Registration No. 2-60067
As filed with the Securities and Exchange Commission on March 2,
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. 26 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 / X /
Amendment No. 27
(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
Jeffrey L. Steele, Esq. Thomas M. Mistele, Esq.
Dechert Price & Rhoads Templeton Global Investors,
1500 K Street, N.W. Inc.
Washington, D. C. 20004 500 East Broward Blvd.
Fort Lauderdale, Florida
33394
(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 April 1, 1995 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 31, 1994.
TEMPLETON FUNDS, INC.
CROSS-REFERENCE SHEET
Item No. Caption
Part A - Foreign Fund
1 Cover Page
2 Expense Table
3 Selected Financial
Information
4 General Description
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 Selected Financial
Information
4 General Description
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 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
TEMPLETON
WORLD FUND PROSPECTUS -- JANUARY 1, 1995
AS SUPPLEMENTED APRIL 1, 1995
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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
Account Services Department. The Fund offers two classes of
Shares to its investors. This structure allows investors to
consider, among other features, the impact of sales charges and
distribution fees ("Rule 12b-1 fees") on their investments in
the Fund. Shareholders should take the differences between the
two classes into account when determining which class of Shares
best meets their investment objective. 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, 1995, as supplemented April 1, 1995, has been
filed with the Securities and Exchange Commission 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., 700 Central
Avenue, St. Petersburg, Florida 33701-3628 or by calling the
Fund Information Department.
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FUND INFORMATION DEPARTMENT -- 1-800-292-9293
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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>
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Page
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<S> <C>
EXPENSE TABLE.............................................................. 2
FINANCIAL HIGHLIGHTS....................................................... 3
GENERAL DESCRIPTION........................................................ 3
Investment Objective and Policies.......................................... 3
INVESTMENT TECHNIQUES...................................................... 4
Repurchase Agreements...................................................... 4
Options on Indices......................................................... 4
Stock Index Futures Contracts.............................................. 4
Loans of Portfolio Securities.............................................. 5
Depositary Receipts........................................................ 5
RISK FACTORS............................................................... 5
HOW TO BUY SHARES OF THE FUND.............................................. 7
Alternative Purchase Arrangements.......................................... 7
Deciding Which Class to Purchase........................................... 7
Offering Price............................................................. 8
Class I.................................................................... 8
Cumulative Quantity Discount............................................... 9
Letter of Intent........................................................... 9
Group Purchases............................................................ 9
Class II................................................................... 10
Net Asset Value Purchases (Both Classes)................................... 10
Additional Dealer Compensation (Both Classes).............................. 11
Purchasing Class I and Class II Shares..................................... 12
Automatic Investment Plan.................................................. 12
Institutional Accounts..................................................... 13
Account Statements......................................................... 13
Templeton STAR Service..................................................... 13
Retirement Plans........................................................... 13
Net Asset Value............................................................ 13
EXCHANGE PRIVILEGE......................................................... 13
Exchanges of Class II Shares............................................... 14
Transfers.................................................................. 15
Conversion Rights.......................................................... 15
Exchanges by Timing Accounts............................................... 15
HOW TO SELL SHARES OF THE FUND............................................. 15
Contingent Deferred Sales Charge........................................... 15
Reinstatement Privilege.................................................... 18
Systematic Withdrawal Plan................................................. 18
Redemptions by Telephone................................................... 19
TELEPHONE TRANSACTIONS..................................................... 19
Verification Procedures.................................................... 19
Restricted Accounts........................................................ 20
General.................................................................... 20
MANAGEMENT OF THE FUND..................................................... 20
Investment Manager......................................................... 20
Business Manager........................................................... 21
Transfer Agent............................................................. 21
Custodian.................................................................. 21
Plans of Distribution...................................................... 21
Expenses................................................................... 22
Brokerage Commissions...................................................... 22
GENERAL INFORMATION........................................................ 22
Description of Shares/Share Certificates................................... 22
Meetings of Shareholders................................................... 22
Dividends and Distributions................................................ 22
Federal Tax Information.................................................... 23
Inquiries.................................................................. 23
Performance Information.................................................... 23
Statements and
Reports................................................................... 23
WITHHOLDING INFORMATION.................................................... 24
CORPORATE RESOLUTION....................................................... 25
AUTHORIZATION AGREEMENT.................................................... 26
THE FRANKLIN TEMPLETON GROUP............................................... 27
</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.
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
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CLASS I CLASS II
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SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage
of Offering Price)........................................ 5.75% 1.00%/1/
Maximum Sales Charge Imposed on Reinvested Dividends....... None None
Deferred Sales Charge...................................... None/2/ 1.00%/3/
Redemption Fees............................................ None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees............................................ 0.62% 0.62%
12b-1 Fees/4/.............................................. 0.18% 1.00%
Other Expenses (audit, legal, business management, transfer
agent and custodian)...................................... 0.24% 0.24%
Total Fund Operating Expenses.............................. 1.04% 1.86%
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<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000 investment,
assuming (1) 5% annual return and
(2) redemption at the end of each
time period: Class I: $68 $89 $112 $177
Class II:/5/ $39 $68 $110 $226
</TABLE>
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/1/ Although Class II has a lower initial sales charge than Class I, over time
the higher 12b-1 fee for Class II may cause Shareholders to pay more for
Class II Shares than for Class I Shares. Given the Fund's maximum initial
sales charge and the rate of the Fund's Rule 12b-1 fee, however, it is
estimated that this would take a substantial number of years.
/2/ A contingent deferred sales charge of 1% may be imposed, however, on certain
redemptions of Class I Shares initially purchased without a sales charge as
described in the Prospectus under "How to Sell Shares of the Fund."
/3/ Class II Shares redeemed within 18 months of purchase are subject to a 1%
contingent deferred sales charge. After the 18-month period, however, the
Shares may be redeemed free of the charge.
/4/ Annual Rule 12b-1 fees may not exceed 0.25% of the Fund's average net assets
attributable to Class I Shares and 1.00% of the Fund's average net assets
attributable to Class II Shares. (See "Management of the Fund -- Plans of
Distribution.") 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.
/5/ As noted in the table above, Class II Shares are generally subject to a
contingent deferred sales charge for a period of 18 months.
The information in the table above is an estimate based on the Fund's
expenses as of the end of the most recent fiscal year. The table is provided
for purposes of assisting current and prospective Shareholders in
understanding the various costs and expenses that an investor in the Fund will
bear, directly or indirectly. The information in the 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 or an administrative service fee of $5.00 per exchange for market
timing or allocation service accounts. THE 5% ANNUAL RETURN AND ANNUAL
EXPENSES SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL OR EXPECTED FUND
PERFORMANCE OR EXPENSES, BOTH OF WHICH MAY VARY. For a more detailed
discussion of the Fund's fees and expenses, see "Management of the Fund."
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following table of selected financial information has 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 1994 Annual Report to Shareholders. This statement
should be read in conjunction with the other financial statements and notes
thereto included in the Fund's 1994 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 YEAR ENDED AUGUST 31,
PERFORMANCE ---------------------------------------------------------------------------------------------------------------
(For a share
outstanding
throughout
the period) 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period.......... $ 15.94 $ 14.42 $ 15.05 $ 14.70 $ 17.30 $ 14.43 $ 19.05 $ 16.59 $ 13.52 $ 12.68
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Income from
investment
operations
Net investment
income.......... 0.26 0.30 0.41 0.46 0.53 0.54 0.47 0.40 0.43 0.43
Net realized and
unrealized gain
(loss).......... 2.50 2.81 0.67 1.16 (2.04) 3.31 (2.53) 3.78 3.60 1.77
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total from
investment
operations...... 2.76 3.11 1.08 1.62 (1.51) 3.85 (2.06) 4.18 4.03 2.20
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Less
distributions...
Dividends from
net investment
income.......... (0.26) (0.38) (0.42) (0.52) (0.56) (0.38) (0.61) (0.44) (0.43) (0.36)
Distributions
from net
realized gains.. (1.38) (1.21) (1.29) (0.75) (0.53) (0.60) (1.95) (1.28) (0.53) (1.00)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total
distributions... (1.64) (1.59) (1.71) (1.27) (1.09) (0.98) (2.56) (1.72) (0.96) (1.36)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Change in net
asset value for
the year........ 1.12 1.52 (0.63) 0.35 (2.60) 2.87 (4.62) 2.46 3.07 0.84
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Net asset value,
end of period... $ 17.06 $ 15.94 $ 14.42 $ 15.05 $ 14.70 $ 17.30 $ 14.43 $ 19.05 $ 16.59 $ 13.52
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TOTAL RETURN+ 18.87% 24.71% 8.13% 12.95% (9.39)% 28.30% (8.79)% 28.54% 32.17% 19.55%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end
of year (000)... $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 $2,289,641
Ratio to average
net assets of:
Expenses........ 1.04% 1.02% 0.86% 0.72% 0.69% 0.69% 0.68% 0.67% 0.67% 0.71%
Net investment
income......... 1.67% 2.13% 2.76% 3.23% 3.28% 3.54% 3.06% 2.48% 3.15% 3.84%
Portfolio
turnover rate... 30.77% 25.86% 26.60% 22.90% 19.90% 15.56% 20.45% 23.37% 28.23% 15.70%
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</TABLE>
+ Does not reflect sales charges.
* Not annualized.
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 (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.
Shares of the Fund may be purchased (minimum investment of $100 initially
and $25 thereafter) at the current public offering price which is equal to the
Fund's net asset value (see "How to Buy Shares of the Fund -- Net Asset
Value") plus a sales charge based upon a variable percentage (ranging from
5.75% to less than 1.00% of the offering price) depending on factors such as
the class of Shares purchased and 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.
3
<PAGE>
Although the Fund generally invests in common stock, it may also invest in
preferred stocks and certain debt securities, 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 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
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 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 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
4
<PAGE>
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, as
well. 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. 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.
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
5
<PAGE>
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 underdeveloped. 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), 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. Further, the
Fund may encounter difficulties or be unable to pursue legal remedies and
obtain judgments in foreign courts. Commission rates in foreign countries,
which are sometimes fixed rather than subject to negotiation as in the United
States, are likely to be higher. 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. 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.
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.
6
<PAGE>
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. The
minimum initial purchase order is $100 (other than in monthly investment
plans, such as sponsored payroll deduction, automatic investment, split-
funding or comparable plans, which require a minimum of $25), with subsequent
investments of $25 or more.
ALTERNATIVE PURCHASE ARRANGEMENTS. The Fund offers two different classes of
Shares, each of which has its own initial, contingent, and Rule 12b-1 sales
charge structures. All Fund Shares outstanding before the implementation of
the multiclass structure have been designated as Class I Shares and continue
to possess their previous rights and privileges, except for legally required
modifications to Shareholder voting requirements. Shareholders may not convert
Shares of one class into Shares of the other at this time.
Class I. Class I Shares have higher initial sales charges than Class II
Shares and they have lower yearly asset-based Rule 12b-1 fees. Class I Shares
may be purchased at reduced initial sales charges, or without any initial
sales charge at all 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. By contrast, Class II Shares have lower initial sales charges than
Class I Shares and higher yearly Rule 12b-1 fees. Also, although there are
certain exceptions, Class II Shares redeemed within 18 months of purchase will
generally be assessed a contingent deferred sales charge of 1% on the lesser
of the then-current net asset value or the original purchase price of such
Shares. See "Contingent Deferred Sales Charge -- Class II Shares" under "How
to Sell Shares of the Fund" for a complete description of the contingent
deferred sales charge.
Purchases of Class II Shares are limited to amounts below $1 million. Any
purchases of $1 million or more will automatically be invested in Class I
Shares, since the Shareholder may purchase the Class I Shares at net asset
value and take advantage of the lower annual fees associated with Class I
Shares. Shareholders who intend to make large investments in the Fund should
consider purchasing Class I Shares through a Letter of Intent instead of
purchasing Class II Shares. With the exception of certain employee benefit
plans described below, however, a Shareholder may maintain an account balance
of an unlimited dollar amount in Class II Shares.
DECIDING WHICH CLASS TO PURCHASE. Each investor's individual objectives must
be carefully evaluated before determining which class of Shares will be more
beneficial to that investor. Generally speaking, an investor who expects to
invest less than $100,000 in the Franklin Group of Funds (R) and Templeton
Family of Funds (collectively, the "Franklin Templeton Group") and who expects
to make substantial redemptions within six years of investment should consider
Class II Shares. This is because it is more economical for a Shareholder to
invest, for example, $50,000 for two years in Class II Shares than in Class I
Shares. Over time, however, the higher annual Rule 12b-1 charges on the Class
II Shares will accumulate to outweigh the difference in initial sales charges.
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 or
at net asset value should consider purchasing Class I Shares, especially if
they intend to hold their Shares for long periods of time. Similarly,
investors who intend to make large investments in the Fund should consider
purchasing Class I Shares through a Letter of Intent or under Cumulative
Quantity Discount rather than purchasing Class II Shares. Investors investing
over $1 million (in a single payment or through a Letter of Intent or
Cumulative Quantity Discount) will be prohibited from purchasing Class II
Shares because Class I Shares would always be more beneficial to such
investors.
In determining which Shares are more appropriate for a Shareholder's
investment objectives and income needs, a Shareholder should also consider
that the higher Rule 12b-1 fees for Class II will generally result in lower
dividends and consequently lower yields for Class II Shares as compared to
Class I Shares.
7
<PAGE>
Each class also has a separate schedule for awarding compensation to
securities dealers for selling Fund Shares. A Shareholder should take all of
the circumstances surrounding each investment into account before deciding
which class of shares to purchase.
IMPORTANT NOTICE!
THE APPLICATION FORM ATTACHED TO THIS PROSPECTUS MUST BE USED FOR ALL FUTURE
PURCHASES. OLD APPLICATION FORMS SHOULD BE DISCARDED.
OFFERING PRICE. Shares of the Fund are offered at the public Offering Price,
which is the net asset value per share plus a 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).
CLASS I. The sales charge for Class I Shares is a variable percentage of the
Offering Price depending upon the amount of the sale. A description of the
method of calculating net asset value per share is included under the caption
"Net Asset Value."
Set forth below is a table of total sales charges or underwriting
commissions and dealer concessions for all Class I Shares of the Fund,
including all designated Retirement Plans.
The price to the public on purchases of Class I Shares made by a single
purchaser, by an individual, his or her spouse and their children under the
age of 21, or by a single trust or fiduciary account other than an employee
benefit plan, 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>
CLASS I SHARES -- 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*
- ----------------- --------------------- ---------------------- --------------------
<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)**
</TABLE>
- -------
* Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
** 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.
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.
8
<PAGE>
No initial sales charge applies on investments of $1 million or more, but a
contingent deferred sales charge of 1% is imposed on certain redemptions of
investments of $1 million or more within 12 months of the calendar month
following such investments ("contingency period"). See "How to Sell Shares of
the Fund--Contingent Deferred Sales Charge."
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 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.
At the discretion of FTD, the entire sales commission may at times be
reallowed to dealers. During periods when 90% or more of the sales commission
is reallowed, such dealers may be deemed to be underwriters as that term is
defined in the Securities Act of 1933.
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 (1) the
value (calculated at the applicable Offering Price) or (2) the purchase price,
of the following: (a) Class I Shares of the Fund; (b) Class I shares of other
funds in the Franklin Templeton Group (except Templeton Capital Accumulator
Fund, Inc., Templeton Variable Annuity Fund, Templeton Variable Products
Series Fund, Franklin Valuemark Funds and Franklin Government Securities
Trust); and (c) 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 in sales charges).
Clauses (a), (b) and (c) above are collectively referred to as "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, and their children 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. Investors may also reduce 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 fund in the Franklin Templeton Group
(except Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity
Fund, Templeton Variable Products Series Fund, Franklin Valuemark Funds and
Franklin Government Securities Trust). 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
9
<PAGE>
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.
CLASS II. Unlike Class I Shares, the sales charges and dealer concessions
for Class II Shares do not vary depending on the amount of sale. The total
sales charges or underwriting commissions and dealer concessions for Class II
Shares are set forth below.
<TABLE>
<CAPTION>
CLASS II SHARES -- 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.............. 1.00% 1.01% 1.00%
</TABLE>
- -------
* FTD may pay the dealer, from its own resources, a commission of 1% of the
amount invested. FTD may retain a portion of the Rule 12b-1 fees assessed on
Class II Shares to partially recoup commissions FTD pays to a securities
dealer during the first year.
NET ASSET VALUE PURCHASES (BOTH CLASSES). Shares of the Fund may be
purchased without the imposition of either an initial sales charge ("net asset
value") or a contingent deferred sales charge by (i) officers, trustees,
directors, and full-time employees of the Fund, of the Investment Manager or
its affiliates, or of any fund in the Franklin Templeton Group, and their
spouses and family members; (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 Investment Manager or its affiliates; (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 spouses and family
members, in accordance with the internal policies and procedures of the
employing securities dealer.
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by registered investment
advisers and/or their affiliated broker-dealers, who have entered into a
supplemental agreement with FTD, on behalf of their clients who are
participating in a comprehensive fee program (also known as a wrap fee
program).
Shares of the Fund may 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"),
10
<PAGE>
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.
Shares of the Fund 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 any other
fund(s) in the Franklin Templeton Group (including former participants of the
Franklin Templeton Profit Sharing 401(k) plan). 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, the Fund, or Franklin Templeton
Investor Services, Inc. (the "Transfer Agent") within 120 days after the plan
distribution. To obtain a free Prospectus for any fund in the Franklin
Templeton Group, please call toll free at 1-800-DIAL BEN (1-800-342-5236).
Shares of the Fund 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.
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by an investor who has,
within the past 60 days, redeemed an investment in an unaffiliated mutual fund
which charged the investor a contingent deferred sales charge upon redemption,
and which has investment objectives similar to those of the Fund.
Shares of the Fund 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 ADVISORS 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.
Shares of the Fund 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.
ADDITIONAL DEALER COMPENSATION (BOTH CLASSES). FTD or its affiliates, at
their expense, may also provide additional compensation to dealers in
connection with sales of Shares of the Fund and other funds in the Franklin
Group of Funds (R) and the Templeton Family of Funds (collectively, the
"Franklin Templeton Group"). Compensation may include financial assistance to
dealers in connection with
11
<PAGE>
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 funds in the Franklin Templeton Group and other dealer-
sponsored programs or events. In some instances, this compensation may be made
available only to certain dealers whose representatives have sold or are
expected to sell significant amounts of such Shares. 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 U.S. for meetings or seminars
of a business nature. 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, and 1.00% 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 on or after February 1,
1995 of Class I Shares that are subject to a contingent deferred sales charge,
the dealer will receive ongoing payments beginning in the thirteenth month
after the date of purchase. For all purchases of Class II Shares that are
subject to a contingent deferred sales charge, 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 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.
PURCHASING CLASS I AND CLASS II SHARES. When placing purchase orders for
Class I and Class II Shares of the Fund, investors should clearly state
whether Class I or Class II Shares are intended to be purchased. All Share
purchase orders that fail to specify a class will automatically be invested in
Class I Shares. Initial purchases of more than $1 million must be for Class I
Shares. At the present time, there are no conversion features attached to
either class of Shares.
Shareholders who qualify to invest in Class I Shares at net asset value are
prohibited from purchasing Class II Shares. See "Net Asset Value Purchases."
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 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
12
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 also be additional
methods of opening accounts, 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. Shareholders may check the current prices of Shares,
account balances/values, a description of the last transaction and duplicate
account statements, 24 hours a day, 365 days a year, with Templeton STAR
Service by calling 1-800-654-0123 from a touch-tone telephone. A fund code
(the Fund's code is 102) and the Shareholder's account number are necessary
for accessing information (other than Share prices) from Templeton STAR
Service.
RETIREMENT PLANS. Shares of the Fund may be purchased through various
retirement plans including the following plans for which Franklin Templeton
Trust Company 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. For further
information about any of the plans, agreements, applications and annual fees,
contact Franklin Templeton Distributors, Inc. To determine which retirement
plan is appropriate, an investor should contact his or her tax adviser.
NET ASSET VALUE. The net asset value of the Shares of the Fund is 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 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 close of trading on
the New York Stock Exchange, 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 New York Stock Exchange, 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.
EXCHANGE PRIVILEGE
A Shareholder may exchange Shares for the same class of shares of other
funds in the Franklin Templeton Group (except Templeton Capital Accumulator
Fund, Inc., Templeton Variable Annuity Fund, Templeton Variable Products
Series Fund, Franklin Valuemark Funds and Franklin Government Securities
Trust). 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
13
<PAGE>
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 or 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. However, exchanges of
shares from the Franklin Templeton Money Funds are subject to applicable sales
charges on the funds being purchased, unless the Franklin Templeton Money Fund
shares were acquired by an exchange from a fund having a sales charge, or by
reinvestment of dividends or capital gains 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 1-800-354-9191. Telephone exchange instructions
must be received by FTD by 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 sixty (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.
The equivalent of an exchange involving retirement accounts (including IRAs)
between the Templeton Family of Funds and the Franklin Group of Funds (R)
requires the completion of additional documentation before it can be effected.
Call 1-800-354-9191 for further information and forms.
EXCHANGES OF CLASS II SHARES. When an account has some Shares subject to the
contingent deferred sales charge, and some that are not, the Shares will be
transferred proportionately from each type of Share into the new fund. Shares
received from reinvestment of dividends and capital gain distributions 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," and each represents a different type of Share for purposes of
exchanging into a new fund. 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, $500 in each of these Shares will be exchanged into the new fund.
14
Class II Shares may be exchanged for shares of 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 in Money Fund II directly. Shares 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. On the other hand, Class I Shares may be exchanged for
shares of any money market funds in the Franklin Group of Funds (R) or the
Templeton Family of Funds except Money Fund II. Draft writing privileges and
direct purchases are allowed on these money market funds as described in their
respective prospectuses.
TRANSFERS. Transfers between accounts in the same fund and class are not
subject to a contingent deferred sales charge. The transferred Shares will
continue to age from the date of original purchase. Like exchanges, Shares
will be moved proportionately from each type of Share in the original account.
CONVERSION RIGHTS. It is not presently anticipated that Class II Shares will
be converted to Class I Shares at this time. A Shareholder may, however, sell
Class II Shares and use the proceeds to purchase Class I Shares. In that
event, the sales charge for the purchased Class I Shares will be decreased by
the value of any initial sales charge and contingent deferred sales charge
paid in connection with the purchase and redemption of the Class II Shares.
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 objectives 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
CONTINGENT DEFERRED SALES CHARGE. Class I. In order to recover commissions
paid to securities dealers on qualified investments of $1 million or more, or
for purchases made by certain retirement plans of corporations with collective
retirement plan assets of $10 million or more, a contingent deferred sales
charge of 1% applies to redemptions of those investments within 12 months of
the calendar month of their purchase. The charge is 1% of the lesser of the
then-current net asset value of the Shares redeemed (exclusive of reinvested
dividends and capital gain distributions) or the original purchase price of
such Shares, and is retained by FTD.
15
Class II. Class II Shares redeemed within eighteen months of their purchase
will be assessed a contingent deferred sales charge of 1% on the lesser of the
then-current net asset value of the Shares redeemed or the original purchase
price of such Shares unless one of the exceptions described below applies. A
contingent deferred sales charge will not be assessed on increases in net
asset value above the initial purchase price, Class II Shares held more than
18 months, or on Shares originally derived from reinvestment of dividends or
capital gain distributions. For tax purposes, a contingent deferred sales
charge is treated as a reduction in redemption proceeds, rather than an
adjustment to the cost basis.
Class I and Class II. In determining if a charge applies, Shares not subject
to a contingent deferred sales charge are deemed to be redeemed first, in the
following order: (i) Shares representing amounts attributable to capital
appreciation of those Shares held less than the contingency period; (ii)
Shares purchased with reinvested dividends and capital gain distributions; and
(iii) other Shares held longer than the contingency period, followed by any
Shares held less than the contingency period, on a "first in, first out"
basis.
The contingent deferred sales charge is waived for: exchanges; distributions
to participants in Franklin Templeton Trust Company or Templeton Funds Trust
Company retirement plan accounts due to death, disability or attainment of age
59 1/2; tax-free returns of excess contributions to employee benefit plans;
distributions from employee benefit plans, including those due to plan
termination or plan transfer; redemptions through a Systematic Withdrawal Plan
established prior to February 1, 1995 and, for Systematic Withdrawal Plans
established thereafter, redemptions of up to 1% monthly of an account's net
asset value (3% quarterly, 6% semiannually or 12% annually); and redemptions
initiated by the Fund due to a Shareholder's account falling below the minimum
specified account size.
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 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.
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 (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities
exchanges, registered securities associations and clearing agencies; (3)
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 (4)
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 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 (a) the current address of one or more joint owners of an
account cannot be confirmed, (b) multiple owners have a dispute or give
inconsistent instructions to the Fund, (c) the Fund has been notified of an
adverse claim, (d) the instructions received by the Fund are given by an
agent, not the
16
actual registered owner, (e) the Fund determines that joint owners who are
married to each other are separated or may be the subject of divorce
proceedings, or (f) 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 Franklin
Templeton Trust Company 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 Account Services Department by
calling 1-800-354-9191 or 813-823-8712.
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. 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 fifteen 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
17
time of the New York Stock Exchange 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 New York Stock
Exchange, 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, provided 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. Shares of the Fund may be purchased at net asset
value with the proceeds from (i) a redemption of Shares of any fund in the
Franklin Templeton Group (except Templeton Capital Accumulator Fund, Inc.,
Templeton Variable Annuity Fund, Templeton Variable Products Series Fund,
Franklin Valuemark Funds and Franklin Government Securities Trust) which were
purchased with an initial sales charge or assessed a contingent deferred sales
charge on redemption, or (ii) a dividend or distribution paid by any fund in
the Franklin Templeton Group, within 120 days after the date of the redemption
or dividend or distribution. 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. While credit will be given for any
contingent deferred sales charge paid on the Shares redeemed, a new
contingency period will begin. 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 120 days after the redemption. The 120 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. 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. The Plan
may be established on a monthly, quarterly, semi-annual 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 fund
in the Franklin
18
Templeton Group, 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. 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. 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 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.
TELEPHONE TRANSACTIONS
Shareholders of the Fund and their dealer of record, if any, may be able to
execute various transactions by calling the Transfer Agent at 1-800-354-9191.
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,
and (iv) 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--Redemption 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. Shareholders are, of
course, under no obligation to
19
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 Trust Company ("FTTC") or Templeton
Funds Trust Company ("TFTC") retirement accounts. To assure compliance with
all applicable regulations, special forms are required for any distribution,
redemption, or dividend payment. Although the telephone exchange privilege is
extended to these retirement accounts, a Franklin Templeton Transfer
Authorization Form must be on file in order to transfer retirement plan assets
between the Franklin Group of Funds(R) and the Templeton Family of Funds
within the same plan type. Changes to dividend options for these accounts must
also be made in writing.
To obtain further information regarding distribution or transfer procedures,
including any required forms, FTTC retirement account shareholders may call 1-
800-527-2020 (toll free), and TFTC retirement account shareholders may call 1-
800-354-9191 (press "2") (also toll free).
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.
INVESTMENT MANAGER. The Investment Manager of the Fund is Templeton,
Galbraith & Hansberger Ltd., 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
20
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 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.
Currently, the lead portfolio manager for the Fund is Mark G. Holowesko. Mr.
Holowesko 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 research
of worldwide equity markets. Dorian B. Foyil and Sean Farrington also exercise
significant portfolio management responsibilities with respect to the Fund.
Mr. Foyil 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 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. Each class of Shares of the Fund has approved and
adopted a separate Plan of Distribution ("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/or servicing fees attributable to that particular class. Any portion of
fees remaining from any Plan after distribution to securities dealers 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. 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 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. Under the Class II Plan, the maximum
amount which the Fund may pay to FTD for such distribution expenses is 0.75%
of Class II's average daily net assets per annum, payable on a quarterly
basis. All expenses of distribution and marketing over that amount will be
borne by FTD, or others who have incurred them without reimbursement by the
Fund. In addition to this amount, under the Class II Plan, the Fund shall pay
0.25% per annum of the Class' average daily net assets as a servicing fee.
This fee will be used to pay dealers or others for, among other things,
assisting in establishing and maintaining customer accounts and records;
assisting with purchase and redemption requests; receiving and answering
correspondence; monitoring
21
dividend payments from the Fund on behalf of the customers; and similar
activities related to furnishing personal services and maintaining Shareholder
accounts.
Under both Plans, costs and expenses not reimbursed in any one given month
(including costs and expenses not reimbursed because they exceed the
applicable limit of the Plan) may be reimbursed in subsequent months 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, 1994.
Each Plan also covers 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, please see the SAI.
EXPENSES. For the fiscal year ended August 31, 1994, expenses amounted to
1.04% of the average daily net assets of the Fund.
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 1,350,000,000 Common Shares of $1 par value per Share, of which
600,000,000 Shares are classified as Fund Shares, and 750,000,000 Shares are
classified as Templeton Foreign Fund 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.
The Fund will not ordinarily issue certificates for Shares purchased. Share
certificates representing whole (not fractional) Shares are issued only upon
the specific request of the Shareholder made in writing to the Transfer Agent.
No charge is made for the issuance of one certificate for all or some of the
Shares purchased in a single order.
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. Dividends and capital gain distributions (if
any) are usually paid in October and (if necessary) in December representing
all or substantially all of the Fund's net investment income and any net
realized capital gains. Dividends will be calculated and distributed in the
same manner for both classes of Shares, and their value will differ only to
the extent that they are affected by the distribution plan fees and sales
charges. Because ongoing Rule 12b-1 expenses will be lower for Class I than
Class II, dividends distributed to Class I Shares will generally be higher
than those distributed to Class II Shares. 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
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. Dividend and capital gain distributions are eligible for investment in
the same class of Shares of the Fund or the same class of another fund in the
Franklin Group of Funds(R) or Templeton Family of Funds at net asset value.
The processing date for the reinvestment of dividends may vary from month to
month, 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.
22
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 for 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 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. 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., 700 Central Avenue,
P.O. Box 33030, St. Petersburg, Florida 33733-8030 -- telephone 1-800-354-9191
or 813-923-8712. 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.
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 semi-annual
reports (containing unaudited financial statements) are sent to Shareholders
each year. Additional copies may be obtained, without charge, upon request to
the Account Services Department. 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.
23
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 IRS.
OBTAINING A NUMBER. If you do not have a Social Security Number/Taxpayer
Identification Number, 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 tax payer identification number you have given is correct, and (2) the
Internal Revenue Service 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.
1/94
24
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 __________________________ organized
TITLE CORPORATE NAME TYPE OF ORGANIZATION
under the laws of the State of ____________ and that the following is a true
STATE
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)
25
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 or Templeton Funds 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.
26
<PAGE>
THE FRANKLIN TEMPLETON GROUP
To receive a free brochure and prospectus, which contain more complete
information, including charges and expenses on each of the funds listed below,
call Franklin Fund Information, toll free, at 1-800-DIAL BEN (1-800-342-5236)
or Templeton Fund Information at 1-800-292-9293. Please read the prospectus
carefully before you invest or send money.
TEMPLETON FUNDS SEEKING Franklin FUNDS SEEKING
FAMILY OF GROWTH AND Louisiana Tax- HIGH CURRENT
FUNDS INCOME Free Income INCOME AND
Fund STABILITY OF
Franklin PRINCIPAL
Franklin Balance Sheet Franklin
Templeton Investment Maryland Tax- Franklin
Japan Fund Fund Free Income Adjustable
Fund Rate
Franklin Securities
Templeton Convertible Franklin Fund
American Trust Securities Missouri Tax-
Fund Free Income Franklin
Templeton Fund Adjustable
Americas Franklin U.S.
Government Income Fund Franklin New Government
Securities Jersey Tax- Securities
Fund Franklin Free Income Fund
Equity Income Fund
Templeton Fund Franklin
Developing Franklin New Short-
Markets Trust Franklin York Tax-Free Intermediate
Utilities Fund Income Fund U.S.
Templeton Government
Foreign Fund Franklin North Securities
FUNDS SEEKING Carolina Tax- Fund
Templeton HIGH CURRENT Free Income
Global INCOME Fund
Infrastructure FUND SEEKING
Fund Franklin's AGE Franklin HIGH AFTER-TAX
High Income Fund Oregon Tax- INCOME FOR
Templeton Free Income CORPORATIONS
Global Franklin Fund
Opportunities Investment Franklin
Trust Grade Income Franklin Corporate
Fund Pennsylvania Qualified
Templeton Tax-Free Dividend Fund
Global Rising Franklin Income Fund
Dividends Fund Premier Return
Fund Franklin MONEY MARKET
Templeton Puerto Rico FUNDS SEEKING
Growth Fund Franklin U.S. Tax-Free SAFETY OF
Government Income Fund PRINCIPAL AND
Templeton Securities INCOME
Income Fund Fund Franklin Texas
Tax-Free Franklin Money
Templeton Income Fund Fund
Money Fund FUNDS SEEKING
TAX-FREE Franklin Franklin
Templeton Real INCOME Virginia Tax- Federal Money
Estate Free Income Fund
Securities Franklin Fund
Fund Federal Tax- Franklin Tax-
Free Income Franklin Exempt Money
Templeton Fund Washington Fund
Smaller Municipal Bond
Companies Franklin High Fund Franklin
Growth Fund Yield Tax-Free California
Income Fund Tax-Exempt
Templeton FUNDS SEEKING Money Fund
World Fund Franklin TAX-FREE
California INCOME THROUGH Franklin New
High Yield INSURED York Tax-
FRANKLIN GROUP Municipal Fund PORTFOLIOS Exempt Money
OF FUNDS (R) Fund
Franklin Franklin
Alabama Tax- Insured Tax- IFT Franklin
FRANKLIN Free Income Free Income U.S. Treasury
GLOBAL/ Fund Fund Money Market
INTERNATIONAL Portfolio
FUNDS Franklin Franklin
Arizona Tax- Arizona
Franklin Free Income Insured Tax- FUNDS FOR NON-
Global Health Fund Free Income U.S. INVESTORS
Care Fund Fund FRANKLIN
Franklin PARTNERS
Franklin California Franklin FUNDS (R)
Global Tax-Free California
Government Income Fund Insured Tax- Franklin Tax-
Income Fund Free Income Advantaged
Franklin Fund High Yield
Franklin Colorado Tax- Securities
Global Free Income Franklin Fund
Utilities Fund Fund Florida
Insured Tax- Franklin Tax-
Franklin Franklin Free Income Advantaged
International Connecticut Fund International
Equity Fund Tax-Free Bond Fund
Income Fund Franklin
Franklin Massachusetts Franklin Tax-
Pacific Growth Franklin Insured Tax- Advantaged
Fund Florida Tax- Free Income U.S.
Free Income Fund Government
Fund Securities
FUNDS SEEKING Franklin Fund
CAPITAL GROWTH Franklin Michigan
Georgia Tax- Insured Tax-
Franklin Free Income Free Income
California Fund Fund
Growth Fund
Franklin Franklin
Franklin Hawaii Minnesota
DynaTech Fund Municipal Bond Insured Tax-
Fund Free Income
Franklin Fund
Equity Fund Franklin
Indiana Tax- Franklin New
Franklin Gold Free Income York Insured
Fund Fund Tax-Free
Income Fund
Franklin Franklin
Growth Fund Kentucky Franklin Ohio
Tax-Free Insured Tax-
Franklin Income Fund Free Income
Rising Fund
Dividends Fund
Franklin Small
Cap Growth
Fund
27
<PAGE>
- -------------------------
TEMPLETON WORLD FUND
PRINCIPAL UNDERWRITER:
Franklin Templeton
Distributors, Inc.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Account Services
1-800-354-9191
Fund Information
1-800-292-9293
Institutional Services
1-800-321-8563
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.
- -------------------------
[LOGO OF RECYCLED PAPER APPEARS HERE] Tl02 p 1/95
TEMPLETON
WORLD
FUND
Prospectus
January 1, 1995
as supplemented
April 1, 1995
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
<PAGE>
TEMPLETON FOREIGN FUND PROSPECTUS -- JANUARY 1, 1995
AS SUPPLEMENTED APRIL 1, 1995
- -------------------------------------------------------------------------------
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
Account Services Department. The Fund offers two classes of
Shares to its investors. This structure allows investors to
consider, among other features, the impact of sales charges
and distribution fees ("Rule 12b-1 fees") on their investments
in the Fund. Shareholders should take the differences between
the two classes into account when determining which class of
Shares best meets their investment objective. The minimum
initial investment is $100 ($25 minimum for subsequent
investments).
- -------------------------------------------------------------------------------
PROSPECTUS This Prospectus sets forth concisely information about the
INFORMATION 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, 1995, as supplemented
April 1, 1995, has been filed with the Securities and Exchange
Commission 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., 700 Central Avenue, St. Petersburg,
Florida 33701-3628 or by calling the Fund Information
Department.
- -------------------------------------------------------------------------------
FUND INFORMATION DEPARTMENT -- 1-800-292-9293
- -------------------------------------------------------------------------------
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... 3
Investment Objective
and Policies......... 4
RISK FACTORS.......... 4
HOW TO BUY SHARES OF
THE FUND............. 5
Alternative Purchase
Agreements........... 6
Deciding Which Class
to Purchase.......... 6
Offering Price........ 7
Class I............... 7
Cumulative Quantity
Discount............. 8
Letter of Intent...... 8
Group Purchases....... 8
Class II.............. 9
Net Asset Value
Purchases
(Both Classes)....... 9
Additional Dealer
Compensation
(Both Classes)....... 11
Purchasing Class I and
Class II Shares...... 11
Automatic Investment
Plan................. 12
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Institutional
Accounts............. 12
Account Statements.... 12
Templeton STAR
Service.............. 12
Retirement Plans...... 12
Net Asset Value....... 12
EXCHANGE PRIVILEGE.... 13
Exchanges of Class II
Shares............... 13
Transfers............. 14
Conversion Rights..... 14
Exchanges by Timing
Accounts............. 14
HOW TO SELL SHARES OF
THE FUND............. 15
Contingent Deferred
Sales Charge......... 15
Reinstatement
Privilege............ 17
Systematic Withdrawal
Plan................. 18
Redemptions by
Telephone............ 18
TELEPHONE
TRANSACTIONS......... 19
Verification
Procedures........... 19
Restricted Accounts... 19
General............... 19
MANAGEMENT OF THE
FUND................. 20
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Manager.... 20
Business Manager...... 20
Transfer Agent........ 21
Custodian............. 21
Plan of Distribution.. 21
Expenses.............. 21
Brokerage Commissions. 21
GENERAL INFORMATION... 22
Description of
Shares/Share
Certificates......... 22
Meetings of
Shareholders......... 22
Dividends and
Distributions........ 22
Federal Tax
Information.......... 22
Inquiries............. 23
Performance
Information.......... 23
Statements and
Reports.............. 23
WITHHOLDING
INFORMATION.......... 24
CORPORATE RESOLUTION.. 25
AUTHORIZATION
AGREEMENT............ 26
THE FRANKLIN TEMPLETON
GROUP................ 27
</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.
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
<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/
Maximum Sales Charge Imposed on Reinvested Dividends...... None None
Deferred Sales Charge..................................... None/2/ 1.00%/3/
Redemption Fees........................................... None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Management Fees........................................... 0.63% 0.63%
12b-1 Fees/4/............................................. 0.24% 1.00%
Other Expenses (audit, legal, business management,
transfer agent and custodian)............................ 0.27% 0.27%
Total Fund Operating Expenses............................. 1.14% 1.90%
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of
each time period:
Class I: $68 $92 $117 $188
Class II:/5/ $39 $69 $112 $230
</TABLE>
- -------
/1/ Although Class II has a lower initial sales charge than Class I, over time
the higher 12b-1 fee for Class II may cause Shareholders to pay more for
Class II Shares than for Class I Shares. Given the Fund's maximum initial
sales charge and the rate of the Fund's Rule 12b-1 fee, however, it is
estimated that this would take a substantial number of years.
/2/ A contingent deferred sales charge of 1% may be imposed, however, on certain
redemptions of Class I Shares initially purchased without a sales charge as
described in the Prospectus under "How to Sell Shares of the Fund."
/3/ Class II Shares redeemed within 18 months of purchase are subject to a 1%
contingent deferred sales charge. After the 18-month period, however, the
Shares may be redeemed free of the charge.
/4/ Annual Rule 12b-1 fees may not exceed 0.25% of the Fund's average net assets
attributable to Class I Shares and 1.00% of the Fund's average net assets
attributable to Class II Shares. (See "Management of the Fund--Plans of
Distribution.") 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.
/5/ As noted in the table above, Class II Shares are generally subject to a
contingent deferred sales charge for a period of 18 months.
The information in the table above is an estimate based on the Fund's
expenses as of the end of the most recent fiscal year and has been restated to
reflect current fees. The table is provided for purposes of assisting current
and prospective Shareholders in understanding the various costs and expenses
that an investor in the Fund will bear, directly or indirectly. The
information in the 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 or an administrative
service fee of $5.00 per exchange for market timing or allocation service
accounts. THE 5% ANNUAL RETURN AND ANNUAL EXPENSES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF ACTUAL OR EXPECTED FUND PERFORMANCE OR EXPENSES, BOTH OF
WHICH MAY VARY. For a more detailed discussion of the Fund's fees and
expenses, see "Management of the Fund."
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following table of selected financial information has 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 1994 Annual Report to Shareholders. This statement should be
read in conjunction with the other financial statements and notes thereto
included in the Fund's 1994 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 YEAR ENDED AUGUST 31,
PERFORMANCE* ----------------------------------------------------------------------------------------------------------
(For a share
outstanding
throughout the period) 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 8.74 $ 7.92 $ 7.91 $ 8.19 $ 7.60 $ 6.37 $ 7.73 $ 5.34 $ 4.10 $ 3.64
- -----------------------------------------------------------------------------------------------------------------------------------
Income from
investment operations
Net investment income .14 .14 .20 .25 .25 .22 .21 .16 .12 .11
Net realized and
unrealized gain 1.39 1.21 .43 .03 .92 1.60 (.97) 2.71 1.25 .46
---------- ---------- ---------- ---------- -------- -------- -------- -------- -------- -------
Total from investment
operations 1.53 1.35 .63 .28 1.17 1.82 (.76) 2.87 1.37 .57
---------- ---------- ---------- ---------- -------- -------- -------- -------- -------- -------
Less distributions
Dividends from net
investment income (.13) (.19) (.23) (.26) (.25) (.21) (.19) (.13) (.12) (.08)
Distributions from
net realized gains (.13) (.34) (.39) (.30) (.33) (.38) (.41) (.35) (.01) (.03)
---------- ---------- ---------- ---------- -------- -------- -------- -------- -------- -------
Total distributions (.26) (.53) (.62) (.56) (.58) (.59) .60 (.48) (.13) (.11)
---------- ---------- ---------- ---------- -------- -------- -------- -------- -------- -------
Change in net asset
value for the period 1.27 .82 .01 (.28) .59 1.23 (1.36) 2.39 1.24 .46
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end
of period $ 10.01 $ 8.74 $ 7.92 $ 7.91 $ 8.19 $ 7.60 $ 6.37 $ 7.73 $ 5.34 $ 4.10
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ 17.94% 18.65% 8.52% 4.17% 16.35% 30.99% (8.78)% 59.23% 34.39% 16.39%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
year (000) $5,014,438 $2,667,771 $1,672,161 $1,211,525 $932,995 $438,571 $292,679 $319,649 $185,752 $94,143
Ratio to average net
assets of:
Expenses 1.14% 1.12% 0.94% 0.80% 0.77% 0.81% 0.81% 0.77% 0.79% 0.90%
Net investment in-
come 1.84% 2.11% 2.92% 3.59% 3.95% 3.65% 3.29% 2.89% 2.99% 3.32%
Portfolio turnover
rate 36.75% 21.29% 22.00% 19.24% 11.49% 16.62% 20.37% 14.49% 20.97% 3.81%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+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.
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 (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 and Templeton World Fund. A prospectus for Templeton World Fund
is available upon request and without charge from the Principal Underwriter.
Shares of the Fund may be purchased (minimum investment of $100 initially
and $25 thereafter) at the current public offering price which is equal to the
Fund's net asset value (see "How to Buy Shares of the Fund--Net Asset Value")
plus a sales charge based upon a variable percentage (ranging from 5.75% to
less than 1.00% of the offering price) depending on factors such as the class
of Shares purchased and the amount invested. (See "How to Buy Shares of the
Fund.")
3
<PAGE>
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.
Although the Fund generally invests in common stock, it may also invest in
preferred stocks and certain debt securities, 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
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, as
well. 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. 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 underdeveloped. 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), 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. Further, the
Fund may encounter difficulties or be unable to pursue legal remedies and
obtain judgments in foreign courts. Commission rates in foreign countries,
which are sometimes fixed rather than subject to negotiations as in the United
States, are likely to be higher. Foreign securities markets also have
different clearance and settlement
4
<PAGE>
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. 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.
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. 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 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 of the Shares of the Fund, or directly from
FTD upon receipt by FTD of a completed Shareholder Application and check. The
minimum initial purchase order is $100 (other than in monthly investment
plans, such as sponsored payroll deduction, automatic investment, split-
funding or comparable plans, which require a minimum of $25), with subsequent
investments of $25 or more.
5
<PAGE>
ALTERNATIVE PURCHASE ARRANGEMENTS. The Fund offers two different classes of
Shares, each of which has its own initial, contingent, and Rule 12b-1 sales
charge structures. All Fund Shares outstanding before the implementation of
the multiclass structure have been designated as Class I Shares and continue
to possess their previous rights and privileges, except for legally required
modifications to Shareholder voting requirements. Shareholders may not convert
Shares of one class into Shares of the other at this time.
Class I. Class I Shares have higher initial sales charges than Class II
Shares and they have lower yearly asset-based Rule 12b-1 fees. Class I Shares
may be purchased at reduced initial sales charges, or without any initial
sales charge at all 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. By contrast, Class II Shares have lower initial sales charges than
Class I Shares and higher yearly Rule 12b-1 fees. Also, although there are
certain exceptions, Class II Shares redeemed within 18 months of purchase will
generally be assessed a contingent deferred sales charge of 1% on the lesser
of the then-current net asset value or the original purchase price of such
Shares. See "Contingent Deferred Sales Charge--Class II Shares" under "How to
Sell Shares of the Fund" for a complete description of the contingent deferred
sales charge.
Purchases of Class II Shares are limited to amounts below $1 million. Any
purchases of $1 million or more will automatically be invested in Class I
Shares, since the Shareholder may purchase the Class I Shares at net asset
value and take advantage of the lower annual fees associated with Class I
Shares. Shareholders who intend to make large investments in the Fund should
consider purchasing Class I Shares through a Letter of Intent instead of
purchasing Class II Shares. With the exception of certain employee benefit
plans described below, however, a Shareholder may maintain an account balance
of an unlimited dollar amount in Class II Shares.
DECIDING WHICH CLASS TO PURCHASE. Each investor's individual objectives must
be carefully evaluated before determining which class of Shares will be more
beneficial to that investors. Generally speaking, an investor who expects to
invest less than $100,000 in the Franklin Group of Funds (R) and Templeton
Family of Funds (collectively, the "Franklin Templeton Group") and who expects
to make substantial redemptions within six years of investment should consider
Class II Shares. This is because it is more economical for a Shareholder to
invest, for example, $50,000 for two years in Class II Shares than in Class I
Shares. Over time, however, the higher annual Rule 12b-1 charges on the Class
II Shares will accumulate to outweigh the difference in initial sales charges.
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 or
at net asset value should consider purchasing Class I Shares, especially if
they intend to hold their Shares for long periods of time. Similarly,
investors who intend to make large investments in the Fund should consider
purchasing Class I Shares through a Letter of Intent or under Cumulative
Quantity Discount rather than purchasing Class II Shares. Investors investing
over $1 million (in a single payment or through a Letter of Intent or
Cumulative Quantity Discount) will be prohibited from purchasing Class II
Shares because Class I Shares would always be more beneficial to such
investors.
In determining which Shares are more appropriate for a Shareholder's
investment objectives and income needs, a Shareholder should also consider
that the higher Rule 12b-1 fees for Class II will generally result in lower
dividends and consequently lower yields for Class II Shares as compared to
Class I Shares.
Each class also has a separate schedule for awarding compensation to
securities dealers for selling Fund Shares. A Shareholder should take all of
the circumstances surrounding each investment into account before deciding
which class of shares to purchase.
6
<PAGE>
IMPORTANT NOTICE!
THE APPLICATION FORM ATTACHED TO THIS PROSPECTUS MUST BE USED FOR ALL FUTURE
PURCHASES. OLD APPLICATION FORMS SHOULD BE DISCARDED.
OFFERING PRICE. Shares of the Fund are offered at the public Offering Price,
which is the net asset value per share plus a 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).
CLASS I. The sales charge for Class I Shares is a variable percentage of the
Offering Price depending upon the amount of the sale. A description of the
method of calculating net asset value per share is included under the caption
"Net Asset Value."
Set forth below is a table of total sales charges or underwriting
commissions and dealer concessions for all Class I Shares of the Fund,
including all designated Retirement Plans.
The price to the public on purchases of Class I Shares made by a single
purchaser, by an individual, his or her spouse and their children under the
age of 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>
CLASS I SHARES--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*
- ----------------- --------------------- ---------------------- --------------------
<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)**
</TABLE>
- -------
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
** 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.
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.
7
<PAGE>
No initial sales charge applies on investments of $1 million or more, but a
contingent deferred sales charge of 1% is imposed on certain redemptions of
investments of $1 million or more within 12 months of the calendar month
following such investments ("contingency period"). See "How to Sell Shares of
the Fund--Contingent Deferred Sales Charge."
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 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.
At the discretion of FTD, the entire sales commission may at times be
reallowed to dealers. During periods when 90% or more of the sales commission
is reallowed, such dealers may be deemed to be underwriters as that term is
defined in the Securities Act of 1933.
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 (1) the
value (calculated at the applicable Offering Price) or (2) the purchase price,
of the following: (a) Class I Shares of the Fund; (b) Class I shares of other
funds in the Franklin Templeton Group (except Templeton Capital Accumulator
Fund, Inc., Templeton Variable Annuity Fund, Templeton Variable Products
Series Fund, Franklin Valuemark Funds and Franklin Government Securities
Trust); and (c) 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 in sales charges).
Clauses (a), (b) and (c) above are collectively referred to as "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, and their children 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. Investors may also reduce 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 fund in the Franklin Templeton Group
(except Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity
Fund, Templeton Variable Products Series Fund, Franklin Valuemark Funds and
Franklin Government Securities Trust). 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
8
<PAGE>
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.
CLASS II. Unlike Class I Shares, the sales charges and dealer concessions
for Class II Shares do not vary depending on the amount of sale. The total
sales charges or underwriting commissions and dealer concessions for Class II
Shares are set forth below.
<TABLE>
<CAPTION>
CLASS II SHARES--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.............. 1.00% 1.01% 1.00%
</TABLE>
- -------
* FTD may pay the dealer, from its own resources, a commission of 1% of the
amount invested. FTD may retain a portion of the Rule 12b-1 fees assessed on
Class II Shares to partially recoup commissions FTD pays to a securities
dealer during the first year.
NET ASSET VALUE PURCHASES (BOTH CLASSES). Shares of the Fund may be
purchased without the imposition of either an initial sales charge ("net asset
value") or a contingent deferred sales charge by (i) officers, trustees,
directors, and full-time employees of the Fund, of the Investment Manager or
its affiliates, or of any fund in the Franklin Templeton Group, and their
spouses and family members; (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 Investment Manager or its affiliates; (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 spouses and family
members, in accordance with the internal policies and procedures of the
employing securities dealer.
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by registered investment
advisers and/or their affiliated broker-dealers, who have entered into a
supplemental agreement with FTD, on behalf of their clients who are
participating in a comprehensive fee program (also known as a wrap fee
program).
9
<PAGE>
Shares of the Fund may 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.
Shares of the Fund 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 any other
fund(s) in the Franklin Templeton Group (including former participants of the
Franklin Templeton Profit Sharing 401(k) plan). 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, the Fund, or Franklin Templeton
Investor Services, Inc. (the "Transfer Agent") within 120 days after the plan
distribution. To obtain a free Prospectus for any fund in the Franklin
Templeton Group, please call toll free at 1-800-DIAL BEN (1-800-342-5236).
Shares of the Fund 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.
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by an investor who has,
within the past 60 days, redeemed an investment in an unaffiliated mutual fund
which charged the investor a contingent deferred sales charge upon redemption,
and which has investment objectives similar to those of the Fund.
Shares of the Fund 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.
Shares of the Fund 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.
10
<PAGE>
ADDITIONAL DEALER COMPENSATION (BOTH CLASSES). FTD or its affiliates, at
their expense, may also provide additional compensation to dealers in
connection with sales of Shares of the Fund and other funds in the Franklin
Group of Funds(R) and the Templeton Family of Funds (collectively, the
"Franklin Templeton Group"). Compensation may include financial assistance to
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 funds in the Franklin
Templeton Group and other dealer-sponsored programs or events. In some
instances, this compensation may be made available only to certain dealers
whose representatives have sold or are expected to sell significant amounts of
such Shares. 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 U.S. for meetings or seminars of a business nature. 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, and 1.00% 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 on or after February 1,
1995 of Class I Shares that are subject to a contingent deferred sales charge,
the dealer will receive ongoing payments beginning in the thirteenth month
after the date of purchase. For all purchases of Class II Shares that are
subject to a contingent deferred sales charge, 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 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.
PURCHASING CLASS I AND CLASS II SHARES. When placing purchase orders for
Class I and Class II Shares of the Fund, investors should clearly state
whether Class I or Class II Shares are intended to be purchased. All Share
purchase orders that fail to specify a class will automatically be invested in
Class I Shares. Initial purchases of more than $1 million must be for Class I
Shares. At the present time, there are no conversion features attached to
either class of Shares.
Shareholders who qualify to invest in Class I Shares at net asset value are
prohibited from purchasing Class II Shares. See "Net Asset Value Purchases."
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 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.
11
<PAGE>
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 also be additional
methods of opening accounts, 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. Shareholders may check the current prices of Shares,
account balances/values, a description of the last transaction and duplicate
account statements, 24 hours a day, 365 days a year, with Templeton STAR
Service by calling 1-800-654-0123 from a touch-tone telephone. A fund code
(the Fund's code is 104) and the Shareholder's account number are necessary
for accessing information (other than Share prices) from Templeton STAR
Service.
RETIREMENT PLANS. Shares of the Fund may be purchased through various
retirement plans including the following plans for which Franklin Templeton
Trust Company 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. For further
information about any of the plans, agreements, applications and annual fees,
contact Franklin Templeton Distributors, Inc. To determine which retirement
plan is appropriate, an investor should contact his or her tax adviser.
NET ASSET VALUE. The net asset value of the Shares of the Fund is 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 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 close of trading on
the New York Stock Exchange, 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 trading on the New York Stock Exchange,
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.
12
<PAGE>
EXCHANGE PRIVILEGE
A Shareholder may exchange Shares for the same class of shares of other
funds in the Franklin Templeton Group (except Templeton Capital Accumulator
Fund, Inc., Templeton Variable Annuity Fund, Templeton Variable Products
Series Fund, Franklin Valuemark Funds and Franklin Government Securities
Trust). 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 or 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. However, exchanges of
shares from the Franklin Templeton Money Funds are subject to applicable sales
charges on the funds being purchased, unless the Franklin Templeton Money Fund
shares were acquired by an exchange from a fund having a sales charge, or by
reinvestment of dividends or capital gains 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 1-800-354-9191. Telephone exchange instructions
must be received by FTD by 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 sixty (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.
The equivalent of an exchange involving retirement accounts (including IRAs)
between the Templeton Family of Funds and the Franklin Group of Funds (R)
requires the completion of additional documentation before it can be effected.
Call 1-800-354-9191 for further information and forms.
EXCHANGES OF CLASS II SHARES. When an account has some Shares subject to the
contingent deferred sales charge, and some that are not, the Shares will be
transferred proportionately from each type of Share into the new fund. Shares
received from reinvestment of dividends and capital gain distributions 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," and each represents a different type of Share for
13
<PAGE>
purposes of exchanging into a new fund. 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, $500 in each of these Shares will be exchanged
into the new fund.
Class II Shares may be exchanged for shares of 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 in Money Fund II directly. Shares 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. On the other hand, Class I Shares may be exchanged for
shares of any money market funds in the Franklin Group of Funds (R) or the
Templeton Family of Funds except Money Fund II. Draft writing privileges and
direct purchases are allowed on these money market funds as described in their
respective prospectuses.
TRANSFERS. Transfers between accounts in the same fund and class are not
subject to a contingent deferred sales charge. The transferred Shares will
continue to age from the date of original purchase. Like exchanges, Shares
will be moved proportionately from each type of Share in the original account.
CONVERSION RIGHTS. It is not presently anticipated that Class II Shares will
be converted to Class I Shares at this time. A Shareholder may, however, sell
Class II Shares and use the proceeds to purchase Class I Shares. In that
event, the sales charge for the purchased Class I Shares will be decreased by
the value of any initial sales charge and contingent deferred sales charge
paid in connection with the purchase and redemption of the Class II Shares.
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 objectives 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.
14
<PAGE>
HOW TO SELL SHARES OF THE FUND
CONTINGENT DEFERRED SALES CHARGE. Class I. In order to recover commissions
paid to securities dealers on qualified investments of $1 million or more, or
for purchases made by certain retirement plans of corporations with collective
retirement plan assets of $10 million or more, a contingent deferred sales
charge of 1% applies to redemptions of those investments within 12 months of
the calendar month of their purchase. The charge is 1% of the lesser of the
then-current net asset value of the Shares redeemed (exclusive of reinvested
dividends and capital gain distributions) or the original purchase price of
such Shares, and is retained by FTD.
Class II. 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 of the Shares redeemed or the original purchase
price of such Shares unless one of the exceptions described below applies. A
contingent deferred sales charge will not be assessed on increases in net
asset value above the initial purchase price, on Class II Shares held more
than 18 months, or on Shares originally derived from reinvestment of dividends
or capital gain distributions. For tax purposes, a contingent deferred sales
charge is treated as a reduction in redemption proceeds, rather than an
adjustment to the cost basis.
Class I and Class II. In determining if a charge applies, Shares not subject
to a contingent deferred sales charge are deemed to be redeemed first, in the
following order: (i) Shares representing amounts attributable to capital
appreciation of those Shares held less than the contingency period; (ii)
Shares purchased with reinvested dividends and capital gain distributions; and
(iii) other Shares held longer than the contingency period, followed by any
Shares held less than the contingency period, on a "first in, first out"
basis.
The contingent deferred sales charge is waived for: exchanges; distributions
to participants in Franklin Templeton Trust Company or Templeton Funds Trust
Company retirement plan accounts due to death, disability or attainment of age
59 1/2; tax-free returns of excess contributions to employee benefit plans;
distributions from employee benefit plans, including those due to plan
termination or plan transfer; redemptions through a Systematic Withdrawal Plan
established prior to February 1, 1995 and, for Systematic Withdrawal Plans
established thereafter, redemptions of up to 1% monthly of an account's net
asset value (3% quarterly, 6% semiannually or 12% annually); and redemptions
initiated by the Fund due to a Shareholder's account falling below the minimum
specified account size.
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 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.
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 (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities
exchanges, registered securities associations and clearing agencies; (3)
securities broker-dealers which
15
<PAGE>
are members of a national securities exchange or a clearing agency or which
have minimum net capital of $100,000; or (4) 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 (a) the current address of
one or more joint owners of an account cannot be confirmed, (b) multiple
owners have a dispute or give inconsistent instructions to the Fund, (c) the
Fund has been notified of an adverse claim, (d) the instructions received by
the Fund are given by an agent, not the actual registered owner, (e) the Fund
determines that joint owners who are married to each other are separated or
may be the subject of divorce proceedings, or (f) 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 Franklin
Templeton Trust Company 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 Account Services Department by
calling 1-800-354-9191 or 813-823-8712.
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. 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
16
<PAGE>
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 fifteen 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 New York Stock Exchange 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 New York Stock
Exchange, 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, provided 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. Shares of the Fund may be purchased at net asset
value with the proceeds from (i) a redemption of Shares of any fund in the
Franklin Templeton Group (except Templeton Capital Accumulator Fund, Inc.,
Templeton Variable Annuity Fund, Templeton Variable Products Series Fund,
Franklin Valuemark Funds and Franklin Government Securities Trust) which were
purchased with an initial sales charge or assessed a contingent deferred sales
charge on redemption, or (ii) a dividend or distribution paid by any fund in
the Franklin Templeton Group, within 120 days after the date of the redemption
or dividend or distribution. 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. While credit will be given for any
contingent deferred sales charge paid on the Shares redeemed, a new
contingency period will begin. 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 120 days after the redemption. The 120 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. 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.
17
<PAGE>
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. The Plan
may be established on a monthly, quarterly, semi-annual 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 fund
in the Franklin Templeton Group, 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. 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 . 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 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.
18
<PAGE>
TELEPHONE TRANSACTIONS
Shareholders of the Fund and their dealer of record, if any, may be able to
execute various transactions by calling the Transfer Agent at 1-800-354-9191.
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,
and (iv) 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. 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 Trust Company ("FTTC") or Templeton
Funds Trust Company ("TFTC") retirement accounts. To assure compliance with
all applicable regulations, special forms are required for any distribution,
redemption, or dividend payment. Although the telephone exchange privilege is
extended to these retirement accounts, a Franklin Templeton Transfer
Authorization Form must be on file in order to transfer retirement plan assets
between the Franklin Group of Funds (R) and the Templeton Family of Funds
within the same plan type. Changes to dividend options for these accounts must
also be made in writing.
To obtain further information regarding distribution or transfer procedures,
including any required forms, FTTC retirement account shareholders may call 1-
800-527-2020 (toll free), and TFTC retirement account shareholders may call 1-
800-354-9191 (press "2") (also toll free).
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.
19
<PAGE>
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.
INVESTMENT MANAGER. The Investment Manager of the Fund is Templeton,
Galbraith & Hansberger Ltd., 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 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.
Currently, the lead portfolio manager for the Fund is Mark G. Holowesko. Mr.
Holowesko 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 research
of worldwide equity markets. Jeffrey A. Everett and Sean Farrington also
exercise significant portfolio management responsibilities with respect to the
Fund. Mr. Everett 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 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.
20
<PAGE>
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. Each class of Shares of the Fund has approved and
adopted a separate Plan of Distribution ("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/or servicing fees attributable to that particular class. Any portion of
fees remaining from any Plan after distribution to securities dealers 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. 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 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. Under the Class II Plan, the maximum
amount which the Fund may pay to FTD for such distribution expenses is
is 0.75% of Class II's average daily net assets per annum, payable on a
quarterly basis. All expenses of distribution and marketing over that
amount will be borne by FTD, or others who have incurred them without reim-
bursement by the Fund. In addition to this amount, under the Class II Plan,
the Fund shall pay 0.25% per annum of the Class' average daily net assets as
a servicing fee. This fee will be used to pay dealers or others 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 be-
half of the customers; and similar activities related to furnishing personal
services and maintaining Shareholder accounts.
Under both Plans, costs and expenses not reimbursed in any one given month
(including costs and expenses not reimbursed because they exceed the
applicable limit under the Plan) may be reimbursed in subsequent months 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 months or years
were $345,405 (0.007% of its net assets) at August 31, 1994.
Each Plan also covers 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, please see the SAI.
EXPENSES. For the fiscal year ended August 31, 1994, expenses amounted to
1.14% of the average daily net assets of the Fund.
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.
21
<PAGE>
GENERAL INFORMATION
DESCRIPTION OF SHARES/SHARE CERTIFICATES. The Company's authorized capital
consists of 1,800,000,000 Common Shares of $1 par value per Share, of which
1,000,000,000 Shares are classified as Fund Shares and 800,000,000 Shares are
classified as Templeton World Fund Shares. The Board of Directors may, in its
discretion, classify and allocate Shares to additional funds within the
Company without further action by the Shareholders. Each Share outstanding
entities the holder to one vote.
The Fund will not ordinarily issue certificates for Shares purchased. Share
certificates representing whole (not fractional) Shares are issued only upon
the specific request of the Shareholder made in writing to the Transfer Agent.
No charge is made for the issuance of one certificate for all or some of the
Shares purchased in a single order.
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. Dividends and capital gain distributions (if
any) are usually paid in October and (if necessary) in December representing
all or substantially all of the Fund's net investment income and any net
realized capital gains. Dividends will be calculated and distributed in the
same manner for both classes of Shares, and their value will differ only to
the extent that they are affected by the distribution plan fees and sales
charges. Because ongoing Rule 12b-1 expenses will be lower for Class I than
Class II, dividends distributed to Class I Shares will generally be higher
than those distributed to Class II Shares. 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
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. Dividend and capital gain distributions are eligible for investment in
the same class of Shares of the Fund or the same class of another fund in the
Franklin Group of Funds (R) or Templeton Family of Funds at net asset value.
The processing date for the reinvestment of dividends may vary from month to
month, 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 for 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 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
22
<PAGE>
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. 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., 700 Central Avenue,
P.O. Box 33030, St. Petersburg, Florida 33733-8030--telephone 1-800-354-9191
or 813-823-8712. 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.
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 semi-annual
reports (containing unaudited financial statements) are sent to Shareholders
each year. Additional copies may be obtained, without charge, upon request to
the Account Services Department. 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 IRS.
OBTAINING A NUMBER. If you do not have a Social Security Number/Taxpayer
Identification Number, 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 Act of
individual retirement plan 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 tax payer identification number you have given is correct, and (2) the
Internal Revenue Service 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.
1/94
24
<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 _________________________________
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 signany 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)
25
<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 or Templeton Funds 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.
26
<PAGE>
THE FRANKLIN TEMPLETON GROUP
To receive a free brochure and prospectus, which contain more complete
information, including charges and expenses on each of the funds listed below,
call Franklin Fund Information, toll free, at 1-800-DIAL-BEN (1-800-342-5236)
or Templeton Fund Information at 1-800-292-9293. Please read the prospectus
carefully before you invest or send money.
TEMPLETON
FAMILY OF FUNDS
Franklin Templeton Japan Fund
Templeton American Trust
Templeton Americas
Government Securities Fund
Templeton Developing
Markets Trust
Templeton Foreign Fund
Templeton Global
Infrastructure Fund
Templeton Global
Opportunities Trust
Templeton Global Rising
Dividends Fund
Templeton Growth Fund
Templeton Income Fund
Templeton Money Fund
Templeton Real Estate
Securities Fund
Templeton Smaller
Companies Growth Fund
Templeton World Fund
FRANKLIN GROUP
OF FUNDS (R)
FRANKLIN GLOBAL/
INTERNATIONAL FUNDS
Franklin Global Health Care Fund
Franklin Global Government
Income Fund
Franklin Global Utilities Fund
Franklin International Equity Fund
Franklin Pacific Growth Fund
FUNDS SEEKING
CAPITAL GROWTH
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin Small Cap Growth Fund
FUNDS SEEKING GROWTH AND
INCOME
Franklin Balance Sheet
Investment Fund
Franklin Convertible
Securities Fund
Franklin Income Fund
Franklin Equity Income Fund
Franklin Utilities Fund
FUNDS SEEKING HIGH CURRENT
INCOME
Franklin's AGE High Income Fund
Franklin Investment Grade
Income Fund
Franklin Premier Return Fund
Franklin U.S. Government
Securities Fund
FUNDS SEEKING TAX-FREE
INCOME
Franklin Federal Tax-Free
Income Fund
Franklin High Yield Tax-Free
Income Fund
Franklin California High Yield
Municipal Fund
Franklin Alabama Tax-Free
Income Fund
Franklin Arizona Tax-Free
Income Fund
Franklin California Tax-Free
Income Fund
Franklin Colorado Tax-Free
Income Fund
Franklin Connecticut Tax-Free
Income Fund
Franklin Florida Tax-Free
Income Fund
Franklin Georgia Tax-Free
Income Fund
Franklin Hawaii Municipal
Bond Fund
Franklin Indiana Tax-Free
Income Fund
Franklin Kentucky Tax-Free
Income Fund
Franklin Louisiana Tax-Free
Income Fund
Franklin Maryland Tax-Free
Income Fund
Franklin Missouri Tax-Free
Income Fund
Franklin New Jersey Tax-Free
Income Fund
Franklin New York Tax-Free
Income Fund
Franklin North Carolina Tax-Free
Income Fund
Franklin Oregon Tax-Free
Income Fund
Franklin Pennsylvania Tax-Free
Income Fund
Franklin Puerto Rico Tax-Free
Income Fund
Franklin Texas Tax-Free
Income Fund
Franklin Virginia Tax-Free
Income Fund
Franklin Washington Municipal
Bond Fund
FUNDS SEEKING TAX-FREE
INCOME THROUGH INSURED
PORTFOLIOS
Franklin Insured Tax-Free
Income Fund
Franklin Arizona
Insured Tax-Free
Income Fund
Franklin California Insured Tax-Free
Income Fund
Franklin Florida Insured Tax-Free
Income Fund
Franklin Massachusetts Insured Tax-
Free Income Fund
Franklin Michigan Insured Tax-Free
Income Fund
Franklin Minnesota Insured Tax-
Free Income Fund
Franklin New York Insured Tax-Free
Income Fund
Franklin Ohio Insured Tax-Free
Income Fund
FUNDS SEEKING HIGH CURRENT
INCOME AND STABILITY OF
PRINCIPAL
Franklin Adjustable Rate
Securities Fund
Franklin Adjustable U.S.
Government Securities Fund
Franklin Short-Intermediate
U.S. Government Securities
Fund
FUND SEEKING HIGH AFTER-TAX
INCOME FOR CORPORATIONS
Franklin Corporate Qualified
Dividend Fund
MONEY MARKET FUNDS SEEKING
SAFETY OF PRINCIPAL AND
INCOME
Franklin Money Fund
Franklin Federal Money Fund
Franklin Tax-Exempt Money
Fund
Franklin California Tax-Exempt
Money Fund
Franklin New York Tax-Exempt
Money Fund
IFT Franklin U.S. Treasury
Money Market Portfolio
FUNDS FOR
NON-U.S. INVESTORS
FRANKLIN PARTNERS FUNDS(R)
Franklin Tax-Advantaged
High Yield Securities Fund
Franklin Tax-Advantaged
International Bond Fund
Franklin Tax-Advantaged
U.S. Government
Securities Fund
27
<PAGE>
NOTES
28
<PAGE>
NOTES
29
<PAGE>
TEMPLETON FOREIGN FUND
PRINCIPAL UNDERWRITER:
Franklin Templeton
Distributors, Inc.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Account Services
1-800-354-9191
Fund Information
1-800-292-9293
Institutional Services
1-800-321-8563
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.
TL04 P 1/95
[LOGO OF RECYCLED PAPER APPEARS HERE]
TEMPLETON
FOREIGN
FUND
Prospectus
January 1, 1995
as supplemented
April 1, 1995
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
TEMPLETON FUNDS, INC.
THIS STATEMENT OF ADDITIONAL INFORMATION DATED
JANUARY 1, 1995, AS SUPPLEMENTED APRIL 1, 1995,
IS NOT A PROSPECTUS. IT SHOULD BE READ IN
CONJUNCTION WITH THE PROSPECTUS OF TEMPLETON
WORLD FUND DATED JANUARY 1, 1995, AS SUPPLEMENTED
APRIL 1, 1995, AND THE PROSPECTUS OF TEMPLETON
FOREIGN FUND DATED JANUARY 1, 1995, AS SUPPLEMENTED
APRIL 1, 1995, 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) 237-0738
TABLE OF CONTENTS
General Information and History -The Investment Manager
Investment Objectives and Policies -Business Manager
-Investment Policies -Custodian and Transfer Agent
-Repurchase Agreements -Legal Counsel
-Loans of Portfolio Securities -Independent Accountants
-Debt Securities -Reports to Shareholders
-Stock Index Futures Contracts Brokerage Allocation
-Stock Index Options Purchase, Redemption and
-Investment Restrictions Pricing of Shares
-Risk Factors -Ownership and Authority
-Trading Policies Disputes
-Personal Securities Transactions -Tax Deferred Retirement Plans
Management of the Company -Letter of Intent
Principal Shareholders -Purchases at Net Asset Value
Investment Management and Other Tax Status
Services Principal Underwriter
-Investment Management Description of Shares
Agreements Performance Information
-Management Fees Financial Statements
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
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,
Galbraith & Hansberger Ltd. (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
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
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.
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. 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 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 % 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).
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
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 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
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.)
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 underdeveloped,
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.
Foreign markets have substantially less volume than the New York
Stock Exchange 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,
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.
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.
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 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. Through
the flexible 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. They 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.
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 these funds and clients may contain many or some of
the same securities. When any two or more of these funds or
clients are engaged simultaneously in the purchase or sale of the
same security, the transactions are placed for execution 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
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
JOHN M. TEMPLETON* Chairman of the Board of other
Lyford Cay Templeton Funds; president of First
Nassau, Bahamas Trust Bank, Ltd., Nassau, Bahamas;
Chairman of the Board and previously chairman of the
board and employee of Templeton,
Galbraith & Hansberger Ltd. (prior
to October 30, 1992).
F. BRUCE CLARKE Retired; former credit advisor,
19 Vista View Blvd. National Bank of Canada; a director
Thornhill, Ontario or trustee of other Templeton
Director Funds.
JOHN G. BENNETT, JR. A director or trustee of other
3 Radnor Corporate Center Templeton Funds; founder, chairman
Suite 150 of the board, and president of the
100 Matsonford Road Foundation for New Era
Radnor, Pennsylvania Philanthropy; president and
Director chairman of the boards of the
Evelyn M. Bennett Memorial
Foundation and NEP International
Trust; chairman of the board and
chief executive officer of The
Bennett Group International, LTD;
chairman of the boards of Human
Service Systems, Inc. and Multi-
Media Communicators, Inc.; a
director or trustee of many
national and international
organizations, universities, and
grant-making foundations serving in
various executive board capacities;
member of the Public Policy
Committee of the Advertising
Council.
FRED R. MILLSAPS A director or trustee of other
2665 NE 37th Drive Templeton Funds; manager of
Fort Lauderdale, Florida personal investments (1978-
Director 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 Federal Reserve Bank
of Atlanta (1958-1965); director of
various business and nonprofit
organizations.
BETTY P. KRAHMER A director or trustee of other
2201 Kentmere Parkway Templeton Funds; director or
Wilmington, Delaware trustee of various civic
Director associations; former economic
analyst, U.S. Government.
HASSO-G VON Farmer; president of Clairhaven
DIERGARDT-NAGLO Investments, Ltd. and other private
R.R. 3 investment companies; a director or
Stouffville, Ontario trustee of other Templeton Funds.
Director
ANDREW H. HINES, JR. Consultant, Triangle Consulting
150 2nd Avenue N. Group; chairman of the board and
St. Petersburg, Florida chief executive officer of Florida
Director 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);
director of Checkers Drive-In
Restaurants, Inc.; a director or
trustee of other Templeton Funds.
RUPERT H. JOHNSON, JR.* Executive vice president and
777 Mariners Island Blvd. director of Franklin Resources,
San Mateo, California Inc.; president and director,
Director Franklin Advisers, Inc.; executive
vice president and director,
Franklin Templeton Distributors,
Inc.; director, Franklin
Administrative Services, Inc.;
director or trustee of other
Templeton Funds; and officer and/or
director, trustee or managing
general partner, as the case may
be, of most other subsidiaries of
Franklin, and of most of the
investment companies in the
Franklin Group of Funds.
HARRIS J. ASHTON Chairman of the board, president
Metro Center, 1 Station and chief executive officer of
Place General Host Corporation (nursery
Stamford, Connecticut and craft centers); director of RBC
Director Holdings Inc. (a bank holding
company) and Bar-S Foods; director
or trustee of other Templeton
Funds; and director, trustee or
managing general partner, as the
case may be, for most of the
investment companies in the
Franklin Group of Funds.
S. JOSEPH FORTUNATO Member of the law firm of Pitney,
200 Campus Drive Hardin, Kipp & Szuch; director of
Florham Park, New Jersey General Host Corporation; director
Director or trustee of other Templeton
Funds; and director, trustee or
managing general partner, as the
case may be, for most of the
investment companies in the
Franklin Group of Funds.
GORDON S. MACKLIN Chairman of White River Corporation
8212 Burning Tree Road (information services); director of
Bethesda, Maryland Infovest Corporation, Fund America
Director Enterprise Holdings, Inc., Martin
Marietta Corporation, MCI
Communications Corporation and
Medimmune, Inc.; director or
trustee of other Templeton Funds;
director, trustee, or managing
general partner, as the case may
be, of most of the investment
companies in the Franklin Group of
Funds; formerly: chairman,
Hambrecht and Quist Group;
director, H&Q Healthcare Investors;
and president, National Association
of Securities Dealers, Inc.
NICHOLAS F. BRADY* A director or trustee of other
The Bullitt House Templeton Funds; chairman of
102 East Dover Street Templeton Emerging Markets
Easton, Maryland Investment Trust PLC; chairman and
Director president of Darby Advisors, Inc.
(an investment firm) since January,
1993; director of the H. J. Heinz
Company, Capital Cities/ABC, Inc.
and the Christiana Companies;
Secretary of the United States
Department of the Treasury from
1988 to January, 1993; chairman of
the board of Dillon, Read & Co.
Inc. (investment banking) prior
thereto.
MARK G. HOLOWESKO President and director of
Lyford Cay Templeton, Galbraith & Hansberger
Nassau, Bahamas Ltd.; director of global equity
President research for Templeton Worldwide,
Inc.; president or vice president
of the Templeton Funds; investment
administrator with Roy West Trust
Corporation (Bahamas) Limited
(1984-1985).
CHARLES B. JOHNSON President, chief executive officer,
777 Mariners Island Blvd. and director of Franklin Resources,
San Mateo, California Inc.; chairman of the board,
Vice President Franklin Templeton Distributors,
Inc.; chairman of the board and
director, Franklin Advisers, Inc.;
director, Franklin Administrative
Services, Inc. and General Host
Corporation; director of Templeton
Global Investors, Inc.; director or
trustee of other Templeton Funds;
and officer and director, trustee
or managing general partner, as the
case may be, of most other
subsidiaries of Franklin and of
most of the investment companies in
the Franklin Group of Funds.
MARTIN L. FLANAGAN Senior vice president, treasurer
777 Mariners Island Blvd. and chief financial officer of
San Mateo, California Franklin Resources, Inc.; director,
Vice President executive vice president, and chief
operating officer of Templeton
Investment Counsel, Inc. and
Templeton Global Investors, Inc.;
president or vice president of the
Templeton Funds; accountant, Arthur
Andersen & Company (1982-1983);
member of the International Society
of Financial Analysts and the
American Institute of Certified
Public Accountants.
THOMAS M. MISTELE Senior vice president of Templeton
700 Central Avenue Global Investors, Inc.; vice
St. Petersburg, Florida president of Franklin Templeton
Secretary Distributors, Inc.; secretary of
the Templeton Funds; attorney,
Dechert Price & Rhoads (1985-1988)
and Freehill, Hollingdale & Page
(1988); judicial clerk, U.S.
District Court (Eastern District of
Virginia) (1984-1985).
JOHN R. KAY Vice president of the Templeton
500 East Broward Blvd. Funds; vice president and treasurer
Fort Lauderdale, Florida of Templeton Global Investors, Inc.
Vice President and Templeton Worldwide, Inc.;
assistant vice president of
Franklin Templeton Distributors,
Inc.; formerly, vice president and
controller of the Keystone Group,
Inc.
JAMES R. BAIO Certified public accountant;
500 East Broward Blvd. treasurer of the Templeton Funds;
Fort Lauderdale, Florida senior vice president of Templeton
Treasurer Worldwide, Inc., Templeton Global
Investors, Inc., and Templeton
Funds Trust Company; formerly,
senior tax manager of Ernst & Young
(certified public accountants)
(1977-1989).
JACK L. COLLINS Assistant treasurer of the
700 Central Avenue Templeton Funds; assistant vice
St. Petersburg, Florida president of Franklin Templeton
Assistant Treasurer Investor Services, Inc.; former
partner of Grant Thornton,
independent public accountants.
JEFFREY L. STEELE Partner, Dechert Price & Rhoads.
1500 K Street, N.W.
Washington, D.C.
Assistant Secretary
____________________
* Messrs. Templeton, Johnson and Brady 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, Galbraith & Hansberger, Ltd.
are limited partners of Darby Emerging Markets Fund, L.P.
Messrs. Clarke, von Diergardt, Millsaps, Hines, Bennett,
Ashton, Macklin and Fortunato and Mrs. Krahmer are not
"interested persons" of the Company.
There are no family relationships between any of the
Directors.
As indicated above, certain of the Directors and Officers
hold positions with other funds in the Franklin Group of Funds
and the Templeton Family of Funds. Each fund in the Templeton
Family of Funds pays its independent directors/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 the fund. Accordingly, the Company pays each
independent Director and Mr. Brady an annual retainer of $____.
Directors are reimbursed for any expenses incurred in attending
meetings. During the fiscal year ended August 31, 1994, pursuant
to the compensation arrangement then in effect, fees totalling
__________ were paid by the Company to Messrs. Ashton
($__________), Bennett ($__________), Brady ($__________), Clarke
($__________), Fortunato ($__________), Hines ($__________),
Macklin ($__________), Millsaps ($__________), and von Diergardt-
Naglo ($__________) and Mrs. Krahmer ($__________). For the
fiscal year ended August 31, 1994, pursuant to the compensation
arrangement then in effect, Messrs. Ashton, Bennett, Brady,
Clarke, Fortunato, Hines, Johnson, Macklin, Millsaps, Templeton
and von Diergardt-Naglo and Mrs. Krahmer received total fees of
$__________, $__________, $__________, $__________, $__________,
$__________, $__________, $__________, $__________, $__________,
$__________, and $__________, respectively, from the various
Franklin and Templeton funds for which they serve as directors,
trustees, or managing general partners. No Officer or Director
received any other compensation directly from the Fund.
PRINCIPAL SHAREHOLDERS
As of __________, 1995, there were ___________ World Fund
Shares outstanding, of which _________ Shares (or ____% of the
total outstanding World Fund Shares) were owned beneficially by
all the Directors and officers of the Company as a group. As of
__________, 1995, no person owned of record or, to the knowledge
of management, owned beneficially, __% or more of the outstanding
World Fund Shares. As of __________, 1995, there were
___________ Foreign Fund Shares outstanding, of which ______
Shares (or ____% of the total outstanding Foreign Fund Shares)
were owned beneficially by all the Directors and officers of the
Company as a group. As of __________, 1995, to the knowledge of
management, no person owned beneficially __% or more of the
outstanding Foreign Fund Shares, except Merrill Lynch, Pierce,
Fenner & Smith, Inc., 4800 Deer Lake Drive East, P.O. Box 45286,
Jacksonville, Florida 32232-5286 owned __________ Shares
(representing ___% of the outstanding Shares).
INVESTMENT MANAGEMENT AND OTHER SERVICES
Investment Management Agreements. The Investment Manager of
each Fund is Templeton, Galbraith & Hansberger Ltd., 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, were approved by the Shareholders of each Fund on
October 30, 1992, and were 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 6,
1994 and will continue through December 31, 1995.
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
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 one or more of its affiliates has selected
for one or more of its other clients or for clients of its
affiliates, the orders for all such securities transactions are
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.
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, 1994,
1993 and 1992, the Investment Manager (and, prior to October 30,
1992, Old TGH, the Fund's previous investment manager) received
fees from World Fund of $31,051,062, $25,931,668, and
$23,260,890, respectively, and from Foreign Fund of $23,889,119,
$12,676,159, and $8,710,263, respectively, pursuant to the
Agreement and Agreements in effect prior to October 30, 1992.
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.
The Investment Manager. The Investment Manager is an
indirect wholly owned subsidiary of Franklin, a publicly traded
company whose shares are listed on the New York Stock Exchange.
Charles B. Johnson (an 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 Templeton Tax
Deferred Retirement Plans offered by the Company; and
o providing executive, clerical and secretarial help
needed to carry out these responsibilities.
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, 1994, 1993, and 1992, the Business
Manager (and, prior to April 1, 1993, Templeton Funds Management,
Inc., the previous business manager) received business management
fees of $7,161,271, $5,119,730, and $4,767,286, 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.
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,
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 and
the Internal Revenue Service.
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.
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
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
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
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, 1994, 1993,
and 1992 (not including any spreads or concessions on principal
transactions) were $6,895,789, $4,751,804, and $4,070,608. The
total brokerage commissions on Foreign Fund's portfolio
transactions during the fiscal years ended August 31, 1994, 1993,
and 1992 (not including any spreads or concessions on principal
transactions) were $7,329,697, $3,185,372, and $2,445,188. 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 close of business
on the New York Stock Exchange, 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 New York Stock Exchange is closed, which
currently are: New Year's Day, Presidents' Day, Good Friday,
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
New York Stock Exchange 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
New York Stock Exchange 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 New York
Stock Exchange is closed other than for customary weekend and
holiday closings, (2) trading on the New York Stock Exchange 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 Securities and Exchange Commission 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: (a) freeze the account and require the written
agreement of all persons deemed by the Fund to have a potential
property interest in the account, prior to executing instructions
regarding the account; or (b) 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 Internal Revenue Service 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:
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 Templeton Funds Trust Company receives the
participant's election on IRS Form W-4P (available on request
from Templeton Funds Trust Company) 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 Individual Retirement Account. 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 Individual
Retirement Accounts are available through Templeton Funds Trust
Company. Disclosure statements summarizing certain aspects of
Individual Retirement Accounts are furnished to all persons
investing in such accounts, in accordance with Internal Revenue
Service 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.
Such deferred compensation plans, which are intended to qualify
under Section 403(b) of the Internal Revenue Code, are available
through the Principal Underwriter. Custodian services are
provided by Templeton Funds Trust Company.
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
Internal Revenue Service. A "Section 401(k) plan" is also
available. Templeton Funds Trust Company 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 Templeton Group (except Templeton Capital Accumulator
Fund, Inc., Templeton Variable Annuity Fund, Templeton Variable
Products Series Fund, Franklin Valuemark Funds and Franklin
Government Securities Trust) 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
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 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" 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 Group (except Templeton
Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund,
Templeton Variable Products Series Fund, Franklin Valuemark Funds
and Franklin Government Securities Trust) 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.
Purchases at Net Asset Value. The following amounts will be
paid by FTD, from its own resources, to securities dealers who
initiate and are responsible for purchases of $1 million or more
and for purchases made at net asset value by certain designated
retirement plans (excluding IRA and IRA rollovers), certain trust
companies and trust departments of banks and certain retirement
plans of organizations with collective retirement plan assets of
$10 million or more: 1.00% on sales of $1 million but less $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.
As described in the Prospectus, FTD or its affiliates may
make payments, from its own resources, to securities dealers
responsible for certain purchases at net asset value. As a
condition of such payments, FTD or its affiliates may require
reimbursement from such 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.
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 Internal Revenue Code of
1986, as amended (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 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. All dividends and distributions are taxable to
Shareholders, whether or not reinvested in Shares of a Fund.
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,
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
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
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
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 futures
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.
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
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 Internal Revenue Service notifies the
Shareholder or a Fund that the Shareholder has failed to report
properly certain interest and dividend income to the Internal
Revenue Service 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.
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"), 700 Central Avenue, 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 Distribution Plans ("Plans") on behalf of each Fund.
Under the Plans adopted with respect to Class I Shares, a Fund
may reimburse the Principal Underwriter monthly (subject to a
limit of 0.25% per annum of each Fund's average daily net assets
attributable to Class I Shares) for FTD's costs and expenses 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 may reimburse FTD
monthly (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 FTD's
costs and expenses in connection with any activity which is
primarily intended to result in the sale of the Fund's Shares.
Payments to FTD 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 exceeding $1 million (on which the Company
imposes no initial sales charge) 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 Plans, the
costs and expenses not reimbursed in any one given month
(including costs and expenses not reimbursed because they exceed
the percentage limit applicable to either class of Shares) may be
reimbursed in subsequent months or years.
During the fiscal year ended August 31, 1994, FTD incurred
costs and expenses of $9,002,860 in connection with distribution
of Class I Shares of World Fund and $9,561,351 in connection with
the distribution of Class I Shares of Foreign Fund. During the
same period, the Company made reimbursements pursuant to the
Plans in the amount of $9,002,860 on behalf of Class I Shares of
World Fund and $9,215,946 on behalf of Class I Shares of Foreign
Fund. As indicated above, unreimbursed expenses, which amount to
$345,405 for Class I Shares of Foreign Fund, may be reimbursed by
the Company during the fiscal year ending August 31, 1995 or in
subsequent years. In the event that either 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, 1994, FTD spent,
with respect to World Fund, the following amounts on:
compensation to dealers, $7,628,837; sales promotion, $157,063;
printing, $149,210; advertising, $1,025,787; and wholesale costs
and expenses, $41,963; and, with respect to Foreign Fund, the
following amounts on: compensation to dealers, $7,155,215; sales
promotion, $133,278; printing, $420,157; advertising, $1,496,754;
and wholesale costs and expenses, $355,947.
The Underwriting 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, 1994, 1993, and 1992, FTD
(and, prior to June 1, 1993, Templeton Funds Distributor, Inc.)
retained of such discount $1,931,397, $1,208,991, and $1,371,030,
respectively, or approximately 17.97%, 19.87%, and 16.46% of the
gross sales commissions for those years with respect to World
Fund, and retained $9,452,983, $3,975,783, and $2,883,923,
respectively, or approximately 15.79%, 15.81%, and 17.5% of the
gross sales commissions for those years with respect to Foreign
Fund. The Principal Underwriter in all cases buys Shares from a
Fund acting as principal for its own account. Dealers generally
act as principal for their own account in buying Shares from the
Principal Underwriter. No agency relationship exists between any
dealer and a Fund or the Principal Underwriter.
The Underwriting 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 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 Underwriting 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
Underwriting 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
Underwriting 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
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, 1994 was 12.05%,
9.10% and 13.90%, respectively. Foreign Fund's average annual
total return for the one-, five- and ten-year periods ended
August 31, 1994, was 11.19%, 11.65% and 17.84%, 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
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 Corp.,
Morgan Stanley Capital International or a similar financial
organization.
(4) The geographic distribution of the Fund's portfolio.
(5) The gross national product and populations, including age
characteristics, 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.
(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."
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."
________________
* Sir John Templeton, who currently serves as Chairman of the
Company's Board, is not involved in investment decisions,
which are made by each Fund's Investment Manager.
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 in the Franklin Templeton Group or the
dollar amount of fund and private account assets under management
in advertising materials.
FINANCIAL STATEMENTS
The financial statements contained in the 1994 Annual
Reports to Shareholders of Templeton World Fund and Templeton
Foreign Fund are incorporated herein by reference.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements: Incorporated by reference from
the 1994 Annual Reports to Shareholders of Templeton
World Fund and Templeton Foreign Fund:
Independent Auditors' Report
Investment Portfolios as of August 31, 1994
Statements of Assets and Liabilities
as of August 31, 1994
Statements of Operations for the
year ended August 31, 1994
Statements of Changes in Net Assets
for the years ended August 31, 1994 and 1993
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) Form of Articles Supplementary
(2) (A) By-laws*
(B) Amendments to the By-laws dated
January 18, 1979 of Articles 6.1, 6.5 and
7.1*
___________________
* Previously filed with Registration Statement No. 2-60067 and
incorporated by reference herein.
(C) Amendments to Articles 1.1 and 6.5 of By-
laws*
(3) Not Applicable
(4) (A) Specimen stock certificate for Templeton
World Fund*
(B) Specimen stock certificate for Templeton
Foreign Fund*
(5) (A) Form of Amended and Restated Investment
Management Agreement -- Templeton World Fund
(B) Form of 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 on
behalf of Templeton World Fund with The Chase
Manhattan Bank, N.A.*
(B) Custody Agreement dated June 1, 1984 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*
(D) Form of Sub-Accounting Services Agreement*
(E) Copy of License Agreement dated October 14,
1977 among Registrant, Templeton Growth Fund,
Ltd., Templeton Investment Counsel Limited
and John M. Templeton, individually, granting
Registrant right to use name "Templeton."*
(F) 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) 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*
Item 25. Persons Controlled by or Under Common Control with
Registrant
None.
Item 26. Number of Record Holders
Title of Class Number of Record Holders
Templeton World Fund 279,846 as of January 31, 1995
Class of Common Shares
of Templeton Funds, Inc.
Templeton Foreign Fund 298,928 as of January 31, 1995
Class of Common Shares
of Templeton Funds, Inc.
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 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 Funds, 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,
Inc., 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/Templeton Japan Fund, and
Institutional Fiduciary Trust.
(b) The directors and officers of FTD, located at 700
Central Avenue, St. Petersburg, Florida
33733-9926, are as follows:
Positions and Offices
Positions and Offices
Name with Underwriter
with 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
Martin L. Flanagan Senior Vice President
Vice President
and Treasurer
William J. Lippman Senior Vice President
None
Richard C. Stoker Senior Vice President
None
Charles E. Johnson Senior Vice President
None
Deborah R. Gatzek Senior Vice President and
None
Assistant Secretary
Peter Black Vice President None
James K. Blinn Vice President None
Bernie Buckley Vice President None
Joel Burns Vice President None
Debra Carter Vice President None
Richard O. Conboy Vice President None
Joe Cronin Vice President None
James F. Duryea Vice President None
James A. Escobedo Vice President None
Loretta Fry Vice President None
Robert N. Geppner Vice President None
John Gould Vice President None
Sheppard G. Griswold Vice President
None
Mike Hackett Vice President None
Brad N. Hanson Vice President None
Carolyn L. Hennion Vice President None
Andrew Jennings Vice President None
Peter Jones Vice President None
Philip J. Kearns Vice President None
John Leach 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
Harry G. Mumford Vice President None
Mike Nardone Vice President None
Thomas H. O'Connor Vice President None
Vivian J. Palmieri Vice President None
Roger Pearson Vice President None
Richard S. Petrell Vice President None
John Phillips Vice President None
Darrell Plocher Vice President
None
Dennis Shannon Vice President None
Robert E. Silvani Vice President None
Kent P. Strazza Vice President
None
Susan K. Tallarico Vice President None
Leslie M. Kratter Secretary 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.
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
Washington, D.C., on the 1st day of March, 1995.
Templeton Funds, Inc.
By:___________________________
Mark G. Holowesko*
President
*By: /s/ Jeffrey L. Steele
Jeffrey L. Steele
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 March 1, 1995
Mark G. Holowesko* (Chief Executive
Officer)
____________________ Director March 1, 1995
John M. Templeton
____________________ Director March 1, 1995
Hasso-G von Diergardt-Naglo*
____________________ Director March 1, 1995
Betty P. Krahmer*
___________________ Director March 1, 1995
F. Bruce Clarke*
____________________ Director March 1, 1995
Fred R. Millsaps*
_____________________ Director March 1, 1995
John G. Bennett, Jr.*
_____________________ Director March 1, 1995
Rupert H. Johnson, Jr.*
_____________________ Director March 1, 1995
Harris J. Ashton*
_____________________ Director March 1, 1995
S. Joseph Fortunato*
_____________________ Director March 1, 1995
Andrew H. Hines, Jr.*
_____________________ Director March 1, 1995
Gordon S. Macklin*
____________________ Director March 1, 1995
Nicholas F. Brady*
____________________ Treasurer March 1, 1995
James R. Baio* (Chief Financial
and Accounting Officer)
*By:/s/ Jeffrey L. Steele
Jeffrey L. Steele
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.
EXHIBIT LIST
Exhibit Number Name of Exhibit
(1)(E) Articles Supplementary
(1)(F) Articles Supplementary
(5)(A) Form of Amended and Restated Investment
Management Agreement -- Templeton World
Fund
(5)(B) Form of Amended and Restated Investment
Management Agreement -- Templeton
Foreign Fund
(11) Consent of Independent Public
Accountants
(15)(A)(1) Distribution Plan -- Templeton World
Fund Class I Shares
(15)(A)(2) Distribution Plan -- Templeton World
Fund Class II Shares
(15)(B)(1) Distribution Plan -- Templeton Foreign
Fund Class I Shares
(15)(B)(2) Distribution Plan -- Templeton Foreign
Fund Class II Shares
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, 1994, adopted a
resolution to increase the total number of Shares of stock which
the Corporation shall have the authority to issue to ONE BILLION
EIGHT HUNDRED MILLION (1,800,000,000) Common Shares of the par
value of ONE DOLLAR ($1.00) per Share and of the aggregate par
value of ONE BILLION EIGHT HUNDRED MILLION DOLLARS
($1,800,000,000).
SECOND: Immediately prior to the effectiveness of the
Articles Supplementary of the Corporation as hereinabove set
forth, the Corporation had authority to issue 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 had classified 600,000,000 Shares as World Fund Shares
and 750,000,000 Shares as Foreign Fund Shares. As amended
hereby, the Corporation's Articles of Incorporation authorize the
issuance of 1,800,000,000 Common Shares of the par value of $1.00
per Share and having an aggregate par value of $1,800,000,000, of
which the Board of Directors has classified 800,000,000 Shares as
World Fund Shares and 1,000,000,000 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 Articles Supplementary are true in all material
respects and that this statement is made under the penalties of
perjury.
Date: January 6, 1995
TEMPLETON FUNDS, INC.
[CORPORATE SEAL]
By:________________________
John R. Kay
Vice President
Attest:
______________________________
Thomas M. Mistele
Secretary
TEMPLETON FUNDS, INC.
ARTICLES SUPPLEMENTARY
TEMPLETON FUNDS, INC., a Maryland corporation registered as
an open-end investment company 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 22, 1994, adopted a
resolution to establish a multiple class distribution system for
its series of shares, Templeton World Fund ("World Fund") and
Templeton Foreign Fund ("Foreign Fund"), and in connection
therewith, (i) increased the Corporation's authorized capital to
two billion, seven hundred million (2,700,000,000) shares of
common stock, par value $1.00 per share, (ii) classified the six
hundred million (600,000,000) shares previously designated as
World Fund Common Stock as "World Fund Class I" shares of Common
Stock and classified six hundred million (600,000,000) shares as
"World Fund Class II" shares of Common Stock, and (iii)
classified the seven hundred fifty million (750,000,000) shares
previously designated as Foreign Fund Common Stock as "Foreign
Fund Class I" shares of COmmon Stock and classified seven hundred
fifty million (750,000,000) shares as "Foreign Fund Class II"
shares of Common Stock.
SECOND: Immediately prior to the effectiveness of the
Articles Supplementary of the Corporation as hereinabove set
forth, the Corporation had the authority to issue one billion,
three hundred fifty million (1,350,000,000) Common Shares of the
par value of $1.00 per Share and having an aggregate par value of
one billion, three hundred fifty million dollars ($1,350,000,000)
of which six hundred million (600,000,000) shares were classified
as World Fund Common Stock shares and seven hundred fifty million
(750,000,000) shares were classified as Foreign Fund Common Stock
shares. As amended hereby, the Corporation's Articles of
Incorporation authorize the issuance of two billion, seven
hundred million (2,700,000,000) Common Shares of the par value of
$1.00 per Share and having an aggregate par value of two billion,
seven hundred million dollars ($2,700,000,000), of which the
Board of Directors has classified six hundred million
(600,000,000) shares as "World Fund Class I" shares, six hundred
million (600,000,000) shares as "World Fund Class II" shares,
seven hundred fifty million (750,000,000) shares as "Foreign Fund
Class I" shares, and seven hundred fifty million (750,000,000)
share as "Foreign Fund Class II" shares.
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 number of Shares of capital stock of the
various classes that 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.
FOURTH: The preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the two
classes of shares shall be as set forth in the Corporation's
Articles of Incorporation and shall be subject to all provisions
of the Articles of Incorporation relating to shares of the
Corporation generally, and those set forth as follows:
(a) The assets of each Class shall be invested in the same
investment portfolio of a series of the Corporation.
(b) The dividends and distributions of investment income
and capital gains with respect to each class of shares
shall be in such amounts as may be declared from time
to time by the Board of Directors, and the dividends
and distributions of each class of shares may vary from
the dividends and distributions of the other classes of
shares to reflect differing allocations of the expenses
of the respective series among the holders of each
class and any resultant differences between the net
asset value per share of each class, to such extent and
for such purposes as the Board of Directors may deem
appropriate. The allocation of investment income or
capital gains and expenses and liabilities of the
series among the classes shall be determined by the
Board of Directors in a manner it deems appropriate.
(c) Class I shares (including fractional shares) may be
subject to an initial sales charge and service and/or
distribution fee pursuant to the terms of the issuance
of such shares, and the proceeds of the redemption of
Class I shares (including fractional shares) may be
reduced by the amount of any contingent deferred sales
charge payable on such redemption pursuant to the terms
of the issuance of such shares, as set forth in the
Corporation's then-current registration statement on
Form N-1A pursuant to the Securities Act of 1933 and
the Investment Company Act of 1940 (the "Registration
Statement").
(d) Class II shares (including fractional shares) may be
subject to an initial sales charge and service and
distribution fee pursuant to the terms of the issuance
of such shares, and the proceeds of the redemption of
Class II shares (including fractional shares) may be
reduced by the amount of any contingent deferred sales
charge payable on such redemption pursuant to the terms
of the issuance of such shares, as set forth in the
Registration Statement.
(e) The holders of Class I and Class II shares shall have
(i) exclusive voting rights with respect to provisions
of any service plan or service and distribution plan
adopted by the Corporation pursuant to Rule 12b-1 under
the Investment Company Act of 1940 (a "Plan")
applicable to the respective class and (ii) no voting
rights with respect to the provisions of any Plan
applicable to another class of shares or with regard to
any other matter submitted to a vote of shareholders
which does not affect holders of that respective class
of shares.
(f) Class II shares (including fractional shares) may be
subject to conversion into Class I shares pursuant to
the terms of the issuance of such shares as described
in the Registration Statement.
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: March ___, 1995 TEMPLETON FUNDS, INC.
[CORPORATE SEAL] By:
ATTEST:
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 30th day of October, 1992, and
amended and restated as of __________________, between TEMPLETON
FUNDS, INC. (the "Company"), on behalf of the Templeton World
Fund class of the Company's Shares ("World Fund"), and TEMPLETON,
GALBRAITH & HANSBERGER LTD. (the "Investment Manager").
In consideration of the mutual agreements herein made,
the Company on behalf of World Fund and the Investment Manager
understand and agree as follows:
(1) The Investment Manager agrees, during the life of
this Agreement, to manage the investment and reinvestment of
World Fund's assets consistent with the provisions of the
Company's Articles of Incorporation and the investment policies
adopted and declared by the Company's Board of Directors on
behalf of World Fund. In pursuance of the foregoing, the
Investment Manager shall make all determinations with respect to
the investment of World Fund's assets and the purchase and sale
of its investment securities, and shall take all such steps as
may be necessary to implement those determinations. It is
understood that all acts of the Investment Manager in performing
this Agreement are performed by it outside the United States.
(2) The Investment Manager is not required to furnish
any personnel, overhead items or facilities for the Company or
World Fund, including trading desk facilities or daily pricing of
World Fund's portfolio.
(3) The Investment Manager shall be 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 World Fund's portfolio
transactions consistent with the Company's brokerage policies
and, when applicable, the negotiation of commissions in
connection therewith.
All decisions and placements shall be made in
accordance with the following principles:
A. Purchase and sale orders will usually be
placed with brokers which are selected by the
Investment Manager as able to achieve "best execution"
of such orders. "Best execution" shall mean prompt and
reliable execution at the most favorable security
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 World Fund
(involving both price paid or received 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.
B. In selecting brokers for portfolio
transactions, the Investment Manager shall take into
account its past experience as to brokers qualified to
achieve "best execution," including brokers who
specialize in any foreign securities held by World
Fund.
C. 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 World Fund
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 for which fixed minimum commission rates
are not applicable, to cause World 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 World Fund and the
other accounts, if any, as to which it exercises
investment discretion. In reaching such determination,
the Investment Manager will not be 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 the research services 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. Whether commissions
were within a reasonable range shall be based on any
available information as to the level of commission
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 World Fund to obtain a favorable price
than to pay the lowest commission; and (ii) the
quality, comprehensiveness and frequency of research
studies that are provided for the Investment Manager
are useful to the Investment Manager in performing its
advisory services under this Agreement. 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 this Agreement. Research furnished by
brokers through which World Fund effects securities
transactions may be used by the Investment Manager for
any of its accounts, and not all research may be used
by the Investment Manager for World Fund. 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.
D. 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.
E. Sales of World Fund's Shares (which shall be
deemed to include also Shares of other registered
investment companies which have either the same adviser
or an investment adviser affiliated with the Investment
Manager) 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 World
Fund to that broker; provided that the broker shall
furnish "best execution," as defined in subparagraph A
above, and that such allocation shall be within the
scope of the Company's policies as stated above;
provided further, that in every allocation made to a
broker in which the sale of World Fund's 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 subparagraph C
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 World
Fund's Shares.
(4) The Company on behalf of World Fund agrees, during
the life of this Agreement, to pay to the Investment Manager as
compensation for such services a monthly fee equal on an annual
basis to 0.75% of the first $200,000,000 of the average daily net
assets of World Fund, reduced to 0.675% of such average net
assets in excess of $200,000,000 up to $1,300,000,000 and further
reduced to 0.60% of such net assets in excess of $1,300,000,000.
Notwithstanding the foregoing, if the total expenses of
World Fund (including the fee to the Investment Manager) in any
fiscal year of World Fund exceed any expense limitation imposed
by applicable state law, the Investment Manager shall reimburse
World Fund for such excess in the manner and to the extent
required by applicable state law. The term "total expenses," as
used in this paragraph, does not include interest, taxes,
litigation expenses, distribution expenses, brokerage commissions
or other costs of acquiring or disposing of any of World Fund's
portfolio securities or any costs or expenses incurred or arising
other than in the ordinary and necessary course of World Fund's
business. When the accrued amount of such expenses exceeds this
limit, the monthly payment of the Investment Manager's fee will
be reduced by the amount of such excess, subject to adjustment
month by month during the balance of the Company's fiscal year if
accrued expenses thereafter fall below the limit.
(5) This Agreement shall become effective on October
30, 1992 and shall continue in effect until December 31, 1993.
If not sooner terminated, this Agreement shall continue in effect
for successive periods of 12 months each thereafter, provided
that each such continuance shall be specifically approved
annually by the vote of a majority of the Company's Board of
Directors who are not parties to this Agreement or "interested
persons" (as defined in Investment Company Act of 1940 (the "1940
Act")) of any such party, cast in person at a meeting called for
the purpose of voting on such approval and either the vote of (a)
a majority of the outstanding voting securities of World Fund, as
defined in the 1940 Act, or (b) a majority of the Company's Board
of Directors as a whole.
(6) Notwithstanding the foregoing, this Agreement may
be terminated by either party at any time, without the payment of
any penalty, on sixty (60) days' written notice to the other
party, provided that termination by the Company on behalf of
World Fund is approved by vote of a majority of the Company's
Board of Directors in office at the time or by vote of a majority
of the outstanding voting securities of World Fund (as defined by
the 1940 Act).
(7) This Agreement shall automatically and immediately
terminate in the event of its assignment (as defined in the 1940
Act).
(8) In the event this Agreement is terminated and the
Investment Manager no longer acts as Investment Manager to World
Fund, the Investment Manager reserves the right to withdraw from
World Fund the use of the name "Templeton" or any name
misleadingly implying a continuing relationship between World
Fund and the Investment Manager or any of its affiliates.
(9) It is understood that the services of the
Investment Manager are not deemed to be exclusive, and nothing in
this Agreement shall prevent the Investment Manager, or any
affiliate thereof, from providing similar services to other
investment companies and other clients, including clients which
may invest in the same types of securities as World Fund, or, in
providing such services, from using information furnished by
others. When the Investment Manager determines to buy or sell
the same security for World Fund that the Investment Manager or
one or more of its affiliates has selected for clients of its
affiliates, the orders for all such security transactions shall
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.
(10) Except as may otherwise be provided by the 1940
Act, neither the Investment Manager nor its officers, directors,
employees or agents shall be subject to any liability 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
World Fund's assets, or from acts or omissions of custodians, or
securities depositories, or from any war or political act of any
foreign government to which such assets might be exposed, or for
failure, on the part of the custodian or otherwise, timely to
collect payments, except for any liability, loss or damage
resulting from willful misfeasance, bad faith or gross negligence
on the Investment Manager's part or by reason of reckless
disregard of the Investment Manager's duties under this
Agreement. It is hereby understood and acknowledged by the
Company on behalf of World Fund that the value of the investments
made for World Fund may increase as well as decrease and are not
guaranteed by the Investment Manager. It is further understood
and acknowledged by the Company on behalf of World Fund that
investment decisions made on behalf of World Fund by the
Investment Manager are subject to a variety of factors which may
affect the values and income generated by World Fund's portfolio
securities, including general economic conditions, market factors
and currency exchange rates, and that investment decisions made
by the Investment Manager will not always be profitable or prove
to have been correct.
(11) This Agreement shall be construed in accordance
with the laws of the State of Maryland, provided that nothing
herein shall be construed as being inconsistent with applicable
Federal and state securities laws and any rules, regulations and
orders thereunder.
(12) If any provision of this Agreement shall be held
or made invalid by a court decision, statue, rule or otherwise,
the remainder of this Agreement shall not be affected thereby
and, to this extent, the provisions of this Agreement shall be
deemed to be severable.
(13) Nothing herein shall be construed as constituting
the Investment Manager an agent of the Company.
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.
on behalf of the
Templeton World Fund Class of
Shares
By: _______________________
John R. Kay
Vice President
TEMPLETON, GALBRAITH &
HANSBERGER LTD.
By: _______________________
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 30th day of October, 1992, and
amended and restated as of _______________, between TEMPLETON
FUNDS, INC. (the "Company"), on behalf of the Templeton Foreign
Fund class of the Company's Shares ("Foreign Fund"), and
TEMPLETON, GALBRAITH & HANSBERGER LTD. (the "Investment
Manager").
In consideration of the mutual agreements herein made,
the Company on behalf of Foreign Fund and the Investment Manager
understand and agree as follows:
(1) The Investment Manager agrees, during the life of
this Agreement, to manage the investment and reinvestment of
Foreign Fund's assets consistent with the provisions of the
Company's Articles of Incorporation and the investment policies
adopted and declared by the Company's Board of Directors on
behalf of Foreign Fund. In pursuance of the foregoing, the
Investment Manager shall make all determinations with respect to
the investment of Foreign Fund's assets and the purchase and sale
of its investment securities, and shall take all such steps as
may be necessary to implement those determinations. It is
understood that all acts of the Investment Manager in performing
this Agreement are performed by it outside the United States.
(2) The Investment Manager is not required to furnish
any personnel, overhead items or facilities for the Company or
Foreign Fund, including trading desk facilities or daily pricing
of Foreign Fund's portfolio.
(3) The Investment Manager shall be 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 Foreign Fund's portfolio
transactions consistent with the Company's brokerage policies
and, when applicable, the negotiation of commissions in
connection therewith.
All decisions and placements shall be made in
accordance with the following principles:
A. Purchase and sale orders will usually be
placed with brokers which are selected by the
Investment Manager as able to achieve "best execution"
of such orders. "Best execution" shall mean prompt and
reliable execution at the most favorable security
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 Foreign Fund
(involving both price paid or received 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.
B. In selecting brokers for portfolio
transactions, the Investment Manager shall take into
account its past experience as to brokers qualified to
achieve "best execution," including brokers who
specialize in any foreign securities held by Foreign
Fund.
C. 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 Foreign Fund
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 for which fixed minimum commission rates
are not applicable, to cause Foreign 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 Foreign Fund and the
other accounts, if any, as to which it exercises
investment discretion. In reaching such determination,
the Investment Manager will not be 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 the research services 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. Whether commissions
were within a reasonable range shall be based on any
available information as to the level of commission
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 Foreign Fund to obtain a favorable price
than to pay the lowest commission; and (ii) the
quality, comprehensiveness and frequency of research
studies that are provided for the Investment Manager
are useful to the Investment Manager in performing its
advisory services under this Agreement. 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 this Agreement. Research furnished by
brokers through which Foreign Fund effects securities
transactions may be used by the Investment Manager for
any of its accounts, and not all research may be used
by the Investment Manager for Foreign Fund. 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.
D. 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.
E. Sales of Foreign Fund's Shares (which shall
be deemed to include also Shares of other registered
investment companies which have either the same adviser
or an investment adviser affiliated with the Investment
Manager) 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 Foreign
Fund to that broker; provided that the broker shall
furnish "best execution," as defined in subparagraph A
above, and that such allocation shall be within the
scope of the Company's policies as stated above;
provided further, that in every allocation made to a
broker in which the sale of Foreign Fund's 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 subparagraph C
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
Foreign Fund's Shares.
(4) The Company on behalf of Foreign Fund agrees,
during the life of this Agreement, to pay to the Investment
Manager as compensation for such services a monthly fee equal on
an annual basis to 0.75% of the first $200,000,000 of the average
daily net assets of Foreign Fund, reduced to 0.675% of such
average net assets in excess of $200,000,000 up to $1,300,000,000
and further reduced to 0.60% of such net assets in excess of
$1,300,000,000.
Notwithstanding the foregoing, if the total expenses of
Foreign Fund (including the fee to the Investment Manager) in any
fiscal year of Foreign Fund exceed any expense limitation imposed
by applicable state law, the Investment Manager shall reimburse
Foreign Fund for such excess in the manner and to the extent
required by applicable state law. The term "total expenses," as
used in this paragraph, does not include interest, taxes,
litigation expenses, distribution expenses, brokerage commissions
or other costs of acquiring or disposing of any of Foreign Fund's
portfolio securities or any costs or expenses incurred or arising
other than in the ordinary and necessary course of Foreign Fund's
business. When the accrued amount of such expenses exceeds this
limit, the monthly payment of the Investment Manager's fee will
be reduced by the amount of such excess, subject to adjustment
month by month during the balance of the Company's fiscal year if
accrued expenses thereafter fall below the limit.
(5) This Agreement shall become effective on October
30, 1992 and shall continue in effect until
December 31, 1993. If not sooner terminated, this Agreement
shall continue in effect for successive periods of 12 months each
thereafter, provided that each such continuance shall be
specifically approved annually by the vote of a majority of the
Company's Board of Directors who are not parties to this
Agreement or "interested persons" (as defined in Investment
Company Act of 1940 (the "1940 Act")) of any such party, cast in
person at a meeting called for the purpose of voting on such
approval and either the vote of (a) a majority of the outstanding
voting securities of Foreign Fund, as defined in the 1940 Act, or
(b) a majority of the Company's Board of Directors as a whole.
(6) Notwithstanding the foregoing, this Agreement may
be terminated by either party at any time, without the payment of
any penalty, on sixty (60) days' written notice to the other
party, provided that termination by the Company on behalf of
Foreign Fund is approved by vote of a majority of the Company's
Board of Directors in office at the time or by vote of a majority
of the outstanding voting securities of Foreign Fund (as defined
by the 1940 Act).
(7) This Agreement shall automatically and immediately
terminate in the event of its assignment (as defined in the 1940
Act).
(8) In the event this Agreement is terminated and the
Investment Manager no longer acts as Investment Manager to
Foreign Fund, the Investment Manager reserves the right to
withdraw from Foreign Fund the use of the name "Templeton" or any
name misleadingly implying a continuing relationship between
Foreign Fund and the Investment Manager or any of its affiliates.
(9) It is understood that the services of the
Investment Manager are not deemed to be exclusive, and nothing in
this Agreement shall prevent the Investment Manager, or any
affiliate thereof, from providing similar services to other
investment companies and other clients, including clients which
may invest in the same types of securities as Foreign Fund, or,
in providing such services, from using information furnished by
others. When the Investment Manager determines to buy or sell
the same security for Foreign Fund that the Investment Manager or
one or more of its affiliates has selected for clients of its
affiliates, the orders for all such security transactions shall
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.
(10) Except as may otherwise be provided by the 1940
Act, neither the Investment Manager nor its officers, directors,
employees or agents shall be subject to any liability 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
Foreign Fund's assets, or from acts or omissions of custodians,
or securities depositories, or from any war or political act of
any foreign government to which such assets might be exposed, or
for failure, on the part of the custodian or otherwise, timely to
collect payments, except for any liability, loss or damage
resulting from willful misfeasance, bad faith or gross negligence
on the Investment Manager's part or by reason of reckless
disregard of the Investment Manager's duties under this
Agreement. It is hereby understood and acknowledged by the
Company on behalf of Foreign Fund that the value of the
investments made for Foreign Fund may increase as well as
decrease and are not guaranteed by the Investment Manager. It is
further understood and acknowledged by the Company on behalf of
Foreign Fund that investment decisions made on behalf of Foreign
Fund by the Investment Manager are subject to a variety of
factors which may affect the values and income generated by
Foreign Fund's portfolio securities, including general economic
conditions, market factors and currency exchange rates, and that
investment decisions made by the Investment Manager will not
always be profitable or prove to have been correct.
(11) This Agreement shall be construed in accordance
with the laws of the State of Maryland, provided that nothing
herein shall be construed as being inconsistent with applicable
Federal and state securities laws and any rules, regulations and
orders thereunder.
(12) If any provision of this Agreement shall be held
or made invalid by a court decision, statue, rule or otherwise,
the remainder of this Agreement shall not be affected thereby
and, to this extent, the provisions of this Agreement shall be
deemed to be severable.
(13) Nothing herein shall be construed as constituting
the Investment Manager an agent of the Company.
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.
on behalf of the
Templeton Foreign Fund Class of
Shares
By: _______________________
John R. Kay
Vice President
TEMPLETON, GALBRAITH &
HANSBERGER LTD.
By: _______________________
McGLADREY & PULLEN, LLP
Certified Public Accountants and Consultants
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated September
27, 1994, on the financial statements of Templeton World Fund and
Foreign Fund, series of Templeton Funds, Inc., referred to
therein, which appears in the 1994 Annual Reports to Shareholders
and which are incorporated herein by reference, in Post-Effective
Amendment No. 26 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
Statement of Additional Information under the caption
"Independent Accountants" and in the Prospectus under the caption
"Financial Highlights."
McGladrey & Pullen, LLP
New York, New York
February 27, 1995
DISTRIBUTION PLAN
WHEREAS, Templeton Funds, Inc. (the "Company") is
registered as an open-end diversified management investment
company under the Investment Company Act of 1940 (the "1940
Act"); and
WHEREAS, the Company on behalf of Templeton World Fund
(the "Fund") and Franklin Templeton Distributors, Inc. (the
"Selling Company"), a wholly owned subsidiary of Franklin
Resources, Inc. and a broker-dealer registered under the
Securities Exchange Act of 1934, have entered into a Distribution
Agreement pursuant to which the Selling Company will act as
principal underwriter of the Class I Shares of the Fund for sale
to the public; and
WHEREAS, shares of common stock of the Fund are divided
into classes of shares, one of which is designated Class I; and
WHEREAS, the Board of Directors of the Company has
determined to adopt this Distribution Plan (the "Plan"), in
accordance with the requirements of the 1940 Act and has
determined that there is a reasonable likelihood that the Plan
will benefit the Fund and the holders of Class I Shares.
NOW THEREFORE, the Company on behalf of the Fund hereby
adopts, with respect to its Class I Shares, the Plan on the
following terms and conditions:
1. The Fund will reimburse the Selling Company for
costs and expenses incurred in connection with the distribution
and marketing of the Class I Shares of the Fund. Such
distribution costs and expenses may include: (a) payments to
broker-dealers who provide certain services of value to the
Fund's Class I Shareholders (sometimes referred to as a "trail
fee"); (b) reimbursement of expenses relating to selling and
servicing efforts or of organizing and conducting sales seminars;
(c) payments to employees or agents of the Selling Company who
engage in or support distribution of the Class I Shares; (d)
payment of the costs of preparing, printing and distributing
prospectuses and reports to prospective investors and of printing
and advertising expenses; (e) payment of dealer commissions and
wholesaler compensation in connection with sales of the Fund's
Class I Shares exceeding $1 million (for which the Fund imposes
no sales charge) and interest or carrying charges in connection
therewith; and (f) such other similar services as the Fund's
Board of Directors determines to be reasonably calculated to
result in the sale of Class I Shares.
The Selling Company will be reimbursed for such costs,
expenses or payments on a monthly basis, subject to a limit of
0.25% per annum of the average daily net assets of the Fund's
Class I Shares. Payments made out of or charged against the
assets of the Class I Shares of the Fund must be in reimbursement
for costs and expenses in connection with any activity which is
primarily intended to result in the sale of the Fund's Class I
Shares. The costs and expenses not reimbursed in any one given
month (including costs and expenses not reimbursed because they
exceeded the limit of 0.25% per annum of the average daily net
assets of the Fund's Class I Shares) may be reimbursed in
subsequent months or years.
2. The Plan shall not take effect with respect to the
Fund's Class I Shares until it has been approved by a vote of at
least a majority (as defined in the 1940 Act) of the outstanding
voting securities of the Class I Shares of the Fund. With
respect to the submission of the Plan for such a vote, it shall
have been effectively approved with respect to the Fund's Class I
Shares if a majority of the outstanding voting securities of the
Class I Shares of the Fund votes for approval of the Plan.
3. The Plan shall not take effect until it has been
approved, together with any related agreements and supplements,
by votes of a majority of both (a) the Board of Directors of the
Company, and (b) those Directors of the Company who are not
"interested persons" (as defined in the 1940 Act) and have no
direct or indirect financial interest in the operation of the
Plan or any agreements related to it (the "Plan Directors"), cast
in person at a meeting (or meetings) called for the purpose of
voting on the Plan and such related agreements.
4. The Plan shall continue in effect so long as such
continuance is specifically approved at least annually in the
manner provided for approval of the Plan in paragraph 3.
5. Any person authorized to direct the disposition of
monies paid or payable by the Class I Shares of the Fund pursuant
to the Plan or any related agreement shall provide to the
Company's Board of Directors, and the Board shall review, at
least quarterly, a written report of the amounts so expended and
the purposes for which such expenditures were made.
6. Any agreement related to the Plan shall be in
writing and shall provide: (a) that such agreement may be
terminated at any time as to the Fund's Class I Shares, without
payment of any penalty, by vote of a majority of the Plan
Directors or by vote of a majority of the outstanding voting
securities of the Class I Shares of the Fund, on not more than
sixty days' written notice to any other party to the agreement;
and (b) that such agreement shall terminate automatically in the
event of its assignment.
7. The Plan may be terminated at any time, without
payment of any penalty, by vote of a majority of the Plan
Directors, or by vote of a majority of the outstanding Class I
Shares of the Fund.
8. The Plan may be amended at any time by the
Company's Board of Directors, provided that (a) any amendment to
increase materially the costs which the Class I Shares of the
Fund may bear for distribution pursuant to the Plan shall be
effective only upon approval by a vote of a majority of the Class
I Shares of the Fund, and (b) any material amendments of the
terms of the Plan shall become effective only upon approval as
provided in paragraph 3 hereof.
9. While the Plan is in effect, the selection and
nomination of Directors who are not "interested persons" (as
defined in the 1940 Act) of the Fund shall be committed to the
discretion of the Directors who are not interested persons.
10. The Company shall preserve copies of the Plan, any
related agreement and any report made pursuant to paragraph 5
hereof, for a period of not less than six years from the date of
the Plan, such agreement or report, as the case may be, the first
two years of which shall be in an easily accessible place.
IN WITNESS WHEREOF, the Company has executed this
Distribution Plan on this ___ day of ______, 1995.
TEMPLETON FUNDS, INC.
on behalf of Templeton World Fund
By:_______________________________
John R. Kay
Vice President
DISTRIBUTION PLAN
WHEREAS, Templeton Funds, Inc. (the "Company") is
registered as an open-end diversified management investment
company under the Investment Company Act of 1940 (the "1940
Act"); and
WHEREAS, the Company on behalf of Templeton World Fund
(the "Fund") and Franklin Templeton Distributors, Inc. (the
"Selling Company"), a wholly owned subsidiary of Franklin
Resources, Inc. and a broker-dealer registered under the
Securities Exchange Act of 1934, have entered into a Distribution
Agreement pursuant to which the Selling Company will act as
principal underwriter of the Class II Shares of the Fund for sale
to the public; and
WHEREAS, shares of common stock of the Fund are divided
into classes of shares, one of which is designated Class II; and
WHEREAS, the Board of Directors of the Company has
determined to adopt this Distribution Plan (the "Plan"), in
accordance with the requirements of the 1940 Act and has
determined that there is a reasonable likelihood that the Plan
will benefit the Fund and the holders of Class II Shares.
NOW THEREFORE, the Company on behalf of the Fund hereby
adopts, with respect to its Class II Shares, the Plan on the
following terms and conditions:
1. The Fund will reimburse the Selling Company for
costs and expenses incurred in connection with the distribution
and marketing of the Class II Shares of the Fund. Such
distribution costs and expenses may include: (a) payments to
broker-dealers who provide certain services of value to the
Fund's Class II Shareholders (sometimes referred to as a "trail
fee"); (b) reimbursement of expenses relating to selling and
servicing efforts or of organizing and conducting sales seminars;
(c) payments to employees or agents of the Selling Company who
engage in or support distribution of the Class II Shares; (d)
payment of the costs of preparing, printing and distributing
prospectuses and reports to prospective investors and of printing
and advertising expenses; (e) payment of dealer commissions and
wholesaler compensation in connection with sales of the Fund's
Class II Shares exceeding $1 million (for which the Fund imposes
no sales charge) and interest or carrying charges in connection
therewith; and (f) such other similar services as the Fund's
Board of Directors determines to be reasonably calculated to
result in the sale of Class II Shares.
The Selling Company will be reimbursed for such costs,
expenses or payments on a monthly basis, subject to an annual
limit of 1.00% per annum of the average daily net assets of the
Fund's Class II Shares (of which up to 0.25% of such net assets
may be paid to dealers for personal service and/or the
maintenance of Class II Shareholder accounts (the "Service Fee"))
and subject to any applicable restriction imposed by rules of the
National Association of Securities Dealers, Inc. Payments made
out of or charged against the assets of the Class II Shares of
the Fund must be in reimbursement for costs and expenses in
connection with any activity which is primarily intended to
result in the sale of the Fund's Class II Shares or account
maintenance and personal service to Shareholders. The costs and
expenses not reimbursed in any one given month (including costs
and expenses not reimbursed because they exceeded the limit of
1.00% per annum of the average daily net assets of the Fund's
Class II Shares) may be reimbursed in subsequent months or years.
2. The Plan shall not take effect with respect to the
Fund's Class II Shares until it has been approved by a vote of at
least a majority (as defined in the 1940 Act) of the outstanding
voting securities of the Class II Shares of the Fund. With
respect to the submission of the Plan for such a vote, it shall
have been effectively approved with respect to the Fund's Class
II Shares if a majority of the outstanding voting securities of
the Class II Shares of the Fund votes for approval of the Plan.
3. The Plan shall not take effect until it has been
approved, together with any related agreements and supplements,
by votes of a majority of both (a) the Board of Directors of the
Company, and (b) those Directors of the Company who are not
"interested persons" (as defined in the 1940 Act) and have no
direct or indirect financial interest in the operation of the
Plan or any agreements related to it (the "Plan Directors"), cast
in person at a meeting (or meetings) called for the purpose of
voting on the Plan and such related agreements.
4. The Plan shall continue in effect so long as such
continuance is specifically approved at least annually in the
manner provided for approval of the Plan in paragraph 3.
5. Any person authorized to direct the disposition of
monies paid or payable by the Class II Shares of the Fund
pursuant to the Plan or any related agreement shall provide to
the Company's Board of Directors, and the Board shall review, at
least quarterly, a written report of the amounts so expended and
the purposes for which such expenditures were made.
6. Any agreement related to the Plan shall be in
writing and shall provide: (a) that such agreement may be
terminated at any time as to the Fund's Class II Shares, without
payment of any penalty, by vote of a majority of the Plan
Directors or by vote of a majority of the outstanding voting
securities of the Class II Shares of the Fund, on not more than
sixty days' written notice to any other party to the agreement;
and (b) that such agreement shall terminate automatically in the
event of its assignment.
7. The Plan may be terminated at any time, without
payment of any penalty, by vote of a majority of the Plan
Directors, or by vote of a majority of the outstanding Class II
Shares of the Fund.
8. The Plan may be amended at any time by the
Company's Board of Directors, provided that (a) any amendment to
increase materially the costs which the Class II Shares of the
Fund may bear for distribution pursuant to the Plan shall be
effective only upon approval by a vote of a majority of the Class
II Shares of the Fund, and (b) any material amendments of the
terms of the Plan shall become effective only upon approval as
provided in paragraph 3 hereof.
9. While the Plan is in effect, the selection and
nomination of Directors who are not "interested persons" (as
defined in the 1940 Act) of the Fund shall be committed to the
discretion of the Directors who are not interested persons.
10. The Company shall preserve copies of the Plan, any
related agreement and any report made pursuant to paragraph 5
hereof, for a period of not less than six years from the date of
the Plan, such agreement or report, as the case may be, the first
two years of which shall be in an easily accessible place.
IN WITNESS WHEREOF, the Company has executed this
Distribution Plan on this ___ day of ______, 1995.
TEMPLETON FUNDS, INC.
on behalf of Templeton World Fund
By:_______________________________
John R. Kay
Vice President
DISTRIBUTION PLAN
WHEREAS, Templeton Funds, Inc. (the "Company") is
registered as an open-end diversified management investment
company under the Investment Company Act of 1940 (the "1940
Act"); and
WHEREAS, the Company on behalf of Templeton Foreign
Fund (the "Fund") and Franklin Templeton Distributors, Inc. (the
"Selling Company"), a wholly owned subsidiary of Franklin
Resources, Inc. and a broker-dealer registered under the
Securities Exchange Act of 1934, have entered into a Distribution
Agreement pursuant to which the Selling Company will act as
principal underwriter of the Class I Shares of the Fund for sale
to the public; and
WHEREAS, shares of common stock of the Fund are divided
into classes of shares, one of which is designated Class I; and
WHEREAS, the Board of Directors of the Company has
determined to adopt this Distribution Plan (the "Plan"), in
accordance with the requirements of the 1940 Act and has
determined that there is a reasonable likelihood that the Plan
will benefit the Fund and the holders of Class I Shares.
NOW THEREFORE, the Company on behalf of the Fund hereby
adopts, with respect to its Class I Shares, the Plan on the
following terms and conditions:
1. The Fund will reimburse the Selling Company for
costs and expenses incurred in connection with the distribution
and marketing of the Class I Shares of the Fund. Such
distribution costs and expenses may include: (a) payments to
broker-dealers who provide certain services of value to the
Fund's Class I Shareholders (sometimes referred to as a "trail
fee"); (b) reimbursement of expenses relating to selling and
servicing efforts or of organizing and conducting sales seminars;
(c) payments to employees or agents of the Selling Company who
engage in or support distribution of the Class I Shares; (d)
payment of the costs of preparing, printing and distributing
prospectuses and reports to prospective investors and of printing
and advertising expenses; (e) payment of dealer commissions and
wholesaler compensation in connection with sales of the Fund's
Class I Shares exceeding $1 million (for which the Fund imposes
no sales charge) and interest or carrying charges in connection
therewith; and (f) such other similar services as the Fund's
Board of Directors determines to be reasonably calculated to
result in the sale of Class I Shares.
The Selling Company will be reimbursed for such costs,
expenses or payments on a monthly basis, subject to a limit of
0.25% per annum of the average daily net assets of the Fund's
Class I Shares. Payments made out of or charged against the
assets of the Class I Shares of the Fund must be in reimbursement
for costs and expenses in connection with any activity which is
primarily intended to result in the sale of the Fund's Class I
Shares. The costs and expenses not reimbursed in any one given
month (including costs and expenses not reimbursed because they
exceeded the limit of 0.25% per annum of the average daily net
assets of the Fund's Class I Shares) may be reimbursed in
subsequent months or years.
2. The Plan shall not take effect with respect to the
Fund's Class I Shares until it has been approved by a vote of at
least a majority (as defined in the 1940 Act) of the outstanding
voting securities of the Class I Shares of the Fund. With
respect to the submission of the Plan for such a vote, it shall
have been effectively approved with respect to the Fund's Class I
Shares if a majority of the outstanding voting securities of the
Class I Shares of the Fund votes for approval of the Plan.
3. The Plan shall not take effect until it has been
approved, together with any related agreements and supplements,
by votes of a majority of both (a) the Board of Directors of the
Company, and (b) those Directors of the Company who are not
"interested persons" (as defined in the 1940 Act) and have no
direct or indirect financial interest in the operation of the
Plan or any agreements related to it (the "Plan Directors"), cast
in person at a meeting (or meetings) called for the purpose of
voting on the Plan and such related agreements.
4. The Plan shall continue in effect so long as such
continuance is specifically approved at least annually in the
manner provided for approval of the Plan in paragraph 3.
5. Any person authorized to direct the disposition of
monies paid or payable by the Class I Shares of the Fund pursuant
to the Plan or any related agreement shall provide to the
Company's Board of Directors, and the Board shall review, at
least quarterly, a written report of the amounts so expended and
the purposes for which such expenditures were made.
6. Any agreement related to the Plan shall be in
writing and shall provide: (a) that such agreement may be
terminated at any time as to the Fund's Class I Shares, without
payment of any penalty, by vote of a majority of the Plan
Directors or by vote of a majority of the outstanding voting
securities of the Class I Shares of the Fund, on not more than
sixty days' written notice to any other party to the agreement;
and (b) that such agreement shall terminate automatically in the
event of its assignment.
7. The Plan may be terminated at any time, without
payment of any penalty, by vote of a majority of the Plan
Directors, or by vote of a majority of the outstanding Class I
Shares of the Fund.
8. The Plan may be amended at any time by the
Company's Board of Directors, provided that (a) any amendment to
increase materially the costs which the Class I Shares of the
Fund may bear for distribution pursuant to the Plan shall be
effective only upon approval by a vote of a majority of the Class
I Shares of the Fund, and (b) any material amendments of the
terms of the Plan shall become effective only upon approval as
provided in paragraph 3 hereof.
9. While the Plan is in effect, the selection and
nomination of Directors who are not "interested persons" (as
defined in the 1940 Act) of the Fund shall be committed to the
discretion of the Directors who are not interested persons.
10. The Company shall preserve copies of the Plan, any
related agreement and any report made pursuant to paragraph 5
hereof, for a period of not less than six years from the date of
the Plan, such agreement or report, as the case may be, the first
two years of which shall be in an easily accessible place.
IN WITNESS WHEREOF, the Company has executed this
Distribution Plan on this ___ day of ______, 1995.
TEMPLETON FUNDS, INC.
on behalf of Templeton Foreign Fund
By:_______________________________
John R. Kay
Vice President
DISTRIBUTION PLAN
WHEREAS, Templeton Funds, Inc. (the "Company") is
registered as an open-end diversified management investment
company under the Investment Company Act of 1940 (the "1940
Act"); and
WHEREAS, the Company on behalf of Templeton Foreign
Fund (the "Fund") and Franklin Templeton Distributors, Inc. (the
"Selling Company"), a wholly owned subsidiary of Franklin
Resources, Inc. and a broker-dealer registered under the
Securities Exchange Act of 1934, have entered into a Distribution
Agreement pursuant to which the Selling Company will act as
principal underwriter of the Class II Shares of the Fund for sale
to the public; and
WHEREAS, shares of common stock of the Fund are divided
into classes of shares, one of which is designated Class II; and
WHEREAS, the Board of Directors of the Company has
determined to adopt this Distribution Plan (the "Plan"), in
accordance with the requirements of the 1940 Act and has
determined that there is a reasonable likelihood that the Plan
will benefit the Fund and the holders of Class II Shares.
NOW THEREFORE, the Company on behalf of the Fund hereby
adopts, with respect to its Class II Shares, the Plan on the
following terms and conditions:
1. The Fund will reimburse the Selling Company for
costs and expenses incurred in connection with the distribution
and marketing of the Class II Shares of the Fund. Such
distribution costs and expenses may include: (a) payments to
broker-dealers who provide certain services of value to the
Fund's Class II Shareholders (sometimes referred to as a "trail
fee"); (b) reimbursement of expenses relating to selling and
servicing efforts or of organizing and conducting sales seminars;
(c) payments to employees or agents of the Selling Company who
engage in or support distribution of the Class II Shares; (d)
payment of the costs of preparing, printing and distributing
prospectuses and reports to prospective investors and of printing
and advertising expenses; (e) payment of dealer commissions and
wholesaler compensation in connection with sales of the Fund's
Class II Shares exceeding $1 million (for which the Fund imposes
no sales charge) and interest or carrying charges in connection
therewith; and (f) such other similar services as the Fund's
Board of Directors determines to be reasonably calculated to
result in the sale of Class II Shares.
The Selling Company will be reimbursed for such costs,
expenses or payments on a monthly basis, subject to an annual
limit of 1.00% per annum of the average daily net assets of the
Fund's Class II Shares (of which up to 0.25% of such net assets
may be paid to dealers for personal service and/or the
maintenance of Class II Shareholder accounts (the "Service Fee"))
and subject to any applicable restriction imposed by rules of the
National Association of Securities Dealers, Inc. Payments made
out of or charged against the assets of the Class II Shares of
the Fund must be in reimbursement for costs and expenses in
connection with any activity which is primarily intended to
result in the sale of the Fund's Class II Shares or account
maintenance and personal service to Shareholders. The costs and
expenses not reimbursed in any one given month (including costs
and expenses not reimbursed because they exceeded the limit of
1.00% per annum of the average daily net assets of the Fund's
Class II Shares) may be reimbursed in subsequent months or years.
2. The Plan shall not take effect with respect to the
Fund's Class II Shares until it has been approved by a vote of at
least a majority (as defined in the 1940 Act) of the outstanding
voting securities of the Class II Shares of the Fund. With
respect to the submission of the Plan for such a vote, it shall
have been effectively approved with respect to the Fund's Class
II Shares if a majority of the outstanding voting securities of
the Class II Shares of the Fund votes for approval of the Plan.
3. The Plan shall not take effect until it has been
approved, together with any related agreements and supplements,
by votes of a majority of both (a) the Board of Directors of the
Company, and (b) those Directors of the Company who are not
"interested persons" (as defined in the 1940 Act) and have no
direct or indirect financial interest in the operation of the
Plan or any agreements related to it (the "Plan Directors"), cast
in person at a meeting (or meetings) called for the purpose of
voting on the Plan and such related agreements.
4. The Plan shall continue in effect so long as such
continuance is specifically approved at least annually in the
manner provided for approval of the Plan in paragraph 3.
5. Any person authorized to direct the disposition of
monies paid or payable by the Class II Shares of the Fund
pursuant to the Plan or any related agreement shall provide to
the Company's Board of Directors, and the Board shall review, at
least quarterly, a written report of the amounts so expended and
the purposes for which such expenditures were made.
6. Any agreement related to the Plan shall be in
writing and shall provide: (a) that such agreement may be
terminated at any time as to the Fund's Class II Shares, without
payment of any penalty, by vote of a majority of the Plan
Directors or by vote of a majority of the outstanding voting
securities of the Class II Shares of the Fund, on not more than
sixty days' written notice to any other party to the agreement;
and (b) that such agreement shall terminate automatically in the
event of its assignment.
7. The Plan may be terminated at any time, without
payment of any penalty, by vote of a majority of the Plan
Directors, or by vote of a majority of the outstanding Class II
Shares of the Fund.
8. The Plan may be amended at any time by the
Company's Board of Directors, provided that (a) any amendment to
increase materially the costs which the Class II Shares of the
Fund may bear for distribution pursuant to the Plan shall be
effective only upon approval by a vote of a majority of the Class
II Shares of the Fund, and (b) any material amendments of the
terms of the Plan shall become effective only upon approval as
provided in paragraph 3 hereof.
9. While the Plan is in effect, the selection and
nomination of Directors who are not "interested persons" (as
defined in the 1940 Act) of the Fund shall be committed to the
discretion of the Directors who are not interested persons.
10. The Company shall preserve copies of the Plan, any
related agreement and any report made pursuant to paragraph 5
hereof, for a period of not less than six years from the date of
the Plan, such agreement or report, as the case may be, the first
two years of which shall be in an easily accessible place.
IN WITNESS WHEREOF, the Company has executed this
Distribution Plan on this ___ day of ______, 1995.
TEMPLETON FUNDS, INC.
on behalf of Templeton Foreign Fund
By:_______________________________
John R. Kay
Vice President
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The schedule contains summary financial information extracted from the Templeton
World Fund August 31, 1994 annual report and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> TEMPLETON WORLD FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-END> AUG-31-1994
<INVESTMENTS-AT-COST> 4142114378
<INVESTMENTS-AT-VALUE> 5415508982
<RECEIVABLES> 30890399
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 287570
<TOTAL-ASSETS> 5446686951
<PAYABLE-FOR-SECURITIES> 15807744
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9187716
<TOTAL-LIABILITIES> 24995460
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3645846716
<SHARES-COMMON-STOCK> 317781804
<SHARES-COMMON-PRIOR> 289997756
<ACCUMULATED-NII-CURRENT> 77691521
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 424758650
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1273394604
<NET-ASSETS> 5421691491
<DIVIDEND-INCOME> 106668928
<INTEREST-INCOME> 28686426
<OTHER-INCOME> 0
<EXPENSES-NET> 51986529
<NET-INVESTMENT-INCOME> 83368825
<REALIZED-GAINS-CURRENT> 479395263
<APPREC-INCREASE-CURRENT> 300256449
<NET-CHANGE-FROM-OPS> 863020537
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (75645206)
<DISTRIBUTIONS-OF-GAINS> (398442723)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 27805398
<NUMBER-OF-SHARES-REDEEMED> (28680400)
<SHARES-REINVESTED> 28659050
<NET-CHANGE-IN-ASSETS> 800567645
<ACCUMULATED-NII-PRIOR> 69967902
<ACCUMULATED-GAINS-PRIOR> 343806110
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 31051062
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 51986529
<AVERAGE-NET-ASSETS> 4987676953
<PER-SHARE-NAV-BEGIN> 15.94
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> 2.50
<PER-SHARE-DIVIDEND> (0.26)
<PER-SHARE-DISTRIBUTIONS> (1.38)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.06
<EXPENSE-RATIO> 1<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>The expense ratio per the Templeton World Fund Annual Report August 31, 1994 is
1.04%.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TEMPLETON
FOREIGN FUND AUGUST 31, 1994 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> TEMPLETON FOREIGN FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-END> AUG-31-1994
<INVESTMENTS-AT-COST> 4322675299
<INVESTMENTS-AT-VALUE> 4987481618
<RECEIVABLES> 61079970
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5048561588
<PAYABLE-FOR-SECURITIES> 24233411
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9890569
<TOTAL-LIABILITIES> 34123980
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4047210764
<SHARES-COMMON-STOCK> 500863467
<SHARES-COMMON-PRIOR> 101734118
<ACCUMULATED-NII-CURRENT> 58852340
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 243568185
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 664806319
<NET-ASSETS> 5014437608
<DIVIDEND-INCOME> 65699502
<INTEREST-INCOME> 47445039
<OTHER-INCOME> 0
<EXPENSES-NET> 43356519
<NET-INVESTMENT-INCOME> 69788022
<REALIZED-GAINS-CURRENT> 253139732
<APPREC-INCREASE-CURRENT> 277918869
<NET-CHANGE-FROM-OPS> 600846623
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (42656339)
<DISTRIBUTIONS-OF-GAINS> (45810480)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 447225401<F1>
<NUMBER-OF-SHARES-REDEEMED> (50785053)
<SHARES-REINVESTED> 2689001
<NET-CHANGE-IN-ASSETS> 2346666581
<ACCUMULATED-NII-PRIOR> 31720657
<ACCUMULATED-GAINS-PRIOR> 36238933
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 23889119
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 43356519
<AVERAGE-NET-ASSETS> 3794019865
<PER-SHARE-NAV-BEGIN> 8.74
<PER-SHARE-NII> 0.19
<PER-SHARE-GAIN-APPREC> 1.34
<PER-SHARE-DIVIDEND> (0.13)
<PER-SHARE-DISTRIBUTIONS> (0.13)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.01
<EXPENSE-RATIO> 1<F2>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Effective February 25, 1994, the shares of the Fund were split on a
three shares for one share basis. As a result of the split, 266,109,385
shares were issued and added to the prior period number of shares.
<F2>The expense ratio per the Templeton Foreign Fund Annual Report
August 31, 1994 is 1.14%.
</FN>
</TABLE>
