become a party hereto and by having this Agreement executed on its behalf.
10. TSSG understands and agrees that the obligations of each FUND under
this Agreement are not binding upon any shareholder of the FUND personally, but
bind only each FUND and each FUND'S property; TSSG represents that it has notice
of the provisions of the Declaration of Trust, if applicable, of each FUND
disclaiming shareholder liability for acts or obligations of the FUNDS.
11. The parties agree that they are independent contractors
and not partners or co-venturers.
12. No amendment of any provision of this Agreement shall in any event
be effective unless the same shall be in writing and signed by both parties. Any
failure of any party to comply with any obligation, agreement or condition
hereunder may only be waived in writing by the other party, but such waiver
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure. No failure by any party to take any action against any breach of
this Agreement of default by any other party shall constitute a waiver of such
party's right to enforce any provision hereof or to take such action.
13. All notices, demands and other communications hereunder shall be in
writing and shall be sent by personal delivery or registered or certified mail,
postage prepaid, or by telecopier confirmed in writing within three business
days as follows:
(a) if to the FUNDS:
Templeton Funds Management, Inc.
700 Central Avenue
St. Petersburg, FL 33701
Attention: President
(b) if to TFTC:
Templeton Funds Trust Company
700 Central Avenue
St. Petersburg, FL 33701
Attention: President
(c) if to TSSG:
The Shareholder Services Group, Inc.
One Exchange Place
<PAGE>
Boston, Massachusetts 02109
Attention: President
With a copy to:
The Shareholder Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
Attention: General Counsel
Any party may change its address for receiving notices by written notice given
to the others named above. All notices shall be effective upon the earlier of
actual delivery or when deposited in the mail addressed as set forth above.
14. This agreement shall be governed by and construed in accordance
with the law of the State of New York, without regard to its conflicts of laws
doctrine, and the parties hereby consent to the jurisdiction of New York courts
over all matter relating to this Agreement and irrevocably waive any objection,
including without limitation, any objection of the laying of venue or based on
the grounds of forum non conveniens, which they may now have or may hereafter
have to bringing of any action or proceeding in such jurisdiction.
IN WITNESS HEREOF, the parties hereto have executed and delivered this
agreement as of the date first above written.
THE SHAREHOLDER SERVICES GROUP, INC.
By:________________________________
Title:_____________________________
Templeton Funds Trust Company Templeton Income
Templeton Growth Fund, Inc.
Templeton Smaller Companies Growth
Fund, Inc.
Templeton Foreign Fund
Templeton World Fund
Templeton Real Estate Securities Fund
Templeton Global Opportunities Trust
Templeton Insured Tax Free Fund
Templeton Value Fund, Inc.
Templeton American Trust, Inc.
Templeton Developing Markets Trust
By:/s/ HAROLD F. MCELRAFT By:________________________
Print Name: Harold F. McElraft Print Name:________________
Title:____________________ Title:_____________________
<PAGE>
EXHIBIT A
Pursuant to the Agreement by and among the parties hereto, TSSG shall,
upon the effective date of this Agreement, perform or cause to be performed, the
following services, as well as telephonic and personal shareholder services
related to the following services:
1. Transmit to TFTC purchase and redemption order placements and
registration instructions. Collect and remit to TFTC payments for all purchase
orders placed on behalf of Broker Customers.
2. Maintain separate records for each shareholder of any of the FUNDS
who hold shares of a FUND in a brokerage account with Broker Customers, which
records shall reflect shares purchased and redeemed, as well as account and
share balances. Process transactions versus master accounts maintained by TFTC
on behalf of Broker Customers and such account shall be in the name of the
Broker or its nominee as the record owner of the shares owned by such customers.
3. Disburse or credit to the Broker Customers all proceeds of
redemptions of shares of the FUNDS and all dividends and other distributions not
reinvested in shares of the FUNDS.
4. Prepare and transmit to Broker Customers:
(a) Periodic account statements which show the total number of FUND
shares owned by the Broker Customer in that account as of the closing date, as
well as purchases, redemption dividends (cash and reinvested) and other
distributions in the account during the period covered by the statement;
(b) Proxy materials and reports and other information received by TSSG
or its agent from any of the FUNDS and required to be sent to shareholders under
the federal securities laws, and, upon request of TFTC transmit to Broker
Customers material fund communications deemed by the FUND, through its Directors
or other similar governing body, to be necessary and proper for receipt by all
FUND beneficial shareholders.
(c) Provide to TFTC, or the FUNDS, or any of the agents designated by
any of them, such information as shall reasonably conclude is necessary to
enable any of the FUNDS and its distributor to comply with State Blue Sky
requirements.
(d) All tax information reports or statements required to be furnished
to shareholders of the FUNDS with respect to their FUND shares by the Internal
Revenue Code and the Regulations promulgated thereunder.
The following fees shall be billed by TSSG monthly in arrears
<PAGE>
on a prorated basis of 1/12 of the annualized fee for all accounts that are open
during such month.
Upon execution of this Agreement, the FUND shall pay TSSG an annualized
fee of $6.00 for each Broker Customer account in the FUND that is open during
any monthly period effective March 1, 1992.
SHAREHOLDER SUB-ACCOUNTING SERVICES AGREEMENT
Agreement made as of the 1st day of May, 1991 by and between (i) each
of the investment companies listed (collectively the "Templeton Funds"), as such
Schedule may be amended from time to time; (ii) Templeton Funds Trust Company
("Templeton Funds Trust Company"); (iii) Financial Data Service, Inc. ("FDS"), a
New Jersey corporation; and (iv) Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"), a Delaware corporation.
WITNESSETH:
WHEREAS, the Templeton Funds are investment companies registered under
the Investment Company Act of 1940, as amended (the"Act"); and
WHEREAS, Templeton Funds Trust Company, is the transfer agent, dividend
disbursing agent and shareholder servicing agent for the Templeton Funds; and
WHEREAS, Templeton Funds and Templeton Funds Trust Company have entered
into a separate agreement pursuant to which Templeton Funds Trust Company agreed
to arrange for the performance of certain administrative services for
shareholders of the Templeton Funds who maintain shares of any of such Funds in
a brokerage account with MLPF&S, a broker-dealer affiliated with FDS; and
WHEREAS, Templeton Funds Trust Company desires to retain MLPF&S to
perform such services and MLPF&S is willing and able to furnish such services on
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, each party hereto severally agree, as follows:
1. MLPF&S agrees to perform the administrative services and functions
specified in Exhibit A hereto (the "Services") for the benefit of the
shareholders of the Templeton Funds who maintain shares of any of such Funds in
brokerage accounts with MLPF&S and whose shares are included in the master
account referred to in paragraph 1 of Exhibit A (collectively, the "MLPF&S
customers").
2. MLPF&S agrees that it will maintain and preserve all records as
required by law to be maintained and preserved in connection with providing the
services, and will other wise comply with all law, rules and regulations
applicable to the services. Upon the request of Templeton Funds Trust Company,
MLPF&S shall provide copies of all the historical records relating to
transactions involving any Templeton Fund and MLPF&S customers, written
communication regarding that Fund to or from such customers and other materials,
in each case as amy reasonably be requested to enable any of the Funds or its
representatives, including without limitation its auditors, investment adviser,
Templeton Funds Trust Company or successor transfer agent or distributor, to
monitor and
<PAGE>
review the Services, or to comply with any request of the board of directors,
trustees or general partners (collectively, the "Directors") of Templeton Funds
or of a governmental body, self-regulatory organization or a shareholder. MLPF&S
agrees that it will permit Templeton Funds Trust Company, and any Templeton Fund
or their representatives to have reasonable access to its personnel and records
in order to facilitate the monitoring of the quality of the services. It is
understood that notwithstanding anything herein to the contrary, neither FDS nor
MLPF&S shall be required to provide the names and addresses of MLPF&S customers
to Templeton Funds Trust Company, any Templeton Fund of their representatives,
unless applicable laws otherwise require.
3. MLPF&S may contract with or establish relationships with
FDS or other parties for the provision of services or activities of
MLPF&S required by the Agreement.
4. Each of MLPF&S and FDS hereby agrees to notify promptly Templeton
Funds Trust Company if for any reason either of them is unable to perform fully
and promptly any of its obligations under this Agreement.
5. Each of MLPF&S and FDS hereby represent that neither of them now
owns or holds with power to vote any shares of the Templeton Funds which are
registered in the name of MLPF&S or the name of its nominee and which are
maintained in MLPF&S brokerage accounts.
6. The provisions of the Agreement shall in no way limit the authority
of Templeton Funds Trust Company or any Templeton Fund to take such action as it
may deem appropriate or advisable in connection with all matters relating to the
operations of such Fund and/or sale of its shares.
7. In consideration of the performance of the services by MLPF&S and
FDS, hereunder, each Templeton Fund severally agrees to compensate FDS at the
rate of $6.00 annually per shareholder account which rate may change pursuant to
a written amendment to this Agreement executed by and amount the parties hereto.
Payment shall be made monthly based upon the number of shareholders of a Fund
who hold shares of such Fund in a MLPF&S brokerage account for any part of the
subject month. MLPF&S agrees that, notwithstanding anything herein to the
contrary, it will not request any increase in its compensation hereunder prior
to May 3, 1993. In the event MLPF&S or FDS as it's agent where to mail any such
Fund's proxy materials, reports, prospectuses and other information to
shareholders of any Templeton Fund who are Merrill Lynch customers pursuant to
paragraph 4 of Exhibit A, Templeton Funds Trust Company or any such Templeton
Funds agrees to reimburse MLPF&S or FDS, as the case by be, for postage,
handling fees and reasonable costs of supplies used by it in such mailings in an
amount to be determined in accordance with the rates set forth in Rule 451.90 of
the New York Stock Exchange, Inc.
<PAGE>
The accuracy of the account charges and the expenses for postage, handling fees
and reasonable costs of suppliers billed pursuant to this paragraph shall be
certified once each year by independent public accountants of MLPF&S as of a
month selected by Templeton Funds Trust Company, such certification to be at the
expense of MLPF&S.
8. FDS shall indemnify and hold harmless each Templeton Fund and
Templeton Funds Trust Company, from and against any all losses or liabilities
that any one or more of them may incur, including without limitation reasonable
attorneys' fees, expenses and cost, arising out of or related to the performance
or non-performance of MLPF&S or FDS or its responsibilities under this
Agreement, EXCLUDING, HOWEVER, any such claims, suits, loss, damage or cost
caused by, contributed to or arising from any noncompliance by Templeton Funds
Trust Company or any of the Templeton Funds with its obligations under this
Agreement, as to which Templeton Funds Trust Company and the Templeton Funds
shall indemnify, hold harmless and defend FDS and MLPF&S on the same basis as
set forth above.
9. This Agreement may be terminated at any time by each of MLPF&S, FDS
and Templeton Funds Trust Company or by any Templeton Fund as to itself upon 30
days written notice to FDS. This Agreement may also be terminated at any time
without penalty upon 30 days written notice to FDS that a majority of the
Directors of any Templeton Fund have determined to terminate its agreement(s)
with Templeton Funds Trust Company pertaining to the service hereunder. The
provisions of paragraph 2 and 8 shall continue in full force and effect after
the termination of this Agreement. Notwithstanding the foregoing, this Agreement
shall require MLPF&S to preserve any records relating to this Agreement beyond
the time period otherwise required by the laws to which MLPF&S is subject.
10. Any other Templeton Fund for which Templeton Funds Trust Company
serves as transfer agent may become a party to this Agreement by giving written
notice to MLPF&S or FDS that it has elected to become a party hereto and by
having this Agreement executed on its behalf.
11. Each of MLPF&S and FDS understand and agree that the obligations of
the Templeton Funds under this Agreement are not binding upon any shareholder of
any of the Funds personally, but bind only each Fund and each Fund's property;
each of MLPF&S and FDS represents that it has notice of the provisions of the
Declaration of trust of each of the Templeton Funds disclaiming shareholder
liability for acts or obligations of the Fund.
12. It is understood and agreed that in performing the services under
this Agreement, neither MLPF&S nor FDS shall be acting as an agent for any of
the Templeton Funds.
IN WITNESS HEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
<PAGE>
MERRILL LYNCH, PIERCE, FENNER FINANCIAL DATA SERVICES, INC.
& SMITH INC.
By: /s/ HARRY P. ALLEX By: /s/ ROBERT C. DOAN
Print Name: Harry P. Allex Print Name: Robert C. Doan
Title: Sr. Vice President Title: President
Templeton Funds Trust Company Templeton Income
Templeton Growth Fund, Inc.
Templeton Smaller Companies
Growth Fund
Templeton Foreign Fund
Templeton World Fund
Templeton Real Estate Securities
Fund
Templeton Global Opportunities
Trust
Templeton Tax Free Insured Fund
Templeton Value Fund, Inc.
Templeton American Trust, Inc.
By: /s/DAN CALABRIA By: /s/ DAN CALABRIA
Print Name: Dan Calabria Print Name: Dan Calabria
Title: President Title: Vice President
<PAGE>
EXHIBIT A
Pursuant to the Agreement by and among the parties hereto, MLPF&S shall
perform the following services:
1. Maintain separate records for each shareholder of any of the
Templeton Funds who hold shares of a Fund in a brokerage account with MLPF&S
("MLPF&S customers"), which records shall reflect shares purchased and redeemed
and share balances. MLPF&S customers and such account shall be in the name of
MLPF&S or its nominee as the record owner of the shares owned by such customers.
2. Disburse or credit to MLPF&S customers all proceeds of
redemptions of shares of the Funds and all dividends and other
distributions not reinvested in shares of the Funds.
3. Prepare and transmit to MLPF&S customers periodic account statements
showing the total number of shares owned by the customer as of the statement
closing date, purchases and redemptions of Templeton Fund shares by the customer
during the period covered by the statement and the dividends and other
distributions paid to the customer during the statement period (whether paid in
cash or reinvested in Fund shares).
4. Transmit to MLPF&S customers proxy materials and reports and other
information received by MLPF&S from any of the Templeton Funds and required to
be sent to shareholder under the federal securities laws, and, upon request of
the Fund's transfer agent transmit to MLPF&S customers material fund
communications deemed by the fund, through its Board of Directors or other
similar governing body, to be necessary and proper for receipt by all Fund
beneficial shareholders.
5. Transmit to the Fund's transfer agent purchase and redemption orders
on behalf of Merrill Lynch customers in accordance with the commission schedule
(front and rear end) in the Fund's then current prospectus.
6. Provide to Templeton Funds Trust Company, or the Funds, or any of
the agents designated by any of them, such periodic reports as Templeton Funds
Trust Company shall reasonably conclude is necessary to enable any of the
Templeton Funds and its distributor to comply with State Blue Sky requirements.
7. Prepare and transit to MLPF&S customers annually all tax information
reports or statements required to be furnished to shareholders of the Templeton
Funds with respect to their Fund shares by the Internal Revenue Code and the
Regulations promulgated thereunder.
SUB-TRANSFER AGENT
AGREEMENT
AGREEMENT made as of the 1st day of July,1993 by Fidelity Investments
Institutional Operations Company, ("FIIOC"), a division of FMR Corp., and
Templeton Funds Trust Company ("Templeton").
or Fidelity
WITNESSETH:
WHEREAS: Templeton serves as the transfer agent for the
Templeton Funds, Inc. Foreign Series (the "Fund"), an open-end,
management investment company registered under the Investment
Company Act of 1940, as amended (the "Act"); and
WHEREAS: Templeton desires that FIIOC serve as subtransfer agent to receive
and transmit as agent of Templeton instructions and confirmations regarding the
purchase, exchange and redemption of securities of the Fund by the SmithKline
Beecham Retirement Savings Plan (the "Plan") for which FIIOC now performs
administrative and recordkeeping services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, the parties hereto hereby agree as follows:
1. Appointment of FIIOC Procedural Matters: Templeton hereby appoints FIIOC
as agent with respect to securities of the Fund purchased and held by the Plan,
and FIIOC accepts such appointment, on the terms set forth herein.
(a) By 7:00 p. m. Eastern Standard Time ("EST") on each day
the New York Stock Exchange is open for business (a
"Business Day"), Templeton will input (1) the Fund's
confirmed net asset value at the close of trading on the
New York Stock Exchange (the "Close of Trading"), and (2)
the change in the Fund's net asset value from the Close
of Trading on the next preceding Business Day (the "Price
Information"), into the Fidelity Participant
recordkeeping System ("FPRS ") via the remote access
price screen that FIIOC has provided TempletoN. FIIOC
must receive Price Information each Business Day. If on
any Business Day Templeton is unable to calculate such
Price Information, they must provide FIIOC with Price
Information it deems appropriate for such Business Day.
<PAGE>
Templeton agrees to indemnify and hold harmless FIIOC for any loss
incurred by FIIOC due to errors in the calculation of Price Information or its
transmission to FPRS. Templeton also agrees to compensate FIIOC for the cost of
any adjustments made to Plan participant accounts arising from such Price
Information errors. In the event that Fidelity is notified on a timely basis of
a loss to the Fund in excess of $25,000 caused by Templeton's incorrect
calculation or reporting of the daily net asset value, Fidelity will make a
reasonable effort to recover any such loss attributable to the accounts of Plan
participants with assets in the Plan as of the date Fidelity is notified of such
loss by Templeton. In the event that the loss has affected participants who no
longer have assets in the Plan as of the date Fidelity is notified of such loss
by Templeton, Fidelity will review with Templeton on a case by case basis, the
appropriate action for Fidelity to take (including, with the consent of the
Sponsor, furnishing participant information to Templeton) to enable Templeton to
recover the loss. Templeton agrees to compensate Fidelity for any processing
cost of any adjustments due to this type of error including adjustments to
participant tax reporting.
(b) FIIOC shall, on behalf of Templeton and the Fund, (1)
receive from the Plan for acceptance as of the Close of
Trading on each Business Day (based upon the Plan's
receipt of instructions from participants in the Plan
prior to the Closing of Trading on such Business Day):
(i) orders for the purchase of shares of the Fund, and
(ii) redemption requests and redemption and exchange
directions with respect to shares of the Fund held by the
Plan ("Instructions"), and (2) upon acceptance of any
such Instructions, communicate such acceptance to the
Plan.
(c) By 9:30 a.m. EST each Business Day, FIIOC will provide,
via fax, a detailed report of all participant level
activity that occurred in the Fund up to 4:00 p. m. EST
the prior Business Day. The report will reflect the
dollar amount of assets and shares to be invested (net
purchases and net exchange purchases), the dollar amount
of assets and shares to be withdrawn (net redemptions and
net exchange redemptions), as well as the beginning and
ending share balance for the Fund.
FIIOC will fax this report to Templeton each Business Day, regardless
of processing activity. If for any reason FIIOC is unable to fax this report,
FIIOC will notify Templeton by 9:30 a.m. EST. Templeton is responsible each
Business Day, by 10:00 a.m. EST, to notify FIIOC if the report has not yet been
received.
<PAGE>
Templeton agrees to indemnify and hold harmless FIIOC for any loss related
to discrepancies between the participant balances maintained by FIIOC and the
Fund balances maintained by Templeton due to errors caused by Templeton.
FIIOC agrees to indemnify and hold harmless Templeton for any loss related to
balance discrepancies between the participant balances maintained by FIIOC and
the Fund balances maintained by Templeton due to errors caused by FIIOC.
(d) For purposes of wire transfers, FIIOC will not net purchase
and redemption activity occurring the same day. The monetary
transfers between FIIOC and Templeton will operate as follows:
(1) Based upon the cash value of the net exchange redemption
and net redemption activity reported each day, Templeton will initiate
a wire transfer to FIIOC by 1:00 p. m. each Business Day using the wire
instructions below. The investment of exchange proceeds to participant
accounts and mailing of participant distribution checks will occur upon
receipt of the wire from Templeton.
(2) Based upon the cash value of the net purchase and net
exchange purchase activity reported to Templeton, FIIOC will
initiate a wire to Templeton by 1:00 p.m. each Business Day.
This wire will be sent according to the wire instructions
listed below.
(3) FIIOC and Templeton will monitor the receipt of wires on a
daily basis. If for any reason a wire is not received, the receiving
party is responsible for notifying the sender of this problem by 11:30
a. m. the next Business Day. If any wire is not received on the
Business Day such wire was required to be initiated, the sending party
shall compensate the receiving party for the amount of such wire plus
prime +2 %.
FIIOC's Wire Transfer Instructions: Templeton's Wire Instructions:
Bankers Trust Company Bank Name: First Union-Jacksonville
ABA Number: 021001033 ABA Number: 063-000-021
Account Name: FPRS Depository Account Number: 217500911738
Account
Account Number: 00163002 FBO: SmithKline Beecham Retirement Savings
Plan
Plan: Attn.:
<PAGE>
(e) Templeton will be responsible for notifying FIIOC on x-date of all
Fund distributions (dividends and capital gains). This written
notification will provide FIIOC with the share position in the Fund on
x-date and shall include the distribution rate(s), x-date, record date
and payable date for any such distribution.
(f) Templeton will mail to FIIOC transaction confirms for all daily
activity in the Fund. FIIOC will perform a trade reconciliation to FPRS
to ensure that the Fund assets are in balance. FIIOC will notify
Templeton of any material differences between the participant balances
and the Fund balances maintained by Templeton within 2 Business Days of
confirm receipt. Templeton will also send FIIOC monthly fund
statements.
Templeton will notify FIIOC of any proxy and other corporate actions.
If requested, FIIOC will produce reports with the participant balance
and address information necessary for any proxy mailing or other
corporate actions. FIIOC shall not have any additional responsibilities
relative to corporate actions.
FIIOC assumes no responsibility for any loss incurred due to inaccurate
communication of corporate actions or failure to communicate corporate
actions by Templeton.
2. Representations by FIIOC. FIIOC represents that:
(a) it has full power and authority from the Plan Trustee to
enter into and perform this Agreement;
(b) it is registered as a transfer agent pursuant to Section 17A of the
Securities Exchange Act of 1934, as amended (the " 1934 Act");
(c) the arrangements provided for in this Agreement will be
disclosed to the Plan through its representatives; and
(d) it will promptly notify Templeton in the event that FIIOC is for
any reason unable to perform any of its obligations under this
Agreement.
(e) FIIOC will be responsible for any participant level tax
reporting as detailed in the Trust Agreement dated April 1,
<PAGE>
1990, between Fidelity Management Trust Company and SmithKline
Beecham Corporation.
3. Representations of Templeton. Templeton represents that:
(a) it has full power and authority to enter into and perform this
Agreement and is duly authorized to appoint FIIOC as Templeton's agent
for the Fund;
(b) it is registered as a transfer agent pursuant to Section
17A of the 1934 Act; and
(c) it will promptly notify FIIOC in the event that it is for any
reason unable to perform any of its obligations under this Agreement.
4. Verification. Each party hereto shall, as soon as practicable after its
receipt of a report, notification or information transmitted by the other party
hereto, verify to such other party by telephonic facsimile or other means of
electronic transmission its receipt of such transmission, and in the absence of
such verification a party to whom a transmission is sent shall not be liable for
any failure to act in accordance with such transmission, and the sending party
may not claim that such transmission was received by the other. Each party shall
notify the other of any errors, omissions or interruptions in, or delay or
unavailability of, any such transmission as promptly as possible.
5. Compensation. For its services under this Agreement, FIIOC
shall be entitled to the fees and such other compensation as set
forth on Schedule A, attached to this Agreement, as said Schedule
may be amended from time to time.
6. Information Regarding the Plan. FIIOC shall transmit to Templeton or the
Fund (or to any agent designated by either of them) such information concerning
the Plan and participants in the Plan as shall reasonably be necessary for
Templeton to fulfill its obligations under this Agreement and as the Fund shall
reasonably conclude is necessary to enable the Fund to comply with applicable
state Blue Sky laws.
7. Prospectus Delivery. Templeton shall be responsible for the
timely delivery of Fund prospectuses to Plan participants. FIIOC
will provide registration information to assist Templeton in
fulfilling its obligation hereunder.
<PAGE>
8. Indemnification. Except as to matters excluded from liability pursuant to
this paragraph 8, each of Templeton and FIIOC (an "Indemnitor") shall indemnify
and hold harmless the other and its respective officers, directors, partners,
trustees, shareholders and agents ("Ii"), against any claims or liabilities
suffered by all or any of such Ii to the extent arising out of any act of
commission or omission by the Indemnitor relating to this Agreement or the
services rendered hereunder, including reasonable legal fees and other out-of
pocket costs of defending against any such claim or liability. In providing
services pursuant to this Agreement, FIIOC and Templeton shall comply with all
applicable Federal and state securities laws and regulations and each party
hereto shall fully indemnify the other for any claims or liabilities suffered by
such other party, or its partners, employees or agents (including reasonable
legal fees and other out-of pocket costs of defending against any such claim or
liability), arising from non-compliance by such party with any such laws or
regulations.
In providing the indemnifications set forth in the immediately preceding
paragraph, each party hereto agrees to maintain such insurance coverage as shall
be reasonably necessary under the circumstances.
9. Non-Exclusivity. Templeton acknowledges and agrees that FIIOC may enter
into agreements similar to this Agreement with organizations other than
Templeton which also serve as transfer agents for mutual funds. FIIOC
acknowledges and agrees that nothing contained herein shall prohibit Templeton
or any affiliate of Templeton from providing administrative, subaccounting or
recordkeeping services to any defined contribution plan or from soliciting any
such plan or sponsor thereof to enter into any arrangement with Templeton or any
affiliate of Templeton for such services.
10. Termination of Agreement. This Agreement may be terminated at any time by
either party upon ninety days written notice to the other party. Notwithstanding
the foregoing, this Agreement shall be terminated immediately upon either (i) a
material breach by either party not cured within 30 days after notice from the
other, or (ii) upon termination of services from either party to the Plan. The
provisions of paragraph 8 and this paragraph 10 shall survive any termination of
this Agreement.
11. Notices. Unless otherwise specified, all notices and other communications
hereunder shall be in writing and shall be hand delivered or mailed by certified
mail to the other party at the following address or such other address as each
party may give notice to the other:
<PAGE>
If to Templeton:
700 Central Avenue
St. Petersburg, FL 33701
Attn.: Secretary
If to FIIOC:
82 Devonshire Street
Boston, MA 02109
Attn.: Jacqueline McCarthy, A8B
12. Amendment. Assignment and Other Matters. This Agreement may not be
amended except by a writing signed by the party against which enforcement is
sought. This Agreement shall not be assigned by either party without the written
consent of the other party. This Agreement may be executed in several
counterparts, each of which shall be an original but all of which together shall
constitute one and the same instrument. The headings in this Agreement are for
reference only and shall not affect the interpretation or construction of this
Agreement. This Agreement contains the entire agreement of the parties as to the
subject matter hereof and supersedes any prior agreements, written or oral. This
Agreement shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts, without giving effect to the principles of
conflicts of law thereof.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
TEMPLETON FUNDS FIDELITY INVESTMENTS
TRUST COMPANY INSTITUTIONAL OPERATIONS COMPANY
By:/s/THOMAS M. MISTELE By:/s/ JAMES M. MCKINNEY
Name: Thomas M. Mistele Name: James M. McKinney
Title: Secretary Title: Sr. Vice President
<PAGE>
SCHEDULE "A"
For services identified in the attached Agreement, Templeton will pay to FIIOC
.15% per annum of the amount invested in the Templeton Funds, Inc. Foreign
Series (the "Fund"). This fee will be paid quarterly based on the average
daily net assets in the Fund.
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated September 29, 1995 on
the financial statements of Templeton World Fund and Templeton Foreign Fund,
referred to therein, which appears in the 1995 Annual Report to Shareholders and
which is incorporated herein by reference, in Post-Effective Amendment No. 27 to
the Registration Statement on Form N-1A, File No. 2-60067, as filed with the
Securities and Exchange Commission.
We also consent to the reference to our firm in the Prospectus under
the caption "Financial Highlights" and in the Statement of Additional
Information under the caption "Independent Accountants".
/s/ MCGLADREY & PULLEN, LLP
McGladrey & Pullen, LLP
New York, New York
December 15, 1995
<PAGE>
EXHIBIT 16
COMPUTATION OF PERFORMANCE QUOTATIONS
PROVIDED IN RESPONSE TO ITEM 22
(UNAUDITED)
Templeton World Fund
AVERAGE ANNUAL TOTAL RETURN FOR THE YEAR EDNING 8/31/95
P (1 + T)N = ERV
$1000 (1 + T)1 = $1,356
1 + T = 1.356
T = .0356
T = 3.56%
AVERAGE ANNUAL TOTAL RETURN FOR FIVE YEARS ENDING 8/31/95
$1000 (1 + R)5 = $1,874.45
(1 + R)5 = 1.8744
1 + R = 1.1339
R = .1339
R = 13.39%
ANNUAL TOTAL RETURN FOR TEN YEARS ENDING 8/31/
$1000 (1 + T)10 = $3,367.628
(1 + T)10 = 3.3676
1 + T = 1.1291
T = .1291
T = 12.91%
<PAGE>
EXHIBIT 16
COMPUTATION OF PERFORMANCE QUOTATIONS
PROVIDED IN RESPONSE TO ITEM 22
(UNAUDITED)
Templeton Foreign Fund
AVERAGE ANNUAL TOTAL RETURN FOR THE YEAR ENDING 8/31/95
P (1 + T)N = ERV
$1000 (1 + T)1 = $972
1 + T = .09721
T = .0279
T = 2.79
AVERAGE ANNUAL TOTAL RETURN FOR FIVE YEARS ENDING 8/31/95
$1000 (1 + R)5 = $1,538
(1 + R)5 = 1.538
1 + R = 1.0899
R = .0899
R = 8.99%
ANNUAL TOTAL RETURN FOR TEN YEARS ENDING 8/31/95
$1000 (1 + T)10 = $4,574
(1 + T)10 = 4.574
1 + T = 1.1642
T = .1642
T = 16.42%
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
TEMPLETON FOREIGN FUND AUGUST 31, 1995 ANNUAL REPORT AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 021
<NAME> TEMPLETON FOREIGN FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 6430661660
<INVESTMENTS-AT-VALUE> 6963707668
<RECEIVABLES> 131551199
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 258654
<TOTAL-ASSETS> 7095517521
<PAYABLE-FOR-SECURITIES> 73407334
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 17444446
<TOTAL-LIABILITIES> 90851780
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6145622723
<SHARES-COMMON-STOCK> 721254797<F1>
<SHARES-COMMON-PRIOR> 500863467<F1>
<ACCUMULATED-NII-CURRENT> 139048660
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 186948350
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 533046008
<NET-ASSETS> 7004665741
<DIVIDEND-INCOME> 132137764
<INTEREST-INCOME> 98438826
<OTHER-INCOME> 0
<EXPENSES-NET> 66884947
<NET-INVESTMENT-INCOME> 163691643
<REALIZED-GAINS-CURRENT> 219225783
<APPREC-INCREASE-CURRENT> (131760311)
<NET-CHANGE-FROM-OPS> 251157115
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (84334594)
<DISTRIBUTIONS-OF-GAINS> (275006347)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 294214786<F1>
<NUMBER-OF-SHARES-REDEEMED> (106358799)<F1>
<SHARES-REINVESTED> 32535343<F1>
<NET-CHANGE-IN-ASSETS> 1990228133
<ACCUMULATED-NII-PRIOR> 58852340
<ACCUMULATED-GAINS-PRIOR> 243568185
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 36110792
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 66884947
<AVERAGE-NET-ASSETS> 5821928759<F1>
<PER-SHARE-NAV-BEGIN> 10.01<F1>
<PER-SHARE-NII> .23<F1>
<PER-SHARE-GAIN-APPREC> .05<F1>
<PER-SHARE-DIVIDEND> (.16)<F1>
<PER-SHARE-DISTRIBUTIONS> (.51)<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 9.62<F1>
<EXPENSE-RATIO> 1.15<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>EFFECTIVE MAY 1, 1995, THE FUND OFFERED TWO CLASSES OF SHARES: CLASS I
AND CLASS II SHARES. INFORMATION IS FOR CLASS I SHARES ONLY.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
TEMPLETON FOREIGN FUND AUGUST 31, 1995 ANNUAL REPORT AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 022
<NAME> TEMPLETON FOREIGN FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 6430661660
<INVESTMENTS-AT-VALUE> 6963707668
<RECEIVABLES> 131551199
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 258654
<TOTAL-ASSETS> 7095517521
<PAYABLE-FOR-SECURITIES> 73407334
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 17444446
<TOTAL-LIABILITIES> 90851780
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6145622723
<SHARES-COMMON-STOCK> 6612262<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 139048660
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 186948350
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 533046008
<NET-ASSETS> 7004665741
<DIVIDEND-INCOME> 132137764
<INTEREST-INCOME> 98438826
<OTHER-INCOME> 0
<EXPENSES-NET> 66884947
<NET-INVESTMENT-INCOME> 163691643
<REALIZED-GAINS-CURRENT> 219225783
<APPREC-INCREASE-CURRENT> (131760311)
<NET-CHANGE-FROM-OPS> 251157115
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (84334594)
<DISTRIBUTIONS-OF-GAINS> (275006347)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6634457<F1>
<NUMBER-OF-SHARES-REDEEMED> (22195)<F1>
<SHARES-REINVESTED> 0<F1>
<NET-CHANGE-IN-ASSETS> 1990228133
<ACCUMULATED-NII-PRIOR> 58852340
<ACCUMULATED-GAINS-PRIOR> 243568185
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 36110792
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 66884947
<AVERAGE-NET-ASSETS> 9036168<F1>
<PER-SHARE-NAV-BEGIN> 9.16<F1>
<PER-SHARE-NII> .03<F1>
<PER-SHARE-GAIN-APPREC> .40<F1>
<PER-SHARE-DIVIDEND> 0<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 9.59<F1>
<EXPENSE-RATIO> 1.90<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>EFFECTIVE MAY 1, 1995 THR FUND OFFERED TWO CLASSES OF SHARES: CLASS I AND
CLASS II SHARES. INFORMATION IS FOR CLASS II SHARES ONLY.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
TEMPLETON WORLD FUND AUGUST 31, 1995 ANNUAL REPORT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 011
<NAME> TEMPLETON WORLD FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 4807740096
<INVESTMENTS-AT-VALUE> 5868023560
<RECEIVABLES> 70289006
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 453081
<TOTAL-ASSETS> 5938765647
<PAYABLE-FOR-SECURITIES> 52251004
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9924165
<TOTAL-LIABILITIES> 62175169
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4131325086
<SHARES-COMMON-STOCK> 350194730<F1>
<SHARES-COMMON-PRIOR> 317781804<F1>
<ACCUMULATED-NII-CURRENT> 103788713
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 581193215
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1060283464
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<DIVIDEND-INCOME> 140143015
<INTEREST-INCOME> 32812620
<OTHER-INCOME> 0
<EXPENSES-NET> 56195637
<NET-INVESTMENT-INCOME> 116759998
<REALIZED-GAINS-CURRENT> 622514983
<APPREC-INCREASE-CURRENT> (213111140)
<NET-CHANGE-FROM-OPS> 526163841
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (90201924)
<DISTRIBUTIONS-OF-GAINS> (466541300)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 26269051<F1>
<NUMBER-OF-SHARES-REDEEMED> (27844607)<F1>
<SHARES-REINVESTED> 33988482<F1>
<NET-CHANGE-IN-ASSETS> 454898987
<ACCUMULATED-NII-PRIOR> 77691521
<ACCUMULATED-GAINS-PRIOR> 424758650
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 33261874
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 56195637
<AVERAGE-NET-ASSETS> 5355230969<F1>
<PER-SHARE-NAV-BEGIN> 17.06<F1>
<PER-SHARE-NII> .33<F1>
<PER-SHARE-GAIN-APPREC> 1.11<F1>
<PER-SHARE-DIVIDEND> (.28)<F1>
<PER-SHARE-DISTRIBUTIONS> (1.46)<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 16.76<F1>
<EXPENSE-RATIO> 1.05<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>EFFECTIVE MAY 1, 1995 THE FUND OFFERED TWO CLASSES OF SHARES: CLASS I AND
CLASS II SHARES. INFORMATION IS FOR CLASS I SHARES ONLY.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
TEMPLETON WORLD FUND AUGUST 31, 1995 ANNUAL REPORT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 012
<NAME> TEMPLETON WORLD FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 4807740096
<INVESTMENTS-AT-VALUE> 5868023560
<RECEIVABLES> 70289006
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 453081
<TOTAL-ASSETS> 5938765647
<PAYABLE-FOR-SECURITIES> 52251004
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9924165
<TOTAL-LIABILITIES> 62175169
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4131325086
<SHARES-COMMON-STOCK> 456227<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 103788713
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 581193215
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1060283464
<NET-ASSETS> 5876590478
<DIVIDEND-INCOME> 140143015
<INTEREST-INCOME> 32812620
<OTHER-INCOME> 0
<EXPENSES-NET> 56195637
<NET-INVESTMENT-INCOME> 116759998
<REALIZED-GAINS-CURRENT> 622514983
<APPREC-INCREASE-CURRENT> (213111140)
<NET-CHANGE-FROM-OPS> 526163841
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (90201924)
<DISTRIBUTIONS-OF-GAINS> (466541300)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 471609<F1>
<NUMBER-OF-SHARES-REDEEMED> (15382)<F1>
<SHARES-REINVESTED> 0<F1>
<NET-CHANGE-IN-ASSETS> 454898987
<ACCUMULATED-NII-PRIOR> 77691521
<ACCUMULATED-GAINS-PRIOR> 424758650
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 33261874
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 56195637
<AVERAGE-NET-ASSETS> 1118345<F1>
<PER-SHARE-NAV-BEGIN> 15.36<F1>
<PER-SHARE-NII> .03<F1>
<PER-SHARE-GAIN-APPREC> 1.32<F1>
<PER-SHARE-DIVIDEND> 0<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 16.71<F1>
<EXPENSE-RATIO> 1.82<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>EFFECTIVE MAY 1, 1995, THE FUND OFFERED TWO CLASSES OF SHARES: CLASS I AND
CLASS II SHARES. INFORMATION IS FOR CLASS II SHARES ONLY.
</FN>
</TABLE>
December 29, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Re: Templeton Funds, Inc.
(File No. 2-60067 and 811-2781)
Dear Sirs:
On behalf of Templeton Funds, Inc. (the "Fund") attached hereto for
electronic filing pursuant to the Securities Act of 1933 is
Amendment No. 27 to the Company's Registration Statement on Form N-1A,
with exhibits, marked to indicate changes from Post-Effective
Amendment No. 26. Also attached is the financial data schedule
required by Rule 483(e) under the 1933 Act.
This amendment is being filed pursuant to Rule 485(b) under the
1933 Act and will beocme effective on January 1, 1996. This Post-Effective
Amendment does not contain any disclosures that would render it ineligible to
become effective pursuant to Rule 485(b).
Pleas direct any comments or questions regarding this filing to me
at (813) 823-8712.
Sincerely,
/s/ John K. Carter
John K. Carter
