TEMPLETON GROWTH FUND, INC.
TEMPLETON FUNDS, INC.
- TEMPLETON WORLD FUND
- TEMPLETON FOREIGN FUND
EXPLANATORY MEMORANDUM
NOVEMBER 6, 1995
<PAGE>
The Explanatory Memorandum of the Companies for the purpose of its public
offering in Hong Kong comprises this document and each Company's latest audited
report and half-yearly report (if later). The Hong Kong Representative accepts
the responsibility for the information contained in this document as being
accurate as at the date hereof.
A copy of this Explanatory Memorandum has been registered by the Registrar of
Companies in Hong Kong as required by Section 342C of the Companies Ordinance of
Hong Kong. Neither the Securities and Futures Commission nor the Registrar of
Companies, takes any responsibility as to the contents of this document.
This Explanatory Memorandum shall have the effect of rendering all persons
concerned bound by all the provisions (other than the penal provisions) of
sections 44A (other than subsection (2) thereof) and 44B of the Companies
Ordinance of Hong Kong, as far as applicable.
6th November, 1995
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IMPORTANT
If you are in any doubt about the contents of this Explanatory Memorandum, you
should consult your stockbroker, bank manager, solicitor, accountant or other
financial adviser.
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<PAGE>
DIRECTORS OF THE COMPANIES
CHARLES B JOHNSON
777 Mariners Island Boulevard
San Mateo, California
RUPERT H. JOHNSON, JR. (* see below)
777 Mariners Island Blvd
San Mateo, California
HARRIS J ASHTON
Metro Center, 1 Station Place
Stamford, Connecticut
S JOSEPH FORTUNATO
200 Campus Drive
Florham Park, New Jersey
F. BRUCE CLARKE
19 Vista View Blvd.
Thornhill, Ontario
HASSO-G VON DIERGARDT - NAGLO
R.R. 3
Stouffville, Ontario
FRED R MILLSAPS
2665 NE 37th Drive
Fort Lauderdale, Florida
BETTY P KRAHMER
2201 Kentmere Parkway
Wilmington, Delaware
<PAGE>
ANDREW H HINES, JR.
150 2nd Avenue N.
St. Petersburg, Florida
GORDON S MACKLIN
8212 Burning Tree Road
Bethesda, Maryland
NICHOLAS F BRADY
The Bullitt House
Dover & Harrison Streets
Easton, Maryland
JOHN Wm. GALBRAITH
360 Central Avenue
St Petersburg, Florida
(* a director of Templeton Funds, Inc. only)
SECRETARY AND REGISTERED OFFICE OF THE COMPANIES
Secretary THOMAS M MISTELE
Registered office 700 Central Avenue
St Petersburg
Florida 33701
<PAGE>
ADMINISTRATION AND OTHER PARTIES
Manager TEMPLETON, GALBRAITH & HANSBERGER LTD.
Lyford Cay
Nassau
Bahamas
Custodian THE CHASE MANHATTAN BANK N.A.
MetroTech Center
Brooklyn
New York 11245
Registrar FRANKLIN TEMPLETON INVESTOR SERVICES, INC.
700 Central Avenue
St Petersburg
Florida
Hong Kong TEMPLETON FRANKLIN INVESTMENT SERVICES (ASIA)
Representative LIMITED
2701 Shui On Centre
6-8 Harbour Road
Hong Kong
Auditors McGLADREY & PULLEN, LLP
555 Fifth Avenue
New York
New York 10017-2416
Legal Advisers WILDE SAPTE
31st Floor
One Exchange Square
Hong Kong
<PAGE>
DEFINITIONS
For the purposes of this document, the following expressions have the following
meanings:-
"BUSINESS DAY" a day (other than a Saturday) on which
banks in Hong Kong are open for normal
banking business;
"COMPANY" and "COMPANIES" Templeton Growth Fund, Inc. and/or
Templeton Funds, Inc. (as the case may be);
"FOREIGN FUND" Templeton Foreign Fund, a sub-fund of
Templeton Funds, Inc.;
"FUNDS" Growth Fund, Foreign Fund and World Fund;
"GROWTH FUND" Templeton Growth Fund, Inc.;
"US DOLLAR", "US$" and "CENTS" the currency of the United States of
America;
"HK DOLLAR", "HK$" The currency of Hong Kong;
"MANAGER" Templeton, Galbraith & Hansberger Ltd. in
its capacity as manager of each Fund's
investments;
"MANAGEMENT AGREEMENTS" the Agreements dated 30 October 1992 and
made between each Company and the Manager
by which each Company has appointed the
Manager as such;
"REGISTRAR" Franklin Templeton Investor Services, Inc.in
its capacity as the registrar of the
Companies;
<PAGE>
"SHARE" in relation to
Templeton Growth Fund, Inc. a redeemable Class I Common Share of US$O.OI
in the capital of such Company;
"SHARE" in relation to
Templeton Funds, Inc. a redeemable Class I Common Share of
US$1.00 in the capital of such Company;
"WORLD FUND" Templeton World Fund, a sub-fund of
Templeton Funds, Inc.;
"VALUATION DAY" the Business Day or Days in each week
determined from time to time by the
Directors to be the days as at which the net
asset value of each Company shall be
calculated.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policy of all of the Funds is to seek long-term
capital growth in US dollar terms through a flexible policy of investing in
stocks and debt obligations of companies and governments, in the case of Growth
Fund and World Fund, of any nation, and in the case of Foreign Fund, only those
outside of the United States.
Although the Growth Fund and World Fund are managed in a similar manner, and
often hold many of the same portfolio securities, the percentage of total assets
of each Fund allocated to common stocks and to short-term debt obligations (cash
equivalents) will vary at times. As example, at 31 August, 1995, the Growth Fund
had 72.4% of its total assets invested in common stocks, while the World Fund
had 81.3% invested. In addition, at various times the World Fund has owned a
greater proportion of U.S. stocks than the Growth Fund, while the Growth Fund at
times has owned more stocks in emerging countries (although these percentages
may of course vary at any time)
Each Company's investments are, of course, subject to market fluctuations and to
the risks inherent in all investments Therefore, the price of Shares and the
income from them may go down as well as up.
THE MANAGER
The directors of the Manager are J. Mark Mobius, Martin L. Flanagan, Mark G.
Holowesko, Charles B. Johnson, and Charles E Johnson.
ISSUE, REDEMPTION AND PUBLICATION OF PRICES
SUBSCRIPTIONS
Shares may be subscribed for at the prevailing Offering Price of Shares of the
relevant class. The Offering Price of each Share is calculated by reference to
the net asset value per Share of the relevant class on the relevant Valuation
Day together with a variable sales charge of up to 5.75% of the Offering Price .
No initial sales charge applies on investments of US$1,000,000 or more, but a
contingent deferred sales charge of 1% is imposed on certain redemptions within
one year of purchase. See below under "Redemptions".
PROCEDURE FOR APPLICATIONS
Applications should be made by completing and signing the application form and
sending the same by mail or by hand accompanied by a US dollar cheque or draft
payable to the applicable Fund or to Franklin Templeton Investment Services.
Payment may also be made by telegraphic transfer as advised by the Hong Kong
Representative, Shares will be issued at the Offering Price next determined
after the receipt of the application and payment by the Registrar.
No money should be paid to any intermediary in Hong Kong who is not a dealer or
an exempt dealer.
The minimum subscription and holding in any Fund is US$1,000.
The Hong Kong Representative and the Manager reserve the right to reject or
scale down any application in whole or in part.
Shares will be issued in registered form but share certificates will not be
issued unless specifically requested.
AUTOMATIC INVESTMENT PLAN
Investors may buy Shares regularly each month in US dollars only by giving a
direct debit instruction to their bank. An application form is available from
the Hong Kong Representative. Automatic Investment Plans can be terminated
without penalty by the investor giving written notice to the Hong Kong
Representative at least 10 days prior to the relevant debit date, or by the Hong
Kong Representative giving 30 days written notice to the investor. No separate
charges are made by the Funds or the Manager for this Plan.
RETIREMENT PLANS
Shares may be purchased for US taxpayers 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 the Hong Kong Representative.
To determine which retirement plan is appropriate, an investor should contact
his or her tax adviser
REDEMPTION
Subject to any suspension of the determination of the net asset value of a
Company (for details see paragraph (4) of "Miscellaneous') and subject as
mentioned below, Shares in such Company may be redeemed on any Valuation Day at
the request of the holder of such Shares. Each request must be given in writing
and must specify the number and class of Shares to be redeemed, the name of the
registered shareholder, and give payment instructions for the redemption
proceeds. In order for a redemption to take effect on a particular Valuation
Day, the redemption request
must be received by the Hong Kong Representative not later than 4:00 pm (Hong
Kong time) on that Valuation Day If the request is received after that time it
will be dealt with on the next Valuation Day.
Shares will be redeemed at the Redemption Price per Share of the relevant Fund
calculated by reference to the net asset value per Share of such Fund as at the
close of business on the relevant Valuation Day.
Subject as mentioned above and except where the redeeming shareholder gives
alternative payment instructions, such amount will be paid to the redeeming
shareholder at their risk by cheque or draft in US dollars. Such cheque or draft
will, subject as mentioned in paragraph (4) of "Miscellaneous", normally be
posted at the risk of the redeeming shareholder within 7 business days (and in
any event within one calendar month) after the relevant Valuation Day or
arrangements may be made for the telegraphic transfer of the redemption
proceeds.
No redemption of part of a holding of Shares in any Fund may be made which would
result in the shareholder retaining Shares of the relevant Fund having a value
of less than US$1,000.
Either Company may compulsorily redeem any holding which is less than the
minimum holding for the relevant Fund, provided that compulsory redemptions will
not result from fluctuations in the value of an investor's Shares.
A contingent deferred sales charge of 1% applies to redemptions by investors
within the first year after investing if they paid no sales charge when
investing. The charge is 1% of the lesser of the value of the Shares redeemed
(exclusive of reinvested dividends and capital gains distributions) or the total
cost of such Shares, and is retained by the Manager.
CONVERSION OF SHARES
Shares in one Fund may be exchanged for Shares in the other Fund on any
Valuation Day without any sales charge, subject to compliance with the minimum
holding requirements of each fund, and provided that more than 15 days have
elapsed from the date of the purchase of the Shares being exchanged.
This exchange privilege may be modified, limited or terminated at any time by
either Company on 60 days prior written notice.
PUBLICATION OF PRICES
The net asset value per Share in each Fund is published daily in English in the
South China Morning Post and in Chinese in the Hong Kong Economic Journal, and
weekly in the Asian Wall Street Journal, and is available from the Hong Kong
Representative on request.
SUSPENSION OF DEALINGS
The Directors may declare a suspension of dealings in any Fund in certain
circumstances as described in paragraph (4) under "Miscellaneous". No Shares in
such Fund will be issued or redeemed during such period of suspension.
CHARGES AND EXPENSES
MANAGER
The Manager is entitled to receive a management fee payable monthly in arrears
and calculated and accrued as at each Valuation Day at the rates shown below per
annum on the value of the net assets of each Fund as at the relevant Valuation
Day. In addition, the Manager's affiliate, Franklin Templeton Distributors,
Inc., is entitled to receive a monthly fee of a maximum of 0.25% of each
Company's average daily net assets. Accordingly the maximum total management fee
payable is:-
<TABLE>
<CAPTION>
VALUE OF NET ASSETS OF THE RELEVANT FUND ANNUAL PERCENTAGE RATE TOTAL FEE
<S> <C> <C>
First US$200,000,000 0.75% 1.00%
Next US$1,300,000,000 0.675% 0.925%
Over US$1,300,000,000 0.60% 0.85%
</TABLE>
<PAGE>
BUSINESS MANAGER
Templeton Global Investors, Inc. provides certain administrative facilities and
services for each Company and receives a fee equivalent on an annual basis to
0.15% of the aggregate average daily net assets of each Fund, reduced to 0. 135%
in respect of such net assets in excess of US$200 million, to 0 10% in respect
of such assets in excess of US$700 million, and to 0.075% in respect of such
assets in excess of US$1,200 million.
CUSTODIAN
The Custodian is entitled to receive a custodian fee from each Company based on
the aggregate value of the net assets of each Fund of the relevant Company and
ranging from 0.005% to 0.50% per annum depending on the country involved. In
addition, the Custodian is entitled to be reimbursed its out-of-pocket expenses.
The Custodian will bear the fees and expenses of any subcustodians which it may
appoint.
REGISTRAR
The Registrar receives an annual fee from each Company of US$ 13.42 per
shareholder account plus out of pocket expenses, such fee to be adjusted each
year to reflect changes in the US Department of Labor Consumer Price Index.
OTHER EXPENSES
Each Fund will bear costs liabilities and expenses attributable thereto,
including the cost of any brokerage fiscal and other costs payable on the
purchase holding or sale of investments; fees payable on increases in the share
capital of the relevant Company; company registration fees; paying agent fees;
the fees and expenses of the auditors and legal advisers to the relevant
Company; the cost of preparing, printing and distributing circulars to
shareholders, the annual and half-yearly reports and statements and subsequent
prospectuses of the relevant Company; fees payable to all regulatory authorities
having jurisdiction over the relevant Company; bank charges and interest on
borrowings; valuation expenses; the costs of any meetings of shareholders;
administration and secretarial fees and expenses; and any other operating
expenses.
Consistent with obtaining best execution, brokerage commissions on portfolio
transactions for the Funds may be directed by the Manager to broker-dealers in
recognition of research services furnished by them as well as for services
rendered in the execution of orders by such broker/dealers. Any such brokerage
commissions will be at rates not in excess of customary institutional
full-service brokerage rates, and any goods and services received will be of
demonstrable benefit to the Funds.
The receipt of investment research and information and related services permits
the Manager to supplement its own research and analysis and makes available to
it the views and information of individuals and research staffs of other firms.
Such services do not include travel, accommodation, entertainment, general
administrative goods or services, general office equipment or premises,
membership fees, employee salaries or direct money payment, which are paid by
the Manager.
TAXATION AND EXCHANGE CONTROL
Dividend and interest income of each Company may be received after the deduction
at source of withholding taxes.
Investors should consult their professional advisers on the consequences to them
of acquiring, holding, redeeming, transferring or selling Shares under the
relevant laws of the jurisdictions to which they are subject, including the tax
consequences and any exchange control requirements. The following statements
regarding taxation reflect each Company's understanding regarding the existing
law and practice in force in Hong Kong at the date of this document:-
(a) each Company is exempt from Hong Kong profits tax on interest from any
source and on profits realized on the disposal of securities; and
(b) Shareholders will not be liable to tax in Hong Kong on distributions
received in respect of Shares or on gains realized on the sale or
realization of Shares except where the acquisition and disposal of
Shares is or forms part of a trade, profession or business carried
on by the Shareholder in Hong Kong.
DIVIDENDS, REPORTS AND ACCOUNTS
DIVIDENDS
Each Company intends to distribute substantially the whole of the net income and
net realized capital gains which accrue to such Company. It is intended that
dividends will be paid yearly in October and December if necessary.
Dividends are automatically re-invested in the subscription of further Shares of
the same class unless the holder of the relevant Shares otherwise specifically
requests. Such Shares will be issued on the day on which the relevant dividend
is paid (or, if that day is not a Subscription Day, on the next succeeding
Valuation Day) at the net asset value for the relevant class of Shares
prevailing on the ex-dividend date.
REPORTS AND ACCOUNTS
Copies of the annual audited financial statements of each Company made up to
31st August in each year will be sent to shareholders of the relevant Company at
their registered addresses within 4 months of the end of such Company's
financial year. Shareholders will also be sent copies of the half-yearly
unaudited financial statements of such Company within two months of the end of
the period they cover.
MISCELLANEOUS
(1) Templeton Growth Fund, Inc. was incorporated in and under the laws of
Maryland, USA on 10 November 1986 as the successor in interest to
Templeton Growth Fund Ltd., a Canadian mutual fund company organized on
1 September 1954, pursuant to a reorganization of Templeton Growth Fund
Ltd. involving the division of that fund into two substantially
identical funds, one for US investors and the other for Canadian
investors
(2) Templeton Funds, Inc. was incorporated originally as Templeton World
Funds, Inc. on 5 October 1977 in and under the laws of Maryland, USA.
On 1 October 1982, the Company changed its name, and became a series
investment company with two classes of shares constituting respectively
World Fund and Foreign Fund.
(3) Either Company may be dissolved by resolution of the Directors approved
by the votes of 2/3 of all the Shareholders of the relevant Company
entitled to vote. If such a liquidation is carried out, it will be in
accordance with the relevant provisions of the General Laws of the
State of Maryland, United States of America.
(4) Copies of the following documents are available for inspection free of
charge at any time during normal business hours on any day (excluding
Saturdays, Sundays and public holidays) or for purchase at a reasonable
charge at the offices of the Hong Kong Representative:-
(a) Articles of Incorporation and By-laws of each Company;
(b) Investment Management Agreements as amended and restated on
12 June 1994 between each Company and the Manager;
(c) Custody Agreements dated 31 December 1986 between each
Company and the Custodian;
(d) Business Management Agreement dated 1 April 1993 between each
Company and Templeton Global Investors, Inc.;
(e) Underwriting Agreement and Distribution Plan each as amended
and restated on 5 January 1995 between each Company and
Franklin/Templeton Distributors, Inc.;
(f) Transfer Agent Agreement dated 1 September 1993 between each
company and the Registrar; and
(g) the Hong Kong Representative Agreement dated 5 September 1995
between each Company and the Hong Kong Representative.
(5) Suspension of Valuations
The Board of Directors of either Company may establish procedures
under which such Company may suspend the determination of the
net asset value of any Fund 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 the relevant Fund
is not reasonably practicable or it is not reasonably practicable
for such Company fairly to determine the value of its net assets, or
(4) for such other period as the U. S. Securities and Exchange
Commission may by order permit for the protection of the holders
of Shares.
(6) Share Capital
(a) The authorized share capital of Templeton Growth Fund, Inc.
consists of 600,000,000 Common Shares which may be issued as
Class I Common Shares of US$O.O1 each or Class II Common
Shares of US$O.O1 each. Class II Common Shares are not
available for sale to the public in Hong Kong.
(b) The authorized share capital of Templeton Funds, Inc. consists
of 1,350,000,000 Common Shares of US$1.00 each of which
600,000,000 are available for the World Fund and may be
issued as Class I Shares or as Class II Shares, and
750,000,000 are available for the Foreign Fund and may be
issued as Class I Shares or as Class II Shares. Class II
shares are not available for sale to the public in Hong Kong.
INVESTMENT RESTRICTIONS
None of the Funds may:-
(i) invest more than 5% of its total assets in securities issued by any
one company or government, exclusive of US Government Securities;
(ii) invest more than 25% of its total assets in a single industry;
(iii) purchase more than 10% of any class of securities of any one company or
invest in any company for the purpose of exercising control or
management;
(iv) invest more than 15% of its total assets in securities of foreign
issuers that are not listed on a recognized United States or foreign
securities exchange or invest more than 10% of its total assets
(including warrants) in securities with a limited trading market;
(v) invest more than 5% of its total assets in warrants (other than
warrants acquired in units or attached to securities) or in securities
of companies which have been in operation for less than 3 years;
(vi) invest more than 15% of its total net assets in warrants and options
not held for hedging purposes;
(vii) write uncovered options;
(viii) write a call option if the aggregate of the exercise prices of all such
options outstanding would exceed 25% of its total net assets;
(ix) invest in real estate or mortgages on real estate other than marketable
securities secured by real estate or interests therein or issued by
companies or investment trusts which invest in real estate or interests
therein;
(x) invest in commodities or commodity contracts except stock index futures
contracts;
(xi) invest in other open-end investment companies;
(xii) purchase or retain securities of any company in which Directors or
officers of the relevant Company or Manager, individually own more
than 1/2 of 1% of the securities of such company, or in the
aggregate own more than 5% of the securities of such company;
(xiii) sell securities short;
(xiv) acquire any asset which involves the assumption of unlimited liability;
(xv) acquire any security in respect of which a call is to be made unless
that call could be met out of cash or near cash which has not been set
aside for any other purpose;
(xvi) invest all its assets in US Government Securities unless it holds
securities of at least 6 different issues and not more than 30 per
cent of its net assets in any single issue;
(xvii) lend money, (except to the extent that the making of a deposit or the
purchase of a bond, or other debt instrument may constitute lending);
or
(xviii) borrow money for any purpose other than redeeming its Shares or
purchasing its Shares for cancellation, and then only as a temporary
measure to an amount not exceeding 5% of the value of its total
assets, or pledge, mortgage, or hypothecate its assets other
than to secure such temporary borrowings, and then only to such
extent not exceeding 10% of the value of its total assets as the
Board of Directors may by resolution approve. (For the purposes
of this restriction, collateral arrangements with respect to margin for
a stock index future contract are not deemed to be a pledge of assets.)
Changes of investments need not be made where any of the restrictions set out
above are exceeded merely by reason of fluctuations in the prices of assets or
in certain other circumstances, but if and so long as any of the said limits
shall be exceeded the Manager shall not purchase any type of investment which
would result in any of the said limits being further exceeded and the Manager
shall as a priority objective take all steps necessary within a reasonable
period of time to remedy the situation having due regard to the interests of
Shareholders.
Growth Fund and World Fund may, for hedging purposes only, 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
such Fund's total assets at the time when such contracts are entered into.
Growth Fund and 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. Growth
Fund and World Fund will not purchase put or call options if the aggregate
premium paid for such options would exceed 5% of such Fund's total assets.
