File No. 811-2781
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No.
(Check appropriate box or boxes)
TEMPLETON FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
(800) 237-0738
(Area Code and Telephone Number)
700 Central Avenue, St. Petersburg, FL 33701-3628
(Address of Principal Executive Offices
Number, Street, City, State, Zip Code)
Thomas M. Mistele, Secretary
700 Central Avenue
St. Petersburg, FL 33701-3628
(Name and Address of Agent for Service,
Number, Street, City, State, Zip Code)
Copies to:
Mark H. Plafker, Esquire
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103
Approximate Date of Proposed Public Offering: As soon as
practicable after this Registration Statement becomes effective
under the Securities Act of 1933.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
No filing fee is required because an indefinite number of shares have previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940.
A Rule 24f-2 Notice for the Registrant's fiscal year ended August 31, 1995 was
filed on October 30, 1995.
It is proposed that this filing will become effective on February 11, 1996,
pursuant to Rule 488.
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TEMPLETON FUNDS, INC.
CROSS REFERENCE SHEET
(Pursuant to Rule 481(a) under the
Securities Act of 1933)
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N-14 Item No. and Caption Location in Prospectus
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PART A
1. Beginning of Registration Statement and Cover Page of Registration Statement; Front
Outside Front Cover Page of Prospectus Cover Page of Prospectus
2. Beginning and Outside Back Cover Page Table of Contents
of Prospectus
3. Fee Table, Synopsis Information and Risk Summary; Risk Factors
Factors
4. Information About the Transaction Smmary; Reasons for the Transaction;
Information About the Transaction
5. Information About the Registrant Prospectus Cover Page; Summary; Comparison of
Investment Policies and Risks; Information About
the Foreign Fund
6. Information About the Company Being Prospectus Cover Page; Comparison of
Acquired Investment Policies and Risks; Information About
the International Fund
7. Voting Information Prospectus Cover Page; Notice of Special
Meeting of Shareholders; Solicitation and
Revocation of Proxies and Voting Information.
8. Interest of Certain Persons and Experts None
9. Additional Information Required for Not Applicable
Reoffering by Persons Deemed to be
Underwriters
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N-14 Item No. and Caption Location in Prospectus
PART B
10. Cover Page Cover Page of Statement of Additional
Information
11. Table of Contents Not Applicable
12. Additional Information about the Incorporation of Documents by Reference in the
Registrant Statement of Additional Information
13. Additional Information about the Company Incorporation of Documents by Reference in the
being Acquired Statement of Additional Information
14. Financial Statements Incorporation of Documents by Reference in the
Statement of Additional Information
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PART C - OTHER INFORMATION
Part C contains the information required by Items 15-17 under the items set
forth in the form.
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Dear Shareholder:
Enclosed is a Notice of Meeting for a Special Shareholders
Meeting which has been called for May 3, 1996 at 10:00 a.m. Pacific time, at our
principal office at 777 Mariners Island Boulevard, San Mateo, California 94404.
The accompanying Proxy Statement/Prospectus details a proposal being presented
for your consideration and requests your prompt attention and vote via the
enclosed proxy card.
PLEASE TAKE A MOMENT TO FILL OUT, SIGN AND
RETURN THE ENCLOSED PROXY CARD!
This meeting is critically important as you are being asked to
consider and approve an Agreement and Plan of Reorganization which would result
in an exchange of shares in your fund for those of a comparable fund managed by
Templeton Global Advisors Ltd. called the Templeton Foreign Fund (the "Foreign
Fund"), which is a series of Templeton Funds, Inc. ("Templeton Funds"). On the
date of the exchange, you will receive shares of the Templeton Foreign
Fund-Class I class of the Foreign Fund (the "Foreign Class") equal in value to
your investment in the Franklin International Equity Fund series (the
"International Fund") of Franklin Templeton International Trust (formerly known
as "Franklin International Trust" and hereinafter referred to as "International
Trust").
The transaction is being proposed because the projected growth
in assets of the International Fund was not sufficient to continue to offer a
fund with competitive performance and high quality service to shareholders over
the long term. The Foreign Fund has the same investment objective and
substantially similar investment policies as the International Fund. In
addition, it possesses the operating economies of scale which allow shareholders
to enjoy a relatively low cost investment program while receiving a high level
of service and communications.
Please take the time to review this document and vote now! To
ensure that your vote is counted, indicate your position on the enclosed proxy
card. Sign and return your card promptly. If you determine at a later date that
you wish to attend this meeting, you may revoke your proxy and vote in person.
Thank you for your attention to this matter.
Sincerely,
Deborah R. Gatzek
Secretary
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PRELIMINARY COPY
FRANKLIN TEMPLETON INTERNATIONAL TRUST -
FRANKLIN INTERNATIONAL EQUITY FUND
777 Mariners Island Boulevard
San Mateo, California 94404
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on May 3, 1996
To the Shareholders:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders
of the Franklin International Equity Fund series (the "International Fund") of
Franklin Templeton International Trust (formerly known as "Franklin
International Trust" and hereinafter referred to as "International Trust"), will
be held at International Trust's offices which are located at 777 Mariners
Island Boulevard, San Mateo, California 94404 on May 3, 1996 at 10:00 a.m.,
Pacific time, for the following reasons:
1. To approve or disapprove an Agreement and Plan of
Reorganization ("Agreement and Plan") between International Trust on behalf of
the International Fund and Templeton Funds, Inc. ("Templeton Funds") on behalf
of its Templeton Foreign Fund series (the "Foreign Fund") that provides for the
acquisition of substantially all of the assets of the Foreign Fund in exchange
for shares of the Templeton Foreign Fund-Class I class of shares (the "Foreign
Class") of the Templeton Fund, the distribution of such shares to the
shareholders of the International Fund, and the liquidation and dissolution of
the International Fund.
2. To vote upon any other business as may properly come before
the Special Meeting or any adjournment thereof.
The transaction contemplated by the Agreement and Plan is
described in the attached Prospectus/Proxy Statement. A copy of the Agreement
and Plan is attached as Exhibit A thereto.
Shareholders of record as of the close of business on February
7, 1996, are entitled to notice of, and to vote at, the Special Meeting or any
adjournment thereof.
By Order of the Board of Trustees,
Deborah R. Gatzek
Secretary
February 19, 1996
IF YOU ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN PERSON.
IF YOU DO NOT EXPECT TO ATTEND THE MEETING, THE BOARD OF TRUSTEES URGES YOU TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE. IT IS IMPORTANT THAT YOU RETURN YOUR SIGNED PROXY
PROMPTLY SO THAT A QUORUM MAY BE ENSURED.
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Combined Proxy Statement and Prospectus
TABLE OF CONTENTS
COVER PAGE
SUMMARY PAGe
Proposed Transaction Cover
Solicitation and Revocation of Proxies and
Voting Information
Tax Consequences
COMPARISONS OF SOME IMPORTANT FEATURES
Investment Objectives and Policies
Management of Templeton Funds and
International Trust
Fees and Expenses
Distribution Services
Purchase Price, Redemption Price, Dividends and
Distributions
Risk Factors
REASONS FOR THE TRANSACTION
INFORMATION ABOUT THE TRANSACTION
Method of Carrying Out Transaction
Conditions Precedent to Closing
Expenses of the Transaction
Tax Considerations
Description of the Foreign Class Shares of
the Templeton Fund
Capitalization
COMPARISON OF INVESTMENT POLICIES AND RISKS
Investment Objectives and Strategies
Investment Policies
Investment Restrictions
Risk Factors
INFORMATION ABOUT THE FOREIGN FUND
INFORMATION ABOUT THE INTERNATIONAL FUND
VOTING INFORMATION AND PRINCIPAL STOCKHOLDERS
TRANSFER AGENT AND CUSTODIAN
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<PAGE>
PRELIMINARY COPY
COMBINED PROXY STATEMENT AND PROSPECTUS
Dated ___________, 1996
Acquisition of the Assets of the
Franklin International Equity Fund series
of FRANKLIN TEMPLETON INTERNATIONAL TRUST
By and in exchange for shares of
the Templeton Foreign Fund-Class I
class of the Templeton Foreign Fund
series of TEMPLETON FUNDS, INC.
This Prospectus/Proxy Statement is being furnished to you in
connection with the solicitation of proxies by the Board of Trustees of Franklin
Templeton International Trust (formerly known as "Franklin International Trust"
and hereinafter referred to as "International Trust"). International Trust is a
series investment company with two series of shares of beneficial interest
outstanding. Each series represents an interest in a separate investment
portfolio, one designated as the Templeton Pacific Growth Fund and the other as
the Franklin International Equity Fund (the "International Fund" or the "Selling
Portfolio"). The transaction described herein relates solely to the
International Fund.
Proxies solicited will be voted at a Special Meeting of
Shareholders (the "Meeting") to approve or disapprove an Agreement and Plan of
Reorganization (the "Agreement and Plan"). The Meeting will be held at the
offices of International Trust at 777 Mariners Island Boulevard, San Mateo,
California 94404, on May 3, 1996 at 10:00 a.m. Pacific time. The Agreement and
Plan provides for the acquisition of substantially all of the assets of the
International Fund by and in exchange for shares of a class of shares of the
Templeton Foreign Fund series (the "Foreign Fund" or the "Acquiring Fund") of
Templeton Funds, Inc. ("Templeton Funds"), which is a mutual fund in the
Franklin Templeton Group of Funds managed by Templeton Global Advisors Ltd.
("Global Advisors") and which has investment objectives and policies which are
similar to those of the International Fund. The shares of the Foreign Fund to be
issued in the transaction will be the Templeton Foreign Fund-Class I Shares (the
"Foreign Class"), which are made available to shareholders with distribution
charges which are similar to those of the International Fund.
Following such transfer, shares of the Foreign Class will be
distributed to shareholders of the International Fund in complete liquidation of
the International Fund, and individual shareholders will receive that number of
shares of the Foreign Class having an aggregate net asset value equal to the
aggregate net asset value of such shareholder's shares of the International
Fund.
The Foreign Fund is a series of Templeton Funds, which is an
open-end, diversified management investment company, with principal offices
located at 700 Central Avenue, St. Petersburg, Florida 33701-3628. The
International Fund is a series of International Trust, which is also an open-end
management investment company. The assets of the Foreign Fund are managed by
Global Advisors, while the assets of the International
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Fund are managed by Franklin Advisers, Inc. ("Advisers"), with portfolio advice
and management assistance provided by Templeton Investment Counsel, Inc.
("TICI"), as sub-adviser. Global Advisors and TICI are both indirect
wholly-owned subsidiaries of Franklin Resources, Inc. ("Resources"), while
Advisers is a direct wholly-owned subsidiary of Resources. The Foreign Fund and
the International Fund share the same investment objective, namely long-term
growth of capital which they seek to achieve primarily through investments in
foreign equity securities.
This Prospectus/Proxy Statement, which should be retained for
future reference, sets forth concisely the information about the Foreign Class
of the Foreign Fund that a prospective investor should know before investing.
This Prospectus/Proxy Statement is accompanied by the prospectus of the Foreign
Fund dated January 1, 1996, which is incorporated by reference into this
Prospectus/Proxy Statement and attached hereto as Exhibit B. A Statement of
Additional Information dated ________________, 1996, relating to this
Prospectus/Proxy Statement, the transactions described herein and the parties
thereto, has been filed with the Securities and Exchange Commission and is
incorporated by reference into this Prospectus/Proxy Statement. A copy of that
Statement may be obtained without charge by writing to the address noted above
or by calling 1-800/DIAL BEN. A Prospectus for the International Fund, a
Statement of Additional Information for International Trust and the Annual
Report for the International Fund as of October 31, 1995 are also on file with
the Securities and Exchange Commission; each of these documents is incorporated
by reference herein and is available without charge upon request to
International Trust. This Prospectus/Proxy Statement will first be sent to
shareholders on or about February 19, 1996.
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/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS/PROXY
STATEMENT AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY REFERENCE AND,
IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY TEMPLETON FUNDS OR THE FOREIGN FUND.
SHARES OF THE FOREIGN FUND ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED OR ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER AGENCY. SHARES OF THE FOREIGN FUND INVOLVE INVESTMENT RISKS
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
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SUMMARY
This summary of certain information contained in this
Prospectus/Proxy Statement is qualified by reference to the more complete
information contained elsewhere in this Prospectus/Proxy Statement, the
Agreement and Plan attached to this Prospectus/ Proxy Statement as Exhibit A and
the Prospectus of the Foreign Fund attached to this Prospectus/Proxy Statement
as Exhibit B.
PROPOSED TRANSACTION. At a meeting held on November 14, 1995,
the Board of Trustees of International Trust, including a majority of the
trustees ("Independent Trustees") who are not "interested persons" of the Trust
as defined in the Investment Company Act of 1940, as amended (the "1940 Act"),
approved the Agreement and Plan providing for the transfer of substantially all
of the assets of the International Fund to the Foreign Fund, in exchange for
Foreign Class shares issued by the Foreign Fund and the distribution of such
Foreign Class shares received to the International Fund shareholders in complete
liquidation of the International Fund. (The proposed transaction is referred to
in this Prospectus/Proxy Statement as the "Transaction"). The value of Foreign
Class shares issued by the Foreign Fund in connection with the Transaction will
equal the value of the assets of the International Fund.
Pursuant to the Agreement and Plan, Foreign Class shares of
the Foreign Fund issued by Templeton Funds to International Trust will be
distributed to the shareholders of the International Fund in complete
liquidation of the International Fund. As a result, shareholders of the
International Fund will cease to be shareholders of such fund and will instead
be the owners of that number of full and fractional Foreign Class shares of the
Foreign Fund having an aggregate net asset value equal to the aggregate net
asset value of their shares of the International Fund on the Closing Date of the
Transaction.
For the reasons set forth below under "Reasons for the
Transaction," the Board of Trustees of International Trust including all of the
Independent Trustees present at the meeting at which the Transaction was
approved, has concluded that the Transaction is in the best interests of the
shareholders of the International Fund and, therefore, recommends approval of
the Agreement and Plan. The Board of Trustees of International Trust and the
Board of Directors of Templeton Funds, respectively, also concluded that no
dilution would result to the shareholders of the International Fund or the
Foreign Fund, respectively, as a result of the Transaction.
SOLICITATION AND REVOCATION OF PROXIES AND VOTING INFORMATION.
The affirmative vote of the holders of a majority of the outstanding shares of
the International Fund on the Record Date is necessary to approve the Agreement
and Plan. Each shareholder will be entitled to one vote for each full share, and
a fractional vote for each fractional share, of the International Fund held on
the Record Date. IF YOU GIVE NO VOTING INSTRUCTIONS ON YOUR PROXY, YOUR SHARES
WILL BE VOTED IN FAVOR OF THE AGREEMENT AND PLAN. You may, however, revoke your
proxy at any time before it is exercised by delivering a written notice to
International Trust expressly revoking your proxy, by signing and forwarding to
International Trust a later-dated proxy, or by attending the meeting and voting
by ballot at the meeting.
The Board of Trustees does not intend to bring any matters
before the Meeting other than the proposals described below and is not aware of
any other matters to be brought
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before the Meeting by others. If any other matter legally comes before the
Meeting, proxyholders for which discretion has been granted will vote shares in
accordance with the views of management.
Shareholders of record of the International Fund at the close
of business on February 7, 1996 (the "Record Date") will be entitled to vote at
the meeting. On the Record Date, there were [_______________] outstanding shares
of the International Fund. Under relevant state law and International Trust's
trust documents, abstentions and broker non-votes will be included for purposes
of determining whether a quorum is present at the Meeting, but will be treated
as votes not cast and, therefore, will not be counted for purposes of
determining whether the matter to be voted upon at the Meeting has been
approved.
International Trust will request broker-dealer firms,
custodians, nominees and fiduciaries to forward proxy material to the beneficial
owners of the shares of record by such persons. The International Fund may
reimburse such broker-dealer firms, custodians, nominees and fiduciaries for
their reasonable expenses incurred in connection with such proxy solicitation.
In addition to solicitations by mail, some of the officers and employees of
International Trust and Templeton Funds, without extra remuneration, may conduct
additional solicitations by telephone, telegraph and personal interviews.
International Trust may engage a proxy solicitation firm to solicit proxies from
brokers, banks, other institutional holders and individual shareholders.
In the event that a quorum is present at the Meeting but
sufficient votes to approve the proposals set forth in the Notice of Special
Meeting of Shareholders are not received by the date of the Meeting, the persons
named as proxies may propose one or more adjournments of the Meeting to permit
further solicitations of proxies. Any such adjournment will require the
affirmative vote of a majority of those shares entitled to vote present at the
Meeting in person or by proxy. The proxies will vote in the best interests of
management and all shareholders in proposing adjournment or in voting on an
adjournment proposed by a shareholder.
TAX CONSEQUENCES. In the opinion of Stradley, Ronon, Stevens &
Young, LLP, counsel to International Trust, based on certain assumptions and
representations received from International Trust and Templeton Funds, it is not
expected that shareholders of the International Fund will recognize any gain or
loss for federal income tax purposes as a result of the exchange of their shares
of the International Fund for shares of the Foreign Class or that the Foreign
Fund will recognize any gain or loss upon receipt of the International Fund
assets.
For further information about the tax consequences of the
Transaction, see "Information About the Transaction - Tax Considerations."
COMPARISONS OF SOME IMPORTANT FEATURES
INVESTMENT OBJECTIVES AND POLICIES. The investment objective
of both the Foreign Fund and the International Fund is long-term growth of
capital. The funds also have substantially similar investment strategies and
policies by which they seek to achieve the investment objective.
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The Foreign Fund utilizes a flexible policy of investing in
stocks and debt obligations of companies and governments outside the U.S.
Although it generally invests in common stocks, the Foreign Fund may invest in
debt securities, and does not operate within a specified percentage of equity
versus debt investments.
Under normal circumstances, the International Fund invests at
least 65% of its total assets in a diverse portfolio of equity securities which
trade on markets other than the U.S., and which are issued by companies
domiciled outside the U.S. or which derive at least 50% of either their revenue
or pre-tax income from activities outside the U.S. The International Fund also
may invest up to 35% of its total assets in bonds and fixed-income securities.
In selecting portfolio securities for investment, the International Fund
attempts to take advantage of the difference between economic trends and the
anticipated performance of securities and securities markets in different
countries.
MANAGEMENT OF TEMPLETON FUNDS AND INTERNATIONAL TRUST. The
management of the business and affairs of Templeton Funds and International
Trust is the responsibility of their Board of Directors and Trustees,
respectively. Templeton Funds was originally organized as a Maryland corporation
called Templeton World Fund, Inc. on August 15, 1977, and its name was changed
to Templeton Funds, Inc. on October 1, 1982. The investment manager for the
Foreign Fund is Global Advisors, which manages the investment and reinvestment
of the assets of the Foreign Fund. Global Advisors is an indirect wholly-owned
subsidiary of Franklin Resources, Inc. ("Resources"), a publicly owned holding
company, the principal shareholders of which are Charles B. Johnson and Rupert
H. Johnson, Jr., who own approximately 20% and 16%, respectively, of Resources'
outstanding shares. Through its subsidiaries, Resources is engaged in various
aspects of the financial services industry.
International Trust is a Delaware business trust, organized on
March 22, 1991. The investment manager for the International Fund of
International Trust is Advisers, and TICI serves as sub-adviser to the
International Fund pursuant to a sub-advisory agreement between Advisers and
TICI. Advisers is a direct, wholly-owned subsidiary of Resources, and acts as
investment manager or administrator to 34 U.S. registered investment companies
(116 separate series) with aggregate assets of over $77 billion. Like Global
Advisors, TICI is an indirect wholly-owned subsidiary of Resources.
The Foreign Fund and the International Fund both receive
shareholder accounting and other clerical services from Franklin/Templeton
Investor Services, Inc. ("Investor Services" or "Shareholder Services Agent") in
its capacity as transfer agent and dividend paying agent. Investor Services is a
wholly-owned subsidiary of Resources and is located at the same address as
Advisers. Pursuant to a Business Management Agreement between Templeton Funds on
behalf of the Foreign Fund and Templeton Global Investors, Inc. ("TGI"), TGI
provides certain administrative facilities and services for the Foreign 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. TGI receives a fee from the Foreign Fund for the business management
services described above. In the case of the International Fund, Advisers, at
its own expense, furnishes the International Fund with office space and office
furnishings, facilities and equipment required for managing the business affairs
of the International Fund and maintains all internal bookkeeping, clerical and
secretarial and administrative personnel and services.
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FEES AND EXPENSES. Pursuant to its Investment Management
Agreement with Global Advisors, the Foreign Fund pays Global Advisors 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; 0.675% of such average daily net assets in
excess of $200,000,000 up to $1,300,000,000, and 0.60% of such average daily net
assets in excess of $1,300,000,000. The Foreign Fund also pays TGI a portion of
a monthly fee for the business management services described above. The monthly
fee is equal on an annual basis to 0.15% of the first $200,000,000 of Templeton
Fund's aggregate average daily net assets (i.e. the total of both series of
Templeton Funds), with reductions at certain break points. The fee is allocated
between each series of Templeton Funds according to the respective net assets,
and each class (including the Foreign Class) bears a portion of the fee,
determined by the proportion of the fund that it represents. Under the
Management Agreement between the International Fund and Advisers, Advisers
receives a fee totaling 1.00% of the average daily net assets of the Fund on the
first $100,000,000; 0.90% of the average daily net assets over $100,000,000 up
through $250,000,000; 0.80% of the average daily net assets over $250,000,000 up
through $500,000,000 and 0.75% of the average daily net assets over
$500,000,000. Given the present size of the International Fund, Advisers is
entitled to receive a fee totaling 1.00% of the average daily net assets of the
International Fund. Of this 1.00%, approximately one half would be payable by
Advisers to TICI for its services under the sub-advisory agreement.
DISTRIBUTION SERVICES. With respect to the Foreign Fund,
Franklin/Templeton Distributors, Inc. ("FTDI"), acting as agent for Templeton
Funds, is the distributor of the shares of the Foreign Fund. The directors of
Templeton Funds have adopted a Plan of Distribution pursuant to Rule 12b-1 under
the 1940 Act for the Foreign Class shares of the Foreign Fund (the "Foreign
Class Distribution Plan"). The Foreign Class Distribution Plan provides that the
Foreign Fund will use up to (but not necessarily all of) 0.25% of its average
daily net assets annually to pay expenses relating to the distribution of its
shares. The fees paid by the Foreign Fund under the Foreign Class Distribution
Plan may be used to compensate brokers, dealers or others ("Selling Agents") for
their activities involving the distribution of the Foreign Class Shares. Any
fees remaining after Selling Agents receive their compensation may be used by
the Foreign Class to reimburse FTDI for routine ongoing promotion and
distribution expenses incurred with respect to the Foreign Class. Such expenses
may include, but are not limited to, the printing of prospectuses and reports
used for sales purposes, expenses of preparing and distributing sales literature
and related expenses, advertisements and other distribution-related expenses,
including a prorated portion of FTDI's overhead expenses attributed to the
distribution of the Foreign Class of shares.
The Trustees of International Trust have also adopted a
distribution plan pursuant to Rule 12b-1 under the 1940 Act for the shares of
the International Fund (the "International Fund Distribution Plan"). The
International Fund Distribution Plan permits the International Fund to reimburse
FTDI, which is also the underwriter of the International Fund's shares, or
others a quarterly fee of up to 0.25% per year of the fund's average daily net
assets for services and expenses incurred in distributing and promoting sales of
the International Fund's shares. Such expenses 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 FTDI's overhead expenses attributed to the distribution of the
International Fund shares, as well as any distribution or service fee's paid to
securities
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dealers or their firms or others who have executed a servicing arrangement with
the International Fund, FTDI or its affiliates.
The ratio of operating expenses to average net assets for the
Foreign Class of the Foreign Fund for its most recent fiscal year ended August
31, 1995 was 1.15% and the ratio of operating expenses to average net assets for
the International Fund as of its most recent fiscal year ended October 31, 1995
was 1.63%.
PRO FORMA FEE TABLE FOR THE
INTERNATIONAL FUND AND THE FOREIGN CLASS
FOR THE 12 MONTH PERIOD ENDED OCTOBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Actual Pro Forma
INTERNATIONAL FUND FOREIGN CLASS AFTER TRANSACTION
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.50% 5.75% 5.75%
Exchange Fee1 $5.00 $5.00 $5.00
Deferred Sales Charge2 None None None
Annual Fund Operating Expenses (as percentage of average net assets at October
31, 1995):
Management Fees............................... 1.00% 0.62% 0.62%
12b-1 Fees3................................... 0.22% 0.25% 0.25%
Other Expenses................................ 0.41% 0.27% 0.28%
Total Operating Expenses...................... 1.63% 1.14% 1.15%
</TABLE>
1 EXCHANGE FEE FOR BOTH FUNDS ONLY IMPOSED ON TIMING ACCOUNTS AS DEFINED UNDER
"EXCHANGE PRIVILEGE" IN EACH FUND'S PROSPECTUS. ALL OTHER EXCHANGES ARE
PROCESSED WITHOUT A FEE.
2 INVESTMENTS OF $1 MILLION OR MORE FOR BOTH FUNDS ARE NOT SUBJECT TO A
FRONT-END SALES CHARGE; HOWEVER, A CONTINGENT DEFERRED SALES CHARGE OF 1% IS
IMPOSED ON CERTAIN REDEMPTIONS WITHIN 12 MONTHS OF THE CALENDAR MONTH OF
SUCH INVESTMENTS.
3 ANNUAL RULE 12B-1 FEES MAY NOT EXCEED 0.25% OF THE AVERAGE NET ASSETS
ATTRIBUTABLE TO THE SHARES OF THE INTERNATIONAL FUND AND THE FOREIGN CLASS,
RESPECTIVELY. 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.
EXAMPLE:
Based on the level of expenses listed above after reimbursement, an
investor would pay the following expenses on a $1,000 investment, assuming a 5%
annual return and redemption at the end of each time period:
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<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
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<S> <C> <C>
International Fund $61 $94 $130 $230
Foreign Class $68 $92 $117 $188
Pro Forma Foreign Class $69 $92 $117 $189
(after proposed
transaction)
</TABLE>
The foregoing tables are designed to assist the investor in
understanding the various costs and expenses that a shareholder will bear
directly or indirectly. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE
SHOWN.
PURCHASE PRICE, REDEMPTION PRICE, DIVIDENDS AND DISTRIBUTIONS.
Both the Franklin Fund and International Fund are sold on a continuous basis at
their respective current offering price which is equal to each Fund's net asset
value plus a sales charge calculated as a percentage of the offering price. The
maximum sales charge on sales of the shares of the Foreign Class is 5.75% of the
offering price (equivalent to 6.10% of the net asset value of the purchase),
which is reduced on larger sales. The maximum sales charge payable on purchases
of the International Fund is 4.50% of the offering price (equivalent to 4.71% of
the net asset value of the purchase), with reductions for larger sales. The
current prospectus for each fund contains a chart showing the reduced sales
charges that would be applicable to larger purchases of the respective funds.
Both the Foreign Class and the International Fund require a
minimum initial investment of $100 and subsequent investments of at least $25.
The minimum for the Foreign Class may be waived when shares are purchased
through retirement plans providing for regular periodic investments. Similarly,
the minimum for the International Fund may be waived when the shares are
purchased through plans established by the Franklin Templeton Group of Funds.
Shares of both the Foreign Class and the International Fund
may be redeemed at their respective net asset value per share, although
redemptions of shares purchased in amounts of $1,000,000 or more are generally
subject to a contingent deferred sales charge of 1% for a period of 12 months
following such investments. Shares of each fund may be exchanged for shares of
other members of the Franklin Templeton Group of Funds subject to certain
limitations, as provided in the prospectuses of the respective Franklin
Templeton Group of Funds.
The Foreign Fund and International Fund each have
policies of distributing substantially all of their net
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investment income and net capital gains to their respective shareholders. The
Foreign Fund intends to pay a dividend in October and, if necessary, in December
representing substantially all of its net investment income and any net realized
capital gains. The International Fund's current policy is to declare income
dividends payable semi-annually in June and December to shareholders of record
generally on the first business day preceding the 15th day of these months,
payable on or about the last business day of such months. The International Fund
generally makes capital gains distributions once a year in December to reflect
any net short-term and long-term capital gains realized by the International
Fund as of October 31 of the current year.
RISK FACTORS. Because of the similarities of the investment
objectives and policies of the Foreign Fund and the International Fund, the
investment risks associated with an investment in the Foreign Fund are generally
the same as those of the International Fund. There are, however, some
distinctions in the investment program and attendant risks of each of the
Foreign Fund and the International Fund. These are summarized under "COMPARISON
OF INVESTMENT POLICIES - Risk Factors" below and risks of investment in the
Foreign Fund are also outlined in the accompanying prospectus of the Foreign
Fund.
REASONS FOR THE TRANSACTION
The Transaction has been recommended by the Board of Trustees
of International Trust on behalf of the International Fund as a means of
combining the fund with a larger fund which should be better able to diversify
its investments and to obtain certain economies of scale with attendant savings
in costs for the Fund and its shareholders. The Transaction was also recommended
as a method of combining two similar funds within the same family of mutual
funds to eliminate duplication of expenses and internal competition.
Because of the relatively small size of the International
Fund, and concerns regarding its ability to operate cost competitively on a
stand alone basis, Advisers and TICI recommended to the Trustees the sale of the
assets of the International Fund to a larger fund which has similar investment
objectives and policies, subject to the approval of the Board of Trustees and
approval of the fund's shareholders.
The Agreement and Plan was presented to the Trust's Board of
Trustees at a meeting held on November 14, 1995, at which meeting the Trust's
Board of Trustees questioned management about the potential benefits to be
gained by shareholders of the
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International Fund as well as any additional costs to be borne. In determining
whether to recommend approval of the Transaction to shareholders, the Board of
Trustees considered, among other factors: the expense ratio of the International
Fund as well as similar funds; the comparative investment performance of the
International Fund with the performance of similar funds; the compatibility of
the investment objectives, policies, restrictions and portfolios of the
International Fund with the Foreign Fund; the tax consequences of the
Transaction; and the significant experience Global Advisors has, as the manager
of more than $27.6 billion in assets in international and global mutual funds.
During the course of its deliberations, the Trust's Board of
Trustees also considered the fact that the expenses of the Transaction will be
shared equally by Advisers and Global Advisors.
In reaching the decision to recommend that shareholders of the
International Fund vote to approve the Transaction, the Board of Trustees
concluded that the Transaction is in the best interests of the shareholders of
the International Fund and that no dilution would result to the shareholders of
the International Fund from the Transaction. The Board's conclusion was based on
a number of factors, including that the Transaction would permit shareholders to
pursue their investment goals in a larger fund. A larger fund should have
enhanced ability to effect portfolio transactions on more favorable terms and
should have greater investment flexibility. Higher aggregate net assets also
should enable shareholders to obtain the benefits of economies of scale,
permitting the reduction or elimination of certain duplicate costs and expenses
which may result in lower overall expense ratios through the spreading of both
fixed and variable costs of fund operations over a larger asset base. As a
general rule, economies can be expected to be realized primarily with respect to
fixed expenses. However, expenses that are based on the value of assets or the
number of shareholder accounts, such as custody and transfer agent fees, would
be largely unaffected by the Transaction. The Board of Directors of the
Templeton Funds also determined that the Transaction was in the best interests
of its shareholders and that no dilution would result to such shareholders.
FOR THE REASONS DISCUSSED ABOVE, THE BOARD OF TRUSTEES
RECOMMENDS THAT YOU VOTE FOR THE PLAN. If the Plan is not approved, the Board of
Trustees will consider other possible courses of action with respect to the
International Fund, including dissolution and liquidation.
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INFORMATION ABOUT THE TRANSACTION
The following summary of the Agreement and Plan does not
purport to be complete, and is subject in all respects to the provisions of, and
is qualified in its entirety by reference to, the Agreement and Plan, a copy of
which is attached hereto as Exhibit A.
METHOD OF CARRYING OUT THE TRANSACTION. If the shareholders of
the Selling Portfolio approve the Agreement and Plan relating to the Selling
Portfolio, the reorganization of such Portfolio will be consummated promptly
after the various conditions to the obligations of each of the parties are
satisfied. (See "Conditions Precedent to Closing"). Consummation of the
Transaction will be on [________________, 1996] (the "Closing Date"), or such
other date as is agreed to by Templeton Funds on behalf of the Foreign Fund and
International Trust on behalf of the International Fund, provided that the
Agreement and Plan may be terminated by either party if the Closing Date does
not occur on or before [________________, 1996 (Closing Date plus 60 days)].
On the Closing Date, the Selling Portfolio will deliver to the
Acquiring Fund substantially all of its assets in exchange for shares of the
Foreign Class having an aggregate net asset value equal to the aggregate value
of assets so delivered as of 4:00 P.M. Eastern time on the Closing Date. In the
event that the shareholders of the International Fund do not approve the Plan,
the assets of the International Fund will not be delivered on the Closing Date
and the obligations of International Trust under the Agreement and Plan relating
to the International Fund shall not be effective. The stock transfer books of
International Trust with respect to the International Fund, assuming the
shareholders have approved the Agreement and Plan, will be permanently closed as
of 1:00 P.M. Pacific time on the Closing Date and only requests for redemption
of shares of the International Fund received in proper form prior to 1:00 P.M.
on the Closing Date will be accepted by International Trust. Redemption requests
relating to the International Fund received by International Trust thereafter
shall be deemed to be redemption requests for shares of the Acquiring Fund to be
distributed to the former shareholders of the International Fund.
International Trust will receive upon consummation of the
Transaction, shares of the Acquiring Fund. The number of shares shall be based
on the dollar value of the assets delivered to Templeton Funds.
CONDITIONS PRECEDENT TO CLOSING. The obligation of
International Trust to deliver the assets of the Selling
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Portfolio to the Acquiring Fund pursuant to the Agreement and Plan is subject to
the satisfaction of certain conditions precedent, including performance by the
Acquiring Fund, in all material respects, of its agreements and undertakings
under the Plan, the receipt of certain documents from the Acquiring Fund, the
receipt of an opinion of counsel to the Acquiring Fund, and requisite approval
of the Agreement and Plan by the shareholders of the Selling Portfolio, as
described above. The obligations of the Acquiring Fund to consummate the
Transaction is subject to the satisfaction of certain conditions precedent,
including the performance by International Trust of its agreements and
undertakings under the Agreement and Plan, the receipt of certain documents and
financial statements from International Trust, and the receipt of an opinion of
counsel to International Trust.
EXPENSES OF THE TRANSACTION. The expenses relating to the
Transaction will be borne equally by Advisers and Global Advisors, the
investment advisers for each fund involved in the transaction.
TAX CONSIDERATIONS. In the opinion of Stradley, Ronon, Stevens
& Young, LLP, counsel to International Trust, based on certain assumptions and
representations received from International Trust and Templeton Funds, it is not
expected that shareholders of the International Fund will recognize any gain or
loss for federal income tax purposes as a result of the exchange of their shares
of the International Fund for shares of the Foreign Class or that Templeton
Funds will recognize any gain or loss upon receipt of the International Fund
assets.
Shareholders of the Selling Portfolio should consult their tax
advisors regarding the effect, if any, of the Transaction in light of their
individual circumstances. Since the foregoing discussion only relates to the
federal income tax consequences of the Transaction, shareholders of the Selling
Portfolio should also consult their tax advisers as to state and local tax
consequences, if any, of the Transaction.
DESCRIPTION OF THE FOREIGN CLASS SHARES OF THE FOREIGN FUND.
Shares of the Foreign Class will be issued to shareholders of the International
Fund in accordance with the procedures under the Agreement and Plan as described
above. Each share will be fully paid and nonassessable when issued with no
personal liability attaching to the ownership thereof, will have no preemptive
or conversion rights and will be transferable upon the books of the Foreign
Fund. In accordance with the Foreign Fund's normal procedures as specified in
its prospectus, the Foreign Fund will not generally issue certificates for
shares of its capital stock to former shareholders of the International Fund
unless requested. Ownership of the Foreign Class shares by
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former shareholders of the International Fund will be recorded electronically
and the Foreign Fund will issue a confirmation to such shareholders relating to
those shares acquired as a result of the Transaction. No redemption or
repurchase of any shares of the Foreign Class issued to former shareholders of
the International Fund whose shares are represented by unsurrendered share
certificates shall be permitted until such certificates have been surrendered
for cancellation.
As shareholders of the Foreign Fund, former shareholders of
the International Fund will have substantially similar voting rights and rights
upon dissolution with respect to the Foreign Fund as they currently have with
respect to the International Fund. The shares of both the International Fund and
the Foreign Class have non-cumulative voting rights, which means that, in all
elections of trustees or directors, the holders of more than 50% of the shares
voting can elect 100% of the trustees or directors, if they choose to do so and
in such event, the holders of the remaining shares voting will not be able to
elect any person or persons to the Board of Trustees or Directors.
It is the position of the Division of Investment Management of
the U.S. Securities and Exchange Commission that shareholders of the
International Fund will not be entitled to any "dissenters' rights" since the
proposed Transaction involves two open-end investment companies registered under
the 1940 Act. Although no dissenters' rights may be available to shareholders of
the International Fund, shareholders have the right to redeem their shares at
net asset value until the Closing Date, and thereafter such shareholders may
redeem their Foreign Class shares or exchange their Foreign Class shares into
shares of certain other funds in the Franklin Templeton Group of Funds subject
to the terms of the Prospectus of the fund being acquired.
Like International Trust, Templeton Funds does not routinely
hold annual meetings of shareholders.
International Trust and Templeton Funds are both multi-series
investment companies which currently issue shares representing interests in two
series. Each series of Templeton Funds (one of which is the Foreign Fund)
divides its shares into two separate classes which are distributed subject to
different charges and fees. Shareholders of each series of each fund currently
vote in the aggregate with the shareholders of the Fund's other series on
certain matters (for example, the election of trustees or directors and the
ratification of independent accountants). For matters that only affect a certain
series of a Fund (or a certain class of a series in the case of a Templeton
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<PAGE>
Funds series), only the shareholders of that series or class are entitled to
vote.
CAPITALIZATION. The following table sets forth as of October
31, 1995, (i) the capitalization of the International Fund, (ii) the
capitalization of the Foreign Fund, (iii) the capitalization of the Foreign
Class; and (iv) the pro forma capitalization of the Foreign Fund and Foreign
Class as adjusted to give effect to the proposed Transaction. The capitalization
of the Foreign Fund and Foreign Class are likely to be different when the
Transaction is consummated.
<TABLE>
<CAPTION>
Foreign Fund Foreign Class
Pro Forma Pro Forma
after after
International Foreign Fund Foreign Class Reorganization Reorganization
FUND (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net assets.......... $50,947,422 $7,046,148,362 $6,936,467,035 $7,097,095,784 $6,987,414,457
Net asset value
per share........... $13.23 N/A $9.09 N/A $9.09
Shares
outstanding......... 3,852,263 775,543,566 763,416,056 781,148,343 769,020,833
</TABLE>
To the extent permitted by law, the Agreement and Plan may be
amended without shareholder approval by mutual agreement in writing by
International Trust and Templeton Funds. The Agreement and Plan may be
terminated and the Transaction abandoned at any time before or, to the extent
permitted by law, after the approval of shareholders of the International Fund
by mutual consent of the parties to the Agreement Plan.
COMPARISON OF INVESTMENT POLICIES AND RISKS
INVESTMENT OBJECTIVES AND STRATEGIES. The Foreign Fund and
International Fund share the same investment objective, which is to seek
long-term growth of capital, and also have substantially similar investment
strategies by which they seek to obtain the objective. The investment objective
of each fund is a fundamental policy and may not be changed without the approval
of the funds' shareholders, which would require the approval of the lesser of
(i) a majority of the outstanding shares, or (ii) 67% or more of the shares
represented at a meeting of shareholders at which the holders of more than 50%
of the outstanding shares are represented. Although both funds are authorized to
invest in both equity and debt securities, income is not part of their
investment objective and any income earned from investments in debt securities
is incidental. The Foreign Fund seeks to achieve
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its objective of long-term capital growth through a flexible policy of investing
in stocks and debt obligations of companies and governments outside the U.S. The
Foreign Fund therefore has the right to purchase securities in any foreign
country, developed or developing, using the disciplined, long-term approach to
value oriented international investing utilized by its investment manager.
In selecting portfolio securities to seek long-term capital
growth, the International Fund attempts to take advantage of the difference
between economic trends and the anticipated performance of securities and
securities markets in various countries. Under normal conditions, the
International Fund invests at least 65% in a diverse portfolio of equity
securities which trade on markets in countries other than the U.S. and which are
issued by companies (i) domiciled in countries other than the U.S., or (ii) that
derive at least 50% of either their revenues or pre-tax income from activities
outside of the U.S. Within the stated percentage guidelines, the International
Fund is authorized to invest in a list of 37 specified industrialized countries.
In addition, although it is not a fundamental policy, the International Fund
expects that at least 65% of its assets will be invested in securities traded in
at least three of the specified countries.
INVESTMENT POLICIES. In seeking to achieve their investment
objectives, the Foreign Fund and International Fund are guided by substantially
similar policies and restrictions that should be considered by shareholders of
the International Fund. Unless otherwise specified, the investment policies of
the International Fund are not fundamental and may be changed without
shareholder approval. The investment policies of the Foreign Fund, however, are
fundamental policies which may not be changed without shareholder approval,
unless otherwise indicated.
Both the Foreign Fund and International Fund invest a
substantial percentage of their assets in equity securities of foreign issuers.
Such securities may include common stock and preferred stock. The Foreign Fund
and International Fund are additionally authorized to invest in securities
(bonds or preferred stock) which are convertible into common stock, as well as
warrants. With respect to foreign equity investments, both funds may also invest
in securities representing underlying international securities such as American
Depository Receipts (ADRs) and European Depository Receipts (EDRs). The Foreign
Fund is further authorized to invest in Global Depository Receipts (GDRs). These
depository receipts may be purchased by both funds, whether they are sponsored
or unsponsored.
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Both the Foreign Fund and International Fund may invest in
debt securities, although each fund makes such investments with a view toward
growth of capital as opposed to the interest income that may be generated by
such investments. For example, the Foreign Fund may seek capital growth by
purchasing convertible bonds, bonds that are presently selling at a discount or,
if Global Advisors believes that the issuer may resume interest payments in the
near future, debt securities which have defaulted. In such circumstances, the
Foreign Fund could achieve growth of capital if the prices of the bonds increase
as expected. The International Fund uses a similar strategy for investing in
debt securities, seeking capital appreciation through such investments due to
changes in relative foreign currency exchange rates, changes in relative
interest rates or improvements in creditworthiness of issuers.
With respect to specific debt securities, the Foreign Fund may
invest without specified percentage limitations in securities which are rated at
least Caa by Moody's Investors Services, Inc. ("Moody's") or CCC by Standard and
Poor's Corporation ("S&P"), or if not rated, securities which are issued by
companies which at the date of investment have an outstanding debt issue rated
AAA or AA by S&P or Aaa or Aa by Moody's. However, as an operating policy (which
is not fundamental and can be changed without a shareholder vote), the Foreign
Fund will not invest more than 5% of its assets in debt securities rated lower
than Baa by Moody's or BBB by S&P.
The International Fund may invest up to 35% of its total
assets in debt securities including U.S. and foreign government debt securities,
Samurai and Yankee bonds, Euro bonds and depositary receipts. Investments in
such debt-securities by the International Fund are limited to "investment grade"
long-term debt obligations. This includes securities that are rated Baa or
better by Moody's or BBB or better by S&P, or that are not rated but determined
by management to be of comparable quality.
Both funds are also authorized to invest their assets in cash
and cash equivalent securities under certain circumstances. For temporary
defensive purposes, when Global Advisors believes that market conditions merit,
the Foreign Fund may invest without limit in U.S. government securities, bank
time deposits in the currency of any major nation, commercial paper and certain
repurchase agreements. Any commercial paper purchased by the Foreign Fund must
be rated A-1 by S&P or Prime-1 by 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. With respect to repurchase agreements, the
Foreign Fund may purchase from banks or broker-dealers, Canadian or U.S.
government securities with a
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simultaneous agreement by the seller to repurchase them within no more than
seven days at the original purchase price plus accrued interest. The Foreign
Fund will enter into repurchase agreements only with parties who meet
creditworthiness standards approved by the Board of Directors of Templeton
Funds.
The International Fund has adopted a policy of temporary
investments under which it may hold cash (U.S. dollars, foreign currencies or
multi-national currency units) and/or invest a portion of its assets in high
quality money market instruments. Money market instruments in which the
International Fund may invest include, but are not limited to, the following
instruments of U.S. or foreign issuers: government securities; commercial paper;
bank certificates of deposit; bankers acceptances; and repurchase agreements
secured by any of the foregoing. All such securities will be rated A1 or A2 by
S&P or P1 or P2 by Moody's or, if not rated, determined by Advisers or TICI to
be of comparable quality.
The Foreign Fund usually effects currency exchange
transactions on a spot (i.e. cash) basis in the foreign exchange market. The
International Fund also effects such transactions on a spot basis, and may also
engage in currency hedging transactions. As a hedge against currency exchange
rate risks, the International Fund may enter into foreign currency exchange
contracts and currency futures contracts and options on such futures contracts,
as well as purchase put or call options and write covered put and call options
on currencies traded in the U.S. or foreign markets.
In addition to the types of securities investments listed
above, the International Fund also invests in securities involving options and
futures. The International Fund may purchase put and call options and write
covered put and call options on securities and securities indices. For hedging
against fluctuations in the market value of the securities underlying the
International Fund's investments, it may engage in forward conversion
transactions. In a forward conversion transaction, the International Fund will
purchase securities and write call options and purchase put options on such
securities. By purchasing puts, the International Fund protects the underlying
securities from depreciation in value and by selling or writing calls, the
International Fund receives premiums which may offset or part or all of the
costs of purchasing the puts while foregoing the opportunity for appreciation in
the value of the underlying security.
INVESTMENT RESTRICTIONS. Both Funds have adopted
certain investment restrictions governing their activities.
Unless otherwise noted, these restrictions are a matter of
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fundamental policy, and cannot be changed without shareholder approval. Many of
the restrictions are the same for both Funds, although there are differences as
described below.
Both the Foreign Fund and International Fund are limited in
the extent to which they may purchase the securities of any single issuer. The
Foreign Fund may not invest more than 5% of its total assets in any single
company or governmental issue (exclusive of U.S. Government Securities). The
International Fund has a similar 5% restriction on investments in a single
issuer (excluding U.S. Government Securities), but the limitation is only
applicable as to 75% of its total assets. In addition, neither Fund may hold
more than 10% of any class of voting securities of a single issuer. Both Funds
are also restricted from investing in securities for the purpose of exercising
management or control of any issuer, or investing more than 5% of their assets
in securities of issuers which have a record of less than three years continuous
operation.
The restrictions of the Foreign Fund and the International
Fund also prevent the Funds from concentrating their investments in any single
industry. The Foreign Fund may invest up to 25% of its assets in any single
industry, although as a non-fundamental policy it has no present intention to
invest up to such percentage limit. The International Fund is restricted from
investing more than 25% of its assets in any single industry, however, as a
matter of non-fundamental policy, it is specifically authorized to concentrate
its investments geographically, allowing for the investment of more than 25% of
its assets in the securities of issuers in a single country, subject to the
other investment policies regarding foreign investments described above. The
Foreign Fund has no policy regarding geographic concentration.
Both funds are restricted from purchasing or retaining
securities of any companies in which Directors or officers of the fund or of its
investment manager, individually owning more than 1/2 of 1% of the securities of
such company, in the aggregate own more than 5% of the securities of such
company. The funds are both also prohibited from acting as the underwriter for
the securities of other issuers.
The Foreign Fund may not borrow money for any purpose other
than redeeming or repurchasing its own shares, and then only as a temporary
measure up to an amount not exceeding 5% of the value of its total assets. It
also may not pledge, mortgage or hypothecate its portfolio securities except to
secure such borrowings, and then only up to 10% of its total assets as approved
by its Board of Directors. The International Fund's policy allows the fund to
borrow up to 10% of its total assets to
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meet redemptions and for other temporary or emergency purposes, but presently
has a non-fundamental policy that it will not pledge, mortgage or hypothecate
its securities to secure such borrowings. In addition, while the International
Fund's borrowings exceed 5%, it may not make further portfolio investments.
Neither the Foreign Fund nor the International Fund may loan
money, except to the extent that investments in certain fixed-income instruments
may be interpreted to be loans to the issuer. The International Fund, however,
is authorized to loan up to 1/3 of its portfolio securities to qualified
borrowers who deposit and maintain cash or collateral with the fund in exchange
for interest income. The funds have each also adopted a restriction under which
they may not engage in joint or joint and several trading accounts in
securities, except that orders may be combined with orders from other persons to
obtain lower brokerage commissions and with respect to the International Fund,
the restriction does not prohibit the fund from participating in joint
repurchase agreement transactions. The International Fund's policy in this
regard is non-fundamental, and can be changed without shareholder approval.
The Foreign Fund may not issue senior securities, purchase
securities on margin or sell securities short. Although the International Fund
has no specified restriction on senior securities, it is restricted from
purchasing on margin, except to obtain such short-term credits as necessary to
clear securities transactions, and is restricted from selling securities short,
unless the International Fund already owns such securities.
Each fund has adopted a restriction that limits it from
investing more than 10% of its assets in illiquid securities. In addition, as a
matter of non-fundamental policy, the International Fund presently limits its
investments in illiquid securities to 5% of its total net assets. The Foreign
Fund is subject to further limitations such that it may not invest greater than
15% of its assets in securities of foreign issuers which are not listed on a
recognized U.S. or foreign exchange, nor may it invest in letter stocks or
securities on which there are any sales restrictions.
With respect to particular types of investments, the Foreign
Fund may not write, buy or sell puts, calls, straddles or spreads. The
International Fund may make such investments, but only to the extent that such
investments do not exceed 5% of its total net assets. This restriction is not
fundamental and may be changed without shareholder approval. Neither fund may
purchase real estate, and the Foreign Fund is further restricted from investing
in mortgages, although it may invest in marketable
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securities secured by real estate or issued by companies which invest in real
estate or interests therein. The International Fund is restricted from investing
in real estate limited partnerships, although it may invest in real estate
investment trusts.
The Foreign Fund may not invest in interests (other than
debentures or equity stock interests) in oil, gas or other mineral explorations
or development programs; or purchase or sell commodity contracts. As a matter of
non-fundamental policy, the International Fund will not invest in interests
(other than publicly traded equity securities) in oil, gas, or other mineral
leases, exploration or development while the International Fund does not have a
stated policy in this regard. Finally, the Foreign Fund may not invest in other
open-end investment companies. The International Fund, however, is authorized to
invest in other investment companies, but only to the extent permitted under the
1940 Act or pursuant to exemptions from the 1940 Act requirements.
RISK FACTORS. As with most investments, investments in the
Foreign Fund or International Fund involve risks and there can be no guarantee
against losses resulting from any investment in either fund, nor can there be
any assurance that either fund's investment objective will be obtained. The
risks associated with an investment in either fund are substantially similar
with any differences outlined below. Because both funds invest in equity and
debt securities, investments in the funds involve risks related to changes in
economic conditions and fluctuations in the stock and bond markets. The Foreign
Fund and the International Fund each intend to invest a substantial portion of
their assets in foreign equity securities. The International Fund limits its
investments to securities of issuers in a specified list of industrialized
countries. The Foreign Fund does not have a similar limitation, and may invest
in securities of issuers in any foreign country, developed or developing.
Investments in developing countries by the Foreign Fund may involve more of the
types of risks associated with foreign investing described below.
The funds share certain risks that are inherent when investing
in foreign securities that are not typically associated with investments in U.S.
securities, including, but not limited to political, social or economic
instability in the country of the issuer. In addition, foreign investments may
be affected by economic developments, possible withholding taxes, seizure of
foreign deposits, changes in currency rates or currency exchange controls,
higher transactional costs due to a lack of negotiated commissions, or other
governmental restrictions which might affect the amount and types of foreign
investments made or the payment of principal or interest on securities in the
investment
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portfolios of the funds. In addition, there may be less information available
about these securities and it may be more difficult to obtain or enforce a court
judgment in the event of a lawsuit. Both funds are authorized to invest in
American or European depository receipts which carry additional risks because
the issuers of such receipts are not obligated to disclose material information
in the United States.
On behalf of the International Fund, TICI manages the
International Fund's exposure to various currencies to take advantage of
different yield, risk and return characteristics. In this regard, the
International Fund may utilize hedging techniques such as the use of forward
foreign currency exchange contracts, and may buy or sell options, futures
contracts and options on futures contracts relating to foreign indices. While
the International Fund engages in such techniques for hedging purposes, and not
for speculation, the International Fund is subject certain risks associated with
such hedging techniques. In particular, options and futures traded on foreign
exchanges generally are not regulated by U.S. authorities and may offer less
liquidity and less protection in the event of default by the other party to the
contract. The International Fund could also experience losses if the prices of
the options and futures positions are poorly correlated with other investments,
or if the fund cannot close out its positions because of an illiquid secondary
market. The Foreign Fund does not have a stated policy regarding such
investments for hedging or any other purpose.
The success of the investments by the International Fund in
options, futures and forward contracts will depend on judgment of its investment
manager and sub-adviser as to trends relating to prices, interest rates and
currency rates. These investments can be volatile and may not perform as
expected. If a hedge is applied at an inappropriate time or price trends are
judged incorrectly, options and futures strategies may lower the fund's returns.
Although the Foreign Fund and the International Fund invest
their assets primarily in foreign equity securities, each may invest a portion
of their assets in debt securities in various denominations. Although debt
instruments naturally carry risks such as interest rate risk, whereby the price
and value of debt securities are reduced if interest rates rise, the
International Fund attempts to limit such risks by investing in investment grade
securities which consist of securities in the top four rating classifications by
Moody's or S&P, or if not rated, are determined to be of similar quality by the
investment manager or sub-adviser. The Foreign Fund, however, may invest in
medium quality or high-risk lower quality debt securities that are rated between
BBB and as low as CCC by S&P and between Baa
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and as low as Caa by Moody's. High-risk, lower quality debt securities, commonly
referred to as "junk bonds", are regarded, on balance, as predominately
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the obligation and may be in default. In view of
the higher risk associated with such investments, the Foreign Fund's Board of
Directors has adopted a non-fundamental operating policy limiting investments in
such junk bonds to less than 5% of the fund's total assets. The funds may also
invest in repurchase agreements which involve risk of loss if a seller defaults
on its obligations under the agreement.
The Eurodollar bonds and Yankee bonds in which each of the
Foreign and International Funds may invest involve risks. Such investment risks
may include future political and economic developments, the possible imposition
of withholding taxes on interest income payable on the Eurodollar and Yankee
obligations held by the respective fund, possible seizure or nationalization and
the possible establishment of exchange controls or the adoption of other foreign
government laws and restrictions applicable to the payment of Eurodollar and
Yankee obligations, which might adversely affect the payment of principal and
interest.
Unlike the Foreign Fund, the International Fund may loan
portfolio securities to qualified institutions on a collateralized basis. As
with any extension of credit, loans by the International Fund may be subject to
the risks of delay in recovery and loss of rights in the collateral should the
borrower of the securities fail financially. However, loans of portfolio
securities are only made to firms deemed by the International Fund to be of good
standing, and when, in the judgment of the International Fund, the income which
can be earned currently from such loans justifies the attendant risk.
INFORMATION ABOUT THE FOREIGN FUND
Information about the Foreign Fund is included in its current
Prospectus dated January 1, 1996, which is attached to this Prospectus/Proxy
Statement and incorporated by reference herein. Additional information about the
Foreign Fund is included in a Statement of Additional Information, dated January
1, 1996, which has been filed with the Securities and Exchange Commission and is
incorporated by reference herein. A copy of the Statement of Additional
Information may be obtained without charge by writing to the Foreign Fund, or
calling 1-800/DIAL BEN. The Foreign Fund is subject to the informational
requirements of the Securities Exchange Act of 1934 and the Investment Company
Act of 1940, as applicable, and, in accordance with such requirements, files
proxy materials, reports and other
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information with the Securities and Exchange Commission. These materials can be
inspected and copied at the Public Reference Facilities maintained by the
Securities and Exchange Commission at 450 Fifth Street NW, Washington, DC 20549,
and at the offices of the fund at 700 Central Avenue, St. Petersburg, FL
33701-3628 and at the Southeast Regional Office of the Securities and Exchange
Commission at 1401 Brickell Avenue, Suite 200, Miami, Florida 33131. Copies of
such material can also be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
Washington, DC 20549, at prescribed rates.
INFORMATION ABOUT THE INTERNATIONAL FUND
Information about the International Fund is incorporated
herein by reference from the International Fund's current Prospectus dated March
1, 1995, as supplemented, and International Trust's Statement of Additional
Information of the same date, a copy of which may be obtained without charge by
writing or calling the International Fund's Trust at the address and telephone
number shown on the cover page of this Prospectus/Proxy Statement. Reports and
other information filed by the International Fund's Trust can be inspected and
copied at the Public Reference Facilities maintained by the Securities and
Exchange Commission at 450 Fifth Street NW, Washington, DC 20549, and copies of
such material can be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
Washington, DC 20549, at prescribed rates.
VOTING INFORMATION AND PRINCIPAL STOCKHOLDERS
In the event that sufficient votes in favor of the proposal
set forth in the Notice of Special Meeting of Shareholders are not received by
the date of the Meeting, the proxies may propose one or more adjournments of the
Meeting to permit further solicitation of proxies, even though a quorum is
present. Any such adjournment will require the affirmative vote of a majority of
the votes cast on the question in person or by proxy at the session of the
Meeting to be adjourned. The proxies will be voted in the best interests of
management and all shareholders in proposing adjournment or in voting on an
adjournment proposed by a shareholder. The costs of any such additional
solicitation and of any adjourned session will be shared equally by Global
Advisors and Advisers.
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To the knowledge of International Trust and Templeton Funds,
no person owned 5% or more of the outstanding securities of International Trust,
Templeton Funds, or any series or class of either investment company as of the
record date, although from time to time, the number of fund shares held in
"street name" accounts of various securities dealers for the benefit of their
clients or in centralized securities depositories may exceed 5% of the total
outstanding shares of a fund or series. All of the respective officers and
trustees or directors of International Trust and Templeton Funds, as a group,
owned less than l% of the outstanding voting securities of International Trust
and Templeton Funds, respectively.
TRANSFER AGENT AND CUSTODIAN
Franklin/Templeton Investor Services, Inc. serves as the
transfer agent and dividend disbursing agent for the Foreign Fund. The main
office of Franklin/Templeton Investor Services, Inc., is 777 Mariners Island
Boulevard, San Mateo, California 94404. The Chase Manhattan Bank, N.A., One
Chase Manhattan Plaza, New York, New York 10081, serves as custodian of the
Foreign Fund's assets.
Franklin/Templeton Investor Services, Inc. also serves as
transfer agent and dividend agent for International Trust. Bank of America NT &
SA is the custodian for the assets of the International Fund. The main office of
the Bank of America NT & SA is 555 California Street, 4th Floor, San Francisco,
California 94104.
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EXHIBITS TO COMBINED PROXY
STATEMENT AND PROSPECTUS
Exhibit
A Agreement and Plan of Reorganization between Franklin
Templeton International Trust and Templeton Funds, Inc.
B Prospectus dated January 1, 1996 of the Templeton Foreign Fund
series of Templeton Funds, Inc.
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), made as of this
____ day of ______, 1996 by and between Franklin Templeton International Trust
("International Trust"), a business trust organized under the laws of the State
of Delaware in 1991, with its principal place of business at 777 Mariners Island
Boulevard, San Mateo, California 94404 and Templeton Funds, Inc. ("Templeton
Funds"), a corporation organized under the laws of the State of Maryland in
1977, with its principal place of business at 700 Central Avenue, St.
Petersburg, Florida 33701- 3628.
PLAN OF REORGANIZATION
The reorganization (hereinafter referred to as the "Plan of
Reorganization") will consist of (i) the acquisition by Templeton Funds on
behalf of the Templeton Foreign Fund series (the "Foreign Fund") of
substantially all of the property, assets and goodwill of the Franklin
International Equity Fund series of International Trust (the "International
Fund") in exchange solely for shares of common stock of the Templeton Foreign
Fund--Class I class of the Foreign Series (the "Foreign Class"), $1.00 par
value, (ii) the distribution of such shares of common stock of the Foreign Class
to the shareholders of the International Fund according to their respective
interests, and (iii) the liquidation of the International Fund as soon as
practicable after the closing (as defined in Section 3, hereinafter called the
"Closing"), all upon and subject to the terms and conditions of this Agreement
hereinafter set forth.
AGREEMENT
In order to consummate the Plan of Reorganization and in consideration
of the premises and of the covenants and agreements hereinafter set forth, and
intending to be legally bound, the parties hereto covenant and agree as follows:
1. Sale and Transfer of Assets, Liquidation and Dissolution of
the International Fund
(a) Subject to the terms and conditions of this Agreement, and in
reliance on the representations and warranties of Templeton Funds herein
contained, and in consideration of the delivery by the Foreign Fund of the
number of Foreign Class shares hereinafter provided, International Trust agrees
that it will convey, transfer and deliver to the Foreign Fund at the
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Closing all of the then existing assets of the International Fund free and clear
of all liens, encumbrances, and claims whatsoever (other than shareholders'
rights of redemption) except for cash, bank deposits, or cash equivalent
securities in an estimated amount necessary (1) to pay the costs and expenses of
carrying out this Agreement (including, but not limited to, fees of counsel and
accountants, and expenses of its liquidation and dissolution contemplated
hereunder), which costs and expenses shall be established on the International
Fund's books as liability reserves, (2) to discharge its unpaid liabilities on
its books at the closing date (as defined in Section 3, hereinafter called the
"Closing Date"), including, but not limited to, its income dividends and capital
gains distributions, if any, payable for the period prior to the Closing Date,
and (3) to pay such contingent liabilities as the trustees shall reasonably deem
to exist against the International Fund, if any, at the Closing Date, for which
contingent and other appropriate liability reserves shall be established on
International Trust' books (hereinafter "Net Assets"). International Trust, on
behalf of the International Fund, shall also retain any and all rights which it
may have over and against any person which may have accrued up to and including
the close of business on the Closing Date.
(b) Subject to the terms and conditions of this Agreement, and in
reliance on the representations and warranties of International Trust herein
contained, and in consideration of such sale, conveyance, transfer, and
delivery, Templeton Funds agrees at the Closing to deliver to International
Trust the number of Foreign Class shares of common stock ($1.00 par value)
determined by dividing the aggregate value of the assets of International Fund
on the Closing Date by the net asset value per share of common stock of the
Foreign Class as of 1:00 P.M. Pacific time on the Closing Date. All such values
shall be determined in the manner and as of the time set forth in Section 2
hereof.
(c) Immediately following the Closing, the International Fund shall
dissolve and distribute pro rata to its shareholders of record as of the close
of business on the Closing Date the shares of common stock of the Foreign Class
received by the International Fund pursuant to this Section 1. Such liquidation
and distribution shall be accomplished by the establishment of accounts on the
share records of the Foreign Class of the type and in the amounts due such
shareholders based on their respective holdings as of the close of business on
the Closing Date. Fractional shares of common stock of the Foreign Class shall
be carried to the third decimal place. As promptly as practicable after the
Closing, each holder of any outstanding certificate or certificates representing
shares of beneficial
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interest of the International Fund shall be entitled to surrender the same to
the transfer agent for the Foreign Class and request in exchange therefor a
certificate or certificates representing the number of whole shares of common
stock of the Foreign Class into which the shares of beneficial interest of the
International Fund theretofore represented by the certificate or certificates so
surrendered shall have been converted. Certificates for fractional shares of
common stock of the Foreign Class shall not be issued, but shall continue to be
carried by the Foreign Class for the account of such shareholder as unissued
shares. Until so surrendered, each outstanding certificate which, prior to the
Closing, represented shares of beneficial interest of the International Fund
shall be deemed for all the Foreign Fund's purposes to evidence ownership of the
number of shares of common stock of the Foreign Class into which the shares of
beneficial interest of the International Fund (which prior to the Closing were
represented thereby) have been converted.
2. VALUATION
(a) The value of the International Fund's Net Assets to be acquired by
the Templeton Funds on behalf of the Foreign Fund hereunder shall be computed as
of 1:00 P.M. Pacific Time on the Closing date using the valuation procedures set
forth in the International Trust's currently effective registration statement.
(b) The net asset value of a share of common stock of the Foreign Class
shall be determined to the nearest full cent as of 4:00 P.M. Eastern Time on the
Closing Date, using the valuation procedures as set forth in the Foreign Fund's
then effective prospectus.
(c) The net asset value of a share of beneficial interest of the
International Fund shall be determined to the nearest full cent as of 1:00 P.M.
Pacific Time on the Closing Date, using the valuation procedures as set forth in
the International Fund's currently effective registration statement.
3. CLOSING AND CLOSING DATE
The Closing Date shall be [_____________________] or such later date as
the parties may mutually agree. The Closing shall take place at the principal
office of Templeton Funds, 700 Central Avenue, St. Petersburg, Florida
33701-3628 at 5:00 P.M. Eastern Time on the Closing Date. International Trust
shall have provided for delivery as of the Closing of those Net Assets to be
transferred to the Foreign Fund's Custodian, Chase Manhattan Bank, N.A., Metro
Tech Center, Brooklyn, New York 11245. Also, International Trust shall deliver
at the Closing a list of names and addresses of the shareholders of record of
the International
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Fund and the number of shares of beneficial interest of the International Fund
owned by each such shareholder, indicating thereon which such shares are
represented by outstanding certificates and which by book-entry accounts, all as
of 1:00 P.M. Pacific Time on the Closing Date, certified by its Transfer Agent
or by its President to the best of their knowledge and belief. Templeton Funds
shall issue and deliver a certificate or certificates evidencing the shares of
common stock of the Foreign Class to be delivered to said Transfer Agent
registered in such manner as International Trust may request, or provide
evidence satisfactory to International Trust that such shares of the Foreign
Class have been registered in an account on the books of the Foreign Fund in
such manner as International Trust may request.
4. REPRESENTATIONS AND WARRANTIES BY INTERNATIONAL TRUST
International Trust represents and warrants to Templeton Funds that:
(a) International Trust is a business trust created under the laws of
the State of Delaware by an Agreement and Declaration of Trust dated March 19,
1991, and is validly existing and in good standing under the laws of that state.
International Trust is duly registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as a diversified, open-end, management investment
company and all its shares sold were sold pursuant to an effective registration
statement filed under the Securities Act of 1933, as amended (the "1933 Act"),
except for those shares sold pursuant to the private offering exemption for the
purpose of raising the required initial capital.
(b) International Trust is authorized to issue an unlimited number of
shares of beneficial interest, par value $0.01 per share, each outstanding share
of which is fully paid, non-assessable, fully transferable and has full voting
rights. Of such shares, two series of shares have been designated, one of which
has been designated as the International Fund.
(c) The financial statements appearing in International Trust's Annual
Report to Shareholders for the period ending October 31, 1995 audited by Coopers
& Lybrand, L.L.P., copies of which have been delivered to Templeton Funds,
fairly present the financial position of the International Fund as of the
respective dates indicated, in conformity with generally accepted accounting
principles applied on a consistent basis.
(d) The books and records of the International Fund made available to
Templeton Funds and/or its counsel, accurately summarize the accounting data
represented and contain no material
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omissions with respect to the business and operations of the
International Fund.
(e) International Trust is not a party to or obligated under any
provision of its Agreement and Declaration of Trust, bylaws, or any contract or
any other commitment or obligation, and is not subject to any order or decree,
which would be violated by its execution of or performance under this Agreement.
5. REPRESENTATIONS AND WARRANTIES BY TEMPLETON FUNDS
Templeton Funds represents and warrants to International Trust that:
(a) Templeton Funds is a corporation organized under the laws of the
State of Maryland on August 15, 1971, and is validly existing and in good
standing under the laws of that state. Templeton Funds is duly registered under
the 1940 Act, as a diversified, open-end, management investment company and all
its shares sold have been sold pursuant to an effective Registration Statement
filed under the 1933 Act, as amended, except for those shares sold pursuant to
the private offering exemption for the purpose of raising the required initial
capital.
(b) Templeton Funds' authorized capital stock consists of 2,700,000,000
shares of common stock, with $1.00 par value. The shares are issued in two
separate series, one of which is the Foreign Fund, which offers shares in two
classes. Of the total authorized capital, 1,000,000,000 shares are classified as
Templeton Foreign Fund class I Shares (the "Foreign Class"), and 500,000,000
shares are classified as Templeton Foreign Fund Class II shares. Each
outstanding share is fully paid, non-assessable, fully transferable, and has
full voting rights. The shares of common stock of the Foreign Class to be issued
pursuant to this Agreement and Plan of Reorganization will be fully paid,
non-assessable, freely transferable and have full voting rights.
(c) At the Closing, the shares of common stock of the Foreign Class
will be duly qualified for offering to the public in all states of the United
States in which the shares of the International Fund are qualified for sale, and
there are a sufficient number of such shares registered under the 1933 Act, to
permit the transfers contemplated by this Agreement to be consummated.
(d) The financial statements appearing in Templeton Funds' Annual
Report to Shareholders for the fiscal year ending August 31, 1995, audited by
McGladrey and Pullen, LLP, copies of which have been delivered to International
Trust, fairly present the financial position of the Foreign Fund as of the
respective
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dates indicated and the results of its operations for the periods indicated in
conformity with generally accepted accounting principles applied on a consistent
basis.
(e) Templeton Funds is not a party to or obligated under any provision
of its Articles of Incorporation, bylaws, or any contract or any other
commitment or obligation, and is not subject to any order or decree, which would
be violated by its execution of or performance under this Agreement.
6. REPRESENTATIONS AND WARRANTIES BY INTERNATIONAL TRUST AND
TEMPLETON FUNDS
International Trust and Templeton Funds each represents and warrants to
the other that:
(a) The statement of assets and liabilities to be furnished by it, as
of 1:00 P.M. Pacific Time (4:00 P.M. Eastern Time) on the Closing Date, for the
purpose of determining the number of shares of common stock of the Foreign Class
to be issued pursuant to Section 1 of this Agreement will accurately reflect its
Net Assets in the case of the International Fund and its net assets in the case
of the Foreign Fund and Foreign Class, and outstanding shares of beneficial
interest or shares of common stock, as the case may be, as of such date in
conformity with generally accepted accounting principles applied on a consistent
basis.
(b) At the Closing it will have good and marketable title to all of the
securities and other assets shown on the statement of assets and liabilities
referred to in "(a)" above, free and clear of all liens or encumbrances of any
nature whatever except such imperfections of title or encumbrances as do not
materially detract from the value or use of the assets subject thereto, or
materially affect title thereto.
(c) Except as disclosed in its currently effective prospectus, there is
no material suit, judicial action, or legal or administrative proceeding pending
or threatened against it.
(d) There are no known actual or proposed deficiency
assessments with respect to any taxes payable by it.
(e) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action of its Board of Trustees or Board of
Directors, respectively, and this Agreement constitutes its valid and binding
obligation enforceable in accordance with its terms.
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(f) It anticipates that consummation of this Agreement will not cause
the International Fund, as to International Trust, and the Foreign Fund, as to
Templeton Funds, to fail to conform to the requirements of Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), for Federal income
taxation as a regulated investment company at the end of its fiscal year.
(g) It has the necessary power and authority to conduct its
business as such business is now being conducted.
7. COVENANTS OF INTERNATIONAL TRUST AND TEMPLETON FUNDS
(a) International Trust and Templeton Funds each covenant to operate
their respective businesses as presently conducted between the date hereof and
the Closing.
(b) International Trust undertakes that it will not acquire the Foreign
Fund's shares for the purpose of making distributions thereof other than to the
International Fund's shareholders.
(c) International Trust and Templeton Funds each agree that by the
Closing, all of its Federal and other tax returns and reports required by law to
be filed on or before such date shall have been filed and all Federal and other
taxes shown as due on said returns shall have either been paid or adequate
liability reserves shall have been provided for the payment of such taxes.
(d) International Trust will at the Closing provide Templeton Funds
with a copy of the shareholder ledger accounts for all the shareholders of
record of the International Fund as of 1:00 P.M. Pacific Time on the Closing
Date, who are to become shareholders of the Foreign Fund as a result of the
transfer of assets which is the subject of this Agreement, certified by its
Transfer Agent or its President to the best of their knowledge and belief.
(e) International Trust agrees to mail to each shareholder of record of
the International Fund entitled to vote at the meeting of shareholders at which
action on this Agreement is to be considered, in sufficient time to comply with
requirements as to notice thereof, a Combined Proxy Statement and Prospectus
which complies in all material respects with the applicable provisions of
Section 14(a) of the Securities Exchange Act of 1934, as amended, and Section
20(a) of the 1940 Act and the rules and regulations, respectively, thereunder.
(f) Templeton Funds will file with the Securities and Exchange
Commission a Registration Statement on Form N-14 under the 1933 Act
("Registration Statement") relating to the shares of common stock of the Foreign
Class issuable hereunder, and will
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use its best efforts to provide that the Registration Statement becomes
effective as promptly as practicable. At the time the Registration Statement
becomes effective, it (i) will comply in all material respects with the
applicable provisions of the 1933 Act, and the rules and regulations promulgated
thereunder; and (ii) will not contain any untrue statement of material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading; at the time the Registration Statement
becomes effective, at the time of the International Fund's shareholders'
meeting, and at the Closing Date, the prospectus and statement of additional
information included therein will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
8. CONDITIONS PRECEDENT TO BE FULFILLED BY INTERNATIONAL TRUST
AND TEMPLETON FUNDS
The obligations of International Trust and Templeton Funds to
effectuate this Agreement and the Plan of Reorganization hereunder shall be
subject to the following respective conditions:
(a) That (1) all the representations and warranties of the other party
contained herein shall be true and correct as of the Closing with the same
effect as though made as of and at such date; (2) the other party shall have
performed all obligations required by this Agreement to be performed by it prior
to the Closing; and (3) the other party shall have delivered to such party a
certificate signed by the President and by the Secretary or equivalent officer
to the foregoing effect.
(b) That the other party shall have delivered to such party a copy of
the resolutions approving this Agreement adopted by the other party's Board of
Directors or Trustees, as relevant, certified by the Secretary or equivalent
officer.
(c) That the Securities and Exchange Commission shall not have issued
an unfavorable management report under Section 25(b) of the 1940 Act nor
instituted nor threatened to institute any proceeding seeking to enjoin
consummation of the Plan of Reorganization under Section 25(c) of the 1940 Act
and no other legal, administrative or other proceeding shall be instituted or
threatened which would materially affect the financial condition of either party
or would prohibit the transactions contemplated hereby.
(d) That the holders of at least a majority of the
outstanding shares of beneficial interest of the International
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Fund shall have voted in favor of the adoption of this Agreement and the Plan of
Reorganization contemplated hereby at an annual or special meeting.
(e) That International Trust, as to the International Fund, shall have
declared a distribution or distributions prior to the Closing Date which,
together with all previous distributions, shall have the effect of distributing
to the shareholders of the International Fund and the Foreign Fund (i) all of
its net investment income and all of its net realized capital gains, if any, for
the period from the close of its last fiscal year to 1:00 P.M. Pacific Time for
International Fund and 4:00 P.M. Eastern Time for Foreign Fund on the Closing
Date, and (ii) any undistributed net investment income and net realized capital
gains from any period to the extent not otherwise declared for distribution.
(f) That there shall be delivered to International Trust and Templeton
Funds an opinion from Messrs. Stradley, Ronon, Stevens & Young, LLP, counsel to
International Trust, to the effect that provided the acquisition contemplated
hereby is carried out in accordance with this Agreement:
(1) Provided the acquisition is carried out in accordance with
the applicable laws of Maryland and Delaware, the acquisition by the Foreign
Fund of substantially all the assets of the International Fund as provided for
herein in exchange for the Foreign Fund shares will qualify as a reorganization
within the meaning of Section 368(a)(1)(C) of the Code, and the International
Fund and the Foreign Fund will each be a party to the respective reorganization
within the meaning of Section 368(b) of the Code;
(2) No gain or loss will be recognized by the International
Fund upon the transfer of substantially all of its assets to the Foreign Fund in
exchange solely for voting shares of the Foreign Class (Sections 361(a) and
357(a));
(3) No gain or loss will be recognized by the Foreign Fund
upon the receipt of substantially all of the assets of the International Fund in
exchange solely for voting shares of the Foreign Class (Section 1032(a));
(4) The basis of the assets of the International Fund received
by the Foreign Fund will be the same as the basis of such assets to the
International Fund immediately prior to the exchange (Section 362(b));
(5) The holding period of the assets of the
International Fund received by the Foreign Fund will include the
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period during which such assets were held by the International
Fund (Section 1223(2));
(6) No gain or loss will be recognized to the shareholders of
the International Fund upon the exchange of their shares in the International
Fund for voting shares of the Foreign Class (Section 354(a));
(7) The basis of the Foreign Class shares received by the
International Fund's shareholders shall be the same as the basis of the shares
of the International Fund exchanged therefor (Section 358(a)(1));
(8) The holding period of the Foreign Class shares received by
the International Fund's shareholders will include the holding period of the
International Fund's shares surrendered in exchange therefor, provided that the
International Fund's shares were held as a capital asset on the date of the
exchange (Section 1223(1)); and
(9) the Foreign Fund will succeed to and take into account as
of the date of the proposed transfer the items of the International Fund
described in Section 381(c) of the Code, including the earnings and profits, or
deficit in earnings and profits, of the International Fund as of the date of the
exchange (ss.381(a) of the Code and Income Tax Regulation ss.1.381-1(a)),
subject to the conditions and limitations specified in Sections 381, 382, 383
and 384 of the Code and the Income Tax Regulations thereunder.
In giving the opinions set forth above, this counsel may state that it
is relying on certain assumptions and representations received from
International Trust and Templeton Funds.
(g) That Templeton Funds shall have received an opinion in form and
substance satisfactory to it from Messrs. Stradley, Ronon, Stevens & Young, LLP,
counsel to International Trust, to the effect that, subject in all respects to
the effects of bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and other laws now or hereafter affecting generally the enforcement
of creditors' rights:
(1) International Trust was organized under the laws of the
State of Delaware by an Agreement and Declaration of Trust dated March 19, 1991,
and is validly existing as a business trust and in good standing under the laws
of the State of Delaware;
(2) International Trust is authorized to issue an
unlimited number of shares of beneficial interest, par value
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$0.01 per share. The International Fund has been designated as a series of
shares of International Trust, and an unlimited number of shares of beneficial
interest have been allocated to such series. Assuming that the initial shares of
beneficial interest were issued in accordance with the 1940 Act and the
Agreement and Declaration of Trust and bylaws of International Trust, and that
all other outstanding shares of the International Fund were sold, issued and
paid for in accordance with the terms of the International Fund's prospectus in
effect at the time of such sales, each such outstanding share is fully paid,
non-assessable, fully transferable and has full voting rights;
(3) International Trust is an open-end, diversified
investment company of the management type registered as such
under the 1940 Act;
(4) Except as disclosed in International Trust's current
prospectus, such counsel does not know of any material suit, action, or legal or
administrative proceeding pending or threatened against International Trust, the
unfavorable outcome of which would materially and adversely affect International
Trust or the International Fund;
(5) All actions required to be taken by International Trust to
authorize this Agreement and to effect the Plan of Reorganization contemplated
hereby have been duly authorized by all necessary action on the part of
International Trust; and
(6) This Agreement is the legal, valid and binding
obligation of International Trust and is enforceable against
International Trust in accordance with its terms.
In giving the opinions set forth above, this counsel may state that it
is relying on certificates of the officers of International Trust with regard to
matters of fact and certain certifications and written statements of
governmental officials with respect to the good standing of International Trust.
(h) That International Trust shall have received an opinion in form and
substance satisfactory to it from Messrs. Dechert, Price & Rhoads, counsel to
Templeton Funds, to the effect that, subject in all respects to the effects of
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other laws now or hereafter affecting generally the enforcement of creditors'
rights:
(1) Templeton Funds was incorporated under the laws of the
State of Maryland on August 15, 1977, and is validly existing and in good
standing under the laws of that state;
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<PAGE>
(2) Templeton Funds has an authorized capital of 3,200,000,000
shares of common stock, with $1.00 par value. Of the 1,500,000,000 shares
designated as the Foreign Fund, 1,000,000,000 are classified as the Templeton
Foreign Fund Class I Shares, and 500,000,000 are classified as the Templeton
Foreign Fund Class II Shares. Assuming that the initial capital shares of
Templeton Funds were issued in accordance with the 1940 Act, as amended, and its
Articles of Incorporation and that all other shares were sold, issued and paid
for in accordance with the terms of Templeton Funds' prospectus in effect at the
time of such sales, each such outstanding share of the Foreign Class is fully
paid, non-assessable, freely transferable and has full voting rights;
(3) Templeton Funds is an open-end, diversified
investment company of the management type registered as such
under the 1940 Act, as amended;
(4) Except as disclosed in Templeton Funds' currently
effective prospectus, such counsel does not know of any material suit, action,
or legal or administrative proceeding pending or threatened against Templeton
Funds, the unfavorable outcome of which would materially and adversely affect
Templeton Funds or the Foreign Fund;
(5) The shares of common stock of the Foreign Class to be
issued pursuant to the terms of this Agreement have been duly authorized and,
when issued and delivered as provided in this Agreement, will have been validly
issued and fully paid and will be non-assessable by the Foreign Fund;
(6) All corporate actions required to be taken by Templeton
Funds to authorize this Agreement and to effect the Plan of Reorganization have
been duly authorized by all necessary corporate action on the part of Templeton
Funds;
(7) Neither the execution, delivery nor performance of this
Agreement by Templeton Funds violates any provision of its Certificate of
Incorporation, its bylaws, or the provisions of any agreement or other
instrument, known to such counsel to which Templeton Funds is a party or by
which Templeton Funds is otherwise bound; this Agreement is the legal, valid and
binding obligation of Templeton Funds and is enforceable against Templeton Funds
in accordance with its terms; and
(8) The Registration Statement of which the Prospectus of
Templeton Funds and the Foreign Fund is a part, dated January 1, 1996, (the
"Prospectus"), is, at the time of the signing of this Agreement, effective under
the 1933 Act, and to the best knowledge of such counsel, no stop order
suspending the
A-12
<PAGE>
effectiveness of the Registration Statement has been issued, and no proceedings
for such purpose have been instituted or are pending before or threatened by the
Securities and Exchange Commission under the 1933 Act, and nothing has come to
its attention which causes it to believe that at the time the Prospectus became
effective, or at the time of the signing of this Agreement, or at the Closing,
such Prospectus (except for the financial statements and other financial and
statistical data included therein, as to which counsel need express no opinion),
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading; and such counsel know of no legal or government proceedings
required to be described in the Prospectus or of any contract or document of a
character required to be described in the Prospectus that is not described as
required.
In giving the opinions set forth above, this counsel may state that it
is relying on certificates of the officers of Templeton Funds with regard to
matters of fact and certain certifications and written statements of
governmental officials with respect to the good standing of Templeton Funds.
(i) That International Trust shall have received a certificate from the
President and Secretary of Templeton Funds to the effect that the statements
contained in the Foreign Fund Prospectus dated January 1, 1996, at the time the
Prospectus became effective, at the date of the signing of this Agreement and at
the Closing, did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and
(j) That International Trust shall have received a letter from
McGladrey and Pullen, LLP, dated as of the Closing, in form and substance
satisfactory to International Trust stating in respect of Templeton Funds that:
(1) On the basis of (a) reading the latest available unaudited
interim financial statements of Templeton Funds, (b) inquiries of officers of
Templeton Funds responsible for financial and accounting matters, (c) reading
the minutes of the meetings of the shareholders and the Board of Directors of
Templeton Funds for the period from September 1, 1995 to the Closing Date,
nothing came to their attention which caused them to believe that during the
period from September 1, 1995 to a date specified not more than five days prior
to the date of the letter, there were any changes in the shares of common stock
of the Foreign Fund, including the Foreign Class, or any decrease in the net
investment income or net assets except which may occur in
A-13
<PAGE>
the normal course of operations, including but not limited to changes or
decreases which this Agreement discloses have occurred or may occur, as
calculated using the procedures set forth in Templeton Funds and the Foreign
Fund's currently effective prospectus.
(k) That Templeton Funds' Registration Statement with respect to the
shares of the Foreign Class to be delivered to the International Fund
shareholders in accordance with this Agreement shall have become effective, and
no stop order suspending the effectiveness of the Registration Statement or any
amendment or supplement thereto, shall have been issued prior to the Closing
Date or shall be in effect at Closing, and no proceedings for the issuance of
such an order shall be pending or threatened on that date.
(l) That the shares of the Foreign Class to be delivered hereunder
shall have been registered with each state commission or agency with which such
registration is required in order to permit the shares lawfully to be delivered
to each International Fund's shareholder.
(m) That at the Closing, the International Fund transfers to the
Foreign Fund aggregate Net Assets of the International Fund comprising at least
90% in fair market value of the total net assets and 70% of the fair market
value of the total gross assets recorded on the books of the International Fund
on the Closing Date.
9. BROKERAGE FEES AND EXPENSES
(a) International Trust and Templeton Funds each represents and
warrants to the other that there are no broker or finders fees payable by it in
connection with the transactions provided for herein.
(b) The expenses of entering into and carrying out the
provisions of this Agreement shall be borne one-half by Franklin
Advisers, Inc. and one-half by Templeton Global Advisors Ltd.
10. TERMINATION; POSTPONEMENT; WAIVER; ORDER
(a) Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated and the Plan of Reorganization
abandoned at any time (whether before or after adoption thereof by the
shareholders of the International Fund) prior to the Closing or the Closing may
be postponed as follows:
(1) by mutual consent of International Trust and
Templeton Funds;
A-14
<PAGE>
(2) by Templeton Funds if any condition of its
obligations set forth in Section 8 has not been fulfilled or
waived by Templeton Funds; and
(3) by International Trust if any condition of its
obligations set forth in Section 8 has not been fulfilled or
waived by International Trust.
An election by International Trust or Templeton Funds to terminate this
Agreement and to abandon the Plan of Reorganization shall be exercised
respectively by the Board of Trustees of International Trust or the Board of
Directors of Templeton Funds.
(b) If the transactions contemplated by this Agreement have not been
consummated by [______________, 1996 (termination date)], the Agreement shall
automatically terminate on that date, unless a later date is agreed to by both
Templeton Funds and International Trust.
(c) In the event of termination of this Agreement pursuant to the
provisions hereof, the same shall become void and have no further effect, and
there shall not be any liability on the part of either International Trust or
Templeton Funds or persons who are their trustees, directors, officers, agents
or shareholders in respect of this Agreement.
(d) At any time prior to the Closing, any of the terms or conditions of
this Agreement may be waived by either International Trust or Templeton Funds,
respectively (whichever is entitled to the benefit thereof), by action taken by
the Board of Trustees of International Trust or the Board of Directors of
Templeton Funds, if, in the judgment of the Board of Trustees of International
Trust or the Board of Directors of Templeton Funds (as the case may be), such
action or waiver will not have a material adverse affect on the benefits
intended under this Agreement to the holders of shares of the International Fund
or the Foreign Fund, on behalf of which such action is taken.
(e) The respective representations and warranties contained in Sections
4-6 hereof shall expire with, and be terminated by, the Plan of Reorganization,
and neither International Trust nor Templeton Funds nor any of their officers,
trustees, directors, agents or shareholders shall have any liability with
respect to such representations or warranties after the Closing. This provision
shall not protect any officer, trustee, director, agent or shareholder of
International Trust or Templeton Funds against any liability to the entity for
which that officer, trustee, director, agent or shareholder so acts or to its
shareholders to which that officer, trustee, director, agent or shareholder
would
A-15
<PAGE>
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties in the conduct of such office.
(f) If any order or orders of the U.S. Securities and Exchange
Commission with respect to this Agreement shall be issued prior to the Closing
and shall impose any terms or conditions which are determined by action of the
Board of Trustees of International Trust and the Board of Directors of Templeton
Funds to be acceptable, such terms and conditions shall be binding as if a part
of this Agreement without further vote or approval of the shareholders of the
International Fund, unless such terms and conditions shall result in a change in
the method of computing the number of shares of the Foreign Fund to be issued to
the International Fund in which event, unless such terms and conditions shall
have been included in the proxy solicitation material furnished to the
shareholders of the International Fund prior to the meeting at which the
transactions contemplated by this Agreement shall have been approved, this
Agreement shall not be consummated and shall terminate unless the International
Fund shall promptly call a special meeting of shareholders at which such
conditions so imposed shall be submitted for approval.
11. ENTIRE AGREEMENT AND AMENDMENTS
This Agreement embodies the entire Agreement between the parties and
there are no agreements, understandings, restrictions, or warranties between the
parties other than those set forth herein or herein provided for. This Agreement
may be amended only by mutual consent of the parties in writing. Neither this
Agreement nor any interest herein may be assigned without the prior written
consent of the other party.
12. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all such counterparts together
shall constitute but one instrument.
13. NOTICES
Any notice, report, or demand required or permitted by any
provision of this Agreement shall be in writing and shall be
deemed to have been given if delivered or mailed, first class
postage prepaid, addressed to Franklin Templeton International
Trust at 777 Mariners Island Boulevard, P. O. Box 7777, San
Mateo, CA 94403-7777, Attention: Mr. Rupert H. Johnson, Jr.,
President, or Templeton Funds, Inc. at 700 Central Avenue, St.
A-16
<PAGE>
Petersburg, Florida 33701-3628, Attention: Mr. Thomas M. Mistele,
Secretary, as the case may be.
14. GOVERNING LAW
This Agreement shall be governed by and carried out in accordance with
the laws of the State of Maryland.
IN WITNESS WHEREOF, Franklin Templeton International Trust and
Templeton Funds, Inc. have each caused this Agreement and Plan of Reorganization
to be executed on its behalf by its duly authorized officers, all as of the date
and year first-above written.
TEMPLETON FUNDS, INC.
By:________________________________
Thomas M. Mistele
Secretary
FRANKLIN TEMPLETON INTERNATIONAL
TRUST
By:________________________________
Deborah R. Gatzek
Vice President
A-17
<PAGE>
TEMPLETON FOREIGN FUND PROSPECTUS -- JANUARY 1, 1996
- - -------------------------------------------------------------------------------
INVESTMENT Templeton Foreign Fund (the "Fund") seeks long-term capital
OBJECTIVE growth through a flexible policy of investing in stocks and
AND POLICIES debt obligations of companies and governments outside the
United States. The Fund is a series of Templeton Funds, Inc.
- - -------------------------------------------------------------------------------
PURCHASE OF Please complete and return the Shareholder Application. If you
SHARES need assistance in completing this form, please call our
Shareholder Services Department. The Fund offers two classes
to its investors: Templeton Foreign Fund--Class I ("Class I")
and Templeton Foreign Fund--Class II ("Class II"). Investors
can choose between Class I Shares, which generally bear a
higher front-end sales charge and lower ongoing Rule 12b-1
distribution fees ("Rule 12b-1 fees"), and Class II Shares,
which generally have a lower front-end sales charge and higher
ongoing Rule 12b-1 fees. Investors should consider the
differences between the two classes, including the impact of
sales charges and distribution fees, in choosing the more
suitable class given their anticipated investment amount and
time horizon. See "How to Buy Shares of the Fund--Differences
Between Class I and Class II ." The minimum initial investment
is $100 ($25 minimum for subsequent investments).
- - -------------------------------------------------------------------------------
PROSPECTUS 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, 1996, has been filed with
the Securities and Exchange Commission (the "SEC") and is
incorporated in its entirety by reference in and made a part
of this Prospectus. This SAI is available without charge upon
request to Franklin Templeton Distributors, Inc., P.O. Box
33030, St. Petersburg, Florida 33733-8030 or by calling the
Fund Information Department.
- - -------------------------------------------------------------------------------
FUND INFORMATION DEPARTMENT -- 1-800/DIAL BEN
- - -------------------------------------------------------------------------------
TEMPLETON "STAR" SERVICE (24 hours, seven days a week access to current
prices, shareholder account balances/values, last transaction and duplicate
account statements) -- 1-800-654-0123
- - -------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
EXPENSE TABLE......... 2
FINANCIAL HIGHLIGHTS . 3
GENERAL DESCRIPTION... 4
Investment Objective
and Policies......... 4
RISK FACTORS.......... 5
HOW TO BUY SHARES OF
THE FUND............. 7
Differences Between
Class I and
Class II............. 7
Deciding Which Class
to Purchase.......... 7
Offering Price--Class
I.................... 8
Offering Price--Class
II................... 10
Net Asset Value
Purchases
(Both Classes)....... 10
Description of Special
Net Asset Value
Purchases............ 11
Additional Dealer
Compensation
(Both Classes)....... 12
Purchasing Class I and
Class II Shares...... 12
Automatic Investment
Plan................. 13
Institutional
Accounts............. 13
Account Statements.... 13
Templeton STAR
Service.............. 13
Retirement Plans...... 14
Net Asset Value....... 14
EXCHANGE PRIVILEGE.... 14
Exchanges of Class I
Shares............... 15
Exchanges of Class II
Shares............... 15
Transfers............. 16
Conversion Rights..... 16
Exchanges by Timing
Accounts............. 16
HOW TO SELL SHARES OF
THE FUND............. 17
Reinstatement
Privilege............ 19
Systematic Withdrawal
Plan................. 19
Redemptions by
Telephone............ 20
Contingent Deferred
Sales Charge......... 20
TELEPHONE
TRANSACTIONS......... 21
Verification
Procedures........... 21
Restricted Accounts... 21
General............... 22
MANAGEMENT OF THE
FUND................. 22
Investment Manager.... 22
Business Manager...... 23
Transfer Agent........ 23
Custodian............. 23
Plans of Distribution. 23
Expenses.............. 24
Brokerage Commissions. 24
GENERAL INFORMATION... 24
Description of
Shares/Share
Certificates......... 24
Voting Rights......... 24
Meetings of
Shareholders......... 25
Dividends and
Distributions........ 25
Federal Tax
Information.......... 25
Inquiries............. 26
Performance
Information.......... 26
Statements and
Reports.............. 26
WITHHOLDING
INFORMATION.......... 27
CORPORATE RESOLUTION.. 28
AUTHORIZATION
AGREEMENT............ 29
THE FRANKLIN TEMPLETON
GROUP................ 30
</TABLE>
- - -------------------------------------------------------------------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF CAPITAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
EXPENSE TABLE
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a Shareholder will bear directly or indirectly
in connection with an investment in the Fund. The figures are estimates of the
Fund's expenses for the current fiscal year, restated to reflect current sales
charges and Rule 12b-1 fees for each class.
<TABLE>
<CAPTION>
CLASS I CLASS II
------- --------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage
of Offering Price)....................................... 5.75% 1.00%/1/
Deferred Sales Charge..................................... None/2/ 1.00%/3/
Exchange Fee (per transaction)............................ $5.00/4/ $5.00/4/
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................................... 0.63% 0.63%
12b-1 Fees/5/............................................. 0.25% 1.00%
Other Expenses (audit, legal, business management,
transfer agent and custodian)............................ 0.27% 0.27%
Total Fund Operating Expenses............................. 1.15% 1.90%
</TABLE>
- - -------
/1/ Although/Class II has a lower front-end sales charge than Class I, over time
the higher Rule 12b-1 fees for Class II may cause Shareholders to pay more
for Class II Shares than for Class I Shares. Given the maximum front-end
sales charge and the rate of Rule 12b-1 fees for each class, it is estimated
that this would take less than six years for Shareholders who maintain total
Shares valued at less than $50,000 in the Franklin Templeton Funds.
Shareholders with larger investments in the Franklin Templeton Funds will
reach the cross-over point more quickly. (See "How to Buy Shares of the
Fund.")
/2/ Class/I investments of $1 million or more are not subject to a front-end
sales charge; however, a contingent deferred sales charge of 1% is generally
imposed on certain redemptions within a "contingency period" of 12 months of
the calendar month of such investments. See "How to Sell Shares of the
Fund--Contingent Deferred Sales Charge."
/3/ Class/II Shares redeemed within a "contingency period" of 18 months of the
calendar month of such investments are subject to a 1% contingent deferred
sales charge. See "How to Sell Shares of the Fund--Contingent Deferred Sales
Charge."
/4/ $5.00/fee imposed only on Timing Accounts as described under "Exchange
Privilege." All other exchanges are processed without a fee.
/5/ Annual/Rule 12b-1 fees may not exceed 0.25% of the Fund's average net assets
attributable to Class I Shares and 1% of the Fund's average net assets
attributable to Class II Shares. Consistent with the National Association of
Securities Dealers, Inc.'s rules, it is possible that the combination of
front-end sales charges and Rule 12b-1 fees could cause long-term
Shareholders to pay more than the economic equivalent of the maximum front-
end sales charges permitted under those same rules.
Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with an individual's own
investment in the Fund. Rather, the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. The information in this table does not reflect the charge of up to
$15 per transaction if a Shareholder requests that redemption proceeds be sent
by express mail or wired to a commercial bank account. For a more detailed
discussion of these matters, investors should refer to the appropriate
sections of this Prospectus.
EXAMPLE
As required by SEC regulations, the following example illustrates the
expenses, including the maximum front-end sales charge and applicable
contingent deferred sales charge, that apply to a $1,000 investment in the
Fund over various time periods assuming (1) a 5% annual rate of return and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Class I........................ $69 $92 $117 $189
Class II....................... $39 $69 $112 $230
You would pay the following
expenses on the same
investment in Class II Shares,
assuming no redemption........ $29 $69 $112 $230
</TABLE>
For the purpose of this example, it is assumed that a contingent deferred
sales charge will not apply to Class I Shares.
THIS EXAMPLE IS BASED ON THE ESTIMATED ANNUAL OPERATING EXPENSES, INCLUDING
FEES SET BY CONTRACT, SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN
THOSE SHOWN. The operating expenses are borne by the Fund and only indirectly
by Shareholders as a result of their investment in the Fund. In addition,
federal securities regulations require the example to assume an annual rate of
return of 5%, but the Fund's actual return may be more or less than 5%.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables of selected financial information have been audited by
McGladrey & Pullen, LLP, independent certified public accountants, for the
years indicated in their report which is incorporated by reference and which
appears in the Fund's 1995 Annual Report to Shareholders. These statements
should be read in conjunction with the other financial statements and notes
thereto included in the Fund's 1995 Annual Report to Shareholders, which
contains further information about the Fund's performance, and which is
available to shareholders upon request and without charge.
<TABLE>
<CAPTION>
CLASS I
-------------------------------------------------------------------------------------------------------------
PER SHARE
OPERATING YEAR ENDED AUGUST 31,
PERFORMANCE+ -------------------------------------------------------------------------------------------------------------
(for a Share
outstanding
throughout the
year) 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 10.01 $ 8.74 $ 7.92 $ 7.91 $ 8.19 $ 7.60 $ 6.37 $ 7.73 $ 5.34 $ 4.10
- - -----------------------------------------------------------------------------------------------------------------------------------
Income from
investment
operations
Net investment
income .23 .14 .14 .20 .25 .25 .22 .21 .16 .12
Net realized and
unrealized gain
(loss) .05 1.39 1.21 .43 .03 .92 1.60 (.97) 2.71 1.25
---------- ---------- ---------- ---------- ---------- -------- -------- -------- -------- --------
Total from
investment
operations .28 1.53 1.35 .63 .28 1.17 1.82 (.76) 2.87 1.37
---------- ---------- ---------- ---------- ---------- -------- -------- -------- -------- --------
Distributions
Dividends from net
investment income (.16) (.13) (.19) (.23) (.26) (.25) (.21) (.19) (.13) (.12)
Distributions from
net realized
gains (.51) (.13) (.34) (.39) (.30) (.33) (.38) (.41) (.35) (.01)
---------- ---------- ---------- ---------- ---------- -------- -------- -------- -------- --------
Total
distributions (.67) (.26) (.53) (.62) (.56) (.58) (.59) .60 (.48) (.13)
---------- ---------- ---------- ---------- ---------- -------- -------- -------- -------- --------
Change in net
asset value (.39) 1.27 .82 .01 (.28) .59 1.23 (1.36) 2.39 1.24
- - -----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of year $ 9.62 $ 10.01 $ 8.74 $ 7.92 $ 7.91 $ 8.19 $ 7.60 $ 6.37 $ 7.73 $ 5.34
- - -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 3.14% 17.94% 18.65% 8.52% 4.17% 16.35% 30.99% (8.78)% 59.23% 34.39%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
year (000) $6,941,238 $5,014,438 $2,667,771 $1,672,161 $1,211,525 $932,995 $438,571 $292,679 $319,649 $185,752
Ratio to average
net assets of:
Expenses 1.15% 1.14% 1.12% 0.94% 0.80% 0.77% 0.81% 0.81% 0.77% 0.79%
Net investment
income 2.81% 1.84% 2.11% 2.92% 3.59% 3.95% 3.65% 3.29% 2.89% 2.99%
Portfolio turnover
rate 21.78% 36.75% 21.29% 22.00% 19.24% 11.49% 16.62% 20.37% 14.49% 20.97%
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total return does not reflect sales charges.
+ Per share amounts for years ended prior to August 31, 1994 have been
restated to reflect a 3-for-1 stock split effective February 25, 1994.
3
<PAGE>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
CLASS II
---------------
FOR THE PERIOD
MAY 1, 1995+
THROUGH
AUGUST 31, 1995
---------------
<S> <C>
Net asset value, beginning of period............................ $ 9.16
-------
Income from investment operations:
Net investment income........................................... .03
Net realized and unrealized gain................................ .40
-------
Total from investment operations................................ .43
-------
Net asset value, end of period.................................. $ 9.59
=======
TOTAL RETURN* 4.81%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)................................. $63,428
Ratio of expenses to average net assets......................... 1.90%**
Ratio of net investment income to average net assets............ 1.86%**
</TABLE>
- - -------
* Total return does not reflect sales commissions or the deferred contingent
sales charge. Not annualized for periods of less than one year.
** Annualized.
+ Commencement of offering of shares.
GENERAL DESCRIPTION
Templeton Funds, Inc. (the "Company") was incorporated under the laws of
Maryland on August 15, 1977 and is registered under the Investment Company Act
of 1940, as amended (the "1940 Act") as an open-end diversified investment
company. It has two series of Shares, each of which is a separate mutual fund:
Templeton Foreign Fund (the "Fund") and Templeton World Fund. A prospectus for
Templeton World Fund is available upon request and without charge from the
Principal Underwriter. The Fund has two classes of Common Shares of $1 par
value per Share: Templeton Foreign Fund--Class I and Templeton Foreign Fund--
Class II. All Fund Shares outstanding before May 1, 1995 have been
redesignated as Class I Shares, and will retain their previous rights and
privileges, except for legally required modifications to Shareholder voting
procedures, as discussed in "General Information--Voting Rights."
Shares of the Fund may be purchased (minimum investment of $100 initially
and $25 thereafter) at the current Public Offering Price. The current public
Offering Price of the Class I Shares is equal to the net asset value per Share
(see "How to Buy Shares of the Fund--Net Asset Value"), plus a variable sales
charge not exceeding 5.75% of the Offering Price depending upon the amount
invested. The current public Offering Price of the Class II Shares is equal to
the net asset value per Share, plus a sales charge of 1% of the amount
invested. (See "How to Buy Shares of the Fund.")
INVESTMENT OBJECTIVE AND POLICIES. The Fund's investment objective is long-
term capital growth, which it seeks to achieve through a flexible policy of
investing in stocks and debt obligations of companies and governments outside
the United States. Any income realized will be incidental. There can be no
assurance that the Fund's investment objective will be achieved.
Although the Fund generally invests in common stock, it may also invest in
preferred stocks and certain debt securities (which may include structured
investments, as described in the SAI under "Investment Objectives and
Policies--Structured Investments"), rated or unrated, such as convertible
bonds and bonds selling at a discount. Whenever, in the judgment of the
Investment Manager, market or economic conditions warrant, the Fund may, for
temporary defensive purposes, invest without limit in U.S. Government
4
<PAGE>
securities, bank time deposits in the currency of any major nation and
commercial paper meeting the quality ratings set forth under "Investment
Objective and Policies" in the SAI, and purchase from banks or broker-dealers
Canadian or U.S. Government securities with a simultaneous agreement by the
seller to repurchase them within no more than seven days at the original
purchase price plus accrued interest.
The Fund may purchase sponsored or unsponsored American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") and Global Depositary Receipts
("GDRs") (collectively, "Depositary Receipts"). The Fund may invest no more
than 5% of its total assets in securities issued by any one company or
government, exclusive of U.S. Government securities. Although the Fund may
invest up to 25% of its assets in a single industry, it has no present
intention of doing so. The Fund may not invest more than 5% of its assets in
warrants (exclusive of warrants acquired in units or attached to securities)
nor more than 10% of its assets in securities with a limited trading market.
The Investment Objective and Policies described above, as well as most of the
Investment Restrictions described in the SAI, cannot be changed without
Shareholder approval. The Fund invests for long-term growth of capital and
does not intend to place emphasis upon short-term trading profits.
Accordingly, the Fund expects to have a portfolio turnover rate of less than
50%.
RISK FACTORS
Shareholders should understand that all investments involve risk and there
can be no guarantee against loss resulting from an investment in the Fund, nor
can there be any assurance that the Fund's investment objective will be
attained. As with any investment in securities, the value of, and income from,
an investment in the Fund can decrease as well as increase, depending on a
variety of factors which may affect the values and income generated by the
Fund's portfolio securities, including general economic conditions and market
factors. In addition to the factors which affect the value of individual
securities, a Shareholder may anticipate that the value of the Shares of the
Fund will fluctuate with movements in the broader equity and bond markets. A
decline in the stock market of any country in which the Fund is invested may
also be reflected in declines in the price of the Shares of the Fund. Changes
in currency valuations will also affect the price of the Shares of the Fund.
History reflects both decreases and increases in worldwide stock markets and
currency valuations, and these may reoccur unpredictably in the future. The
value of debt securities held by the Fund generally will vary inversely with
changes in prevailing interest rates. Additionally, investment decisions made
by the Investment Manager will not always be profitable or prove to have been
correct. The Fund is not intended as a complete investment program.
The Fund has the right to purchase securities in any foreign country,
developed or developing. Investors should consider carefully the substantial
risks involved in investing in securities issued by companies and governments
of foreign nations, which are in addition to the usual risks inherent in
domestic investments. There is the possibility of expropriation,
nationalization or confiscatory taxation, taxation of income earned in foreign
nations or other taxes imposed with respect to investments in foreign nations,
foreign exchange controls (which may include suspension of the ability to
transfer currency from a given country), foreign investment controls on daily
stock market movements, default in foreign government securities, political or
social instability, or diplomatic developments which could affect investments
in securities of issuers in foreign nations. Some countries may withhold
portions of interest and dividends at the source. In addition, in many
countries there is less publicly available information about issuers than is
available in reports about companies in the United States. Foreign companies
are not generally subject to uniform accounting, auditing and financial
reporting standards, and auditing practices and requirements may not be
comparable to those applicable to United States companies. The Fund may
encounter difficulties or be unable to vote proxies, exercise shareholder
rights, pursue legal remedies, and obtain judgments in foreign courts.
Brokerage commissions, custodial services, and other costs relating to
investment in foreign countries are generally more expensive than in the
United States. Foreign securities markets also have different clearance and
settlement procedures, and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested
5
<PAGE>
and no return is earned thereon. The inability of the Fund to make intended
security purchases due to settlement problems could cause the Fund to miss
attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the
Fund due to subsequent declines in value of the portfolio security or, if the
Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser.
In many foreign countries, there is less government supervision and
regulation of business and industry practices, stock exchanges, brokers and
listed companies than in the United States. There is an increased risk,
therefore, of uninsured loss due to lost, stolen, or counterfeit stock
certificates. In addition, the foreign securities markets of many of the
countries in which the Fund may invest may also be smaller, less liquid, and
subject to greater price volatility than those in the United States. The Fund
may invest in Eastern European countries, which involves special risks that
are described under "Risk Factors" in the SAI.
Prior governmental approval of foreign investments may be required under
certain circumstances in some developing countries, and the extent of foreign
investment in domestic companies may be subject to limitation in other
developing countries. Foreign ownership limitations also may be imposed by the
charters of individual companies in developing countries to prevent, among
other concerns, violation of foreign investment limitations.
Repatriation of investment income, capital and proceeds of sales by foreign
investors may require governmental registration and/or approval in some
developing countries. The Fund could be adversely affected by delays in or a
refusal to grant any required governmental registration or approval for such
repatriation.
Further, the economies of developing countries generally are heavily
dependent upon international trade and, accordingly, have been and may
continue to be adversely affected by trade barriers, exchange controls,
managed adjustments in relative currency values and other protectionist
measures imposed or negotiated by the countries with which they trade. These
economies also have been and may continue to be adversely affected by economic
conditions in the countries with which they trade.
Depositary Receipts may not necessarily be denominated in the same currency
as the underlying securities into which they may be converted. In addition,
the issuers of the securities underlying unsponsored Depositary Receipts are
not obligated to disclose material information in the United States and,
therefore, there may be less information available regarding such issuers and
there may not be a correlation between such information and the market value
of the Depositary Receipts. Depositary Receipts also involve the risks of
other investments in foreign securities, as discussed above.
The Fund is authorized to invest in medium quality or high-risk, lower
quality debt securities that are rated between BBB and as low as CCC by
Standard & Poor's Corporation ("S&P") and between Baa and as low as Caa by
Moody's Investors Service, Inc. ("Moody's") or, if unrated, are of equivalent
investment quality as determined by the Investment Manager. As an operating
policy, which may be changed by the Board of Directors without Shareholder
approval, the Fund will not invest more than 5% of its total assets in debt
securities rated lower than BBB by S&P or Baa by Moody's. See "Investment
Objectives and Policies--Debt Securities" in the SAI for descriptions of debt
securities rated BBB by S&P and Baa by Moody's. The Board may consider a
change in this operating policy if, in its judgment, economic conditions
change such that a higher level of investment in high-risk, lower quality debt
securities would be consistent with the interests of the Fund and its
Shareholders. High-risk, lower quality debt securities, commonly referred to
as "junk bonds," are regarded, on balance, as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation and may be in default. Unrated
debt securities are not necessarily of lower quality than rated securities but
they may not be attractive to as many buyers. Regardless of rating levels, all
debt securities considered for purchase (whether rated or unrated) will be
carefully analyzed by the Investment Manager to insure, to the extent
possible, that the planned investment is sound. The Fund may, from time to
time, purchase defaulted debt securities if, in the opinion of the Investment
Manager, the issuer may resume interest payments in the near future. The Fund
will not invest more than 10% of its total assets in defaulted debt
securities, which may be illiquid.
6
<PAGE>
The Fund usually effects currency exchange transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign exchange market.
However, some price spread on currency exchange (to cover service charges)
will be incurred when the Fund converts assets from one currency to another.
There are further risk considerations, including possible losses through the
holding of securities in domestic and foreign custodial banks and
depositories, described in the SAI.
HOW TO BUY SHARES OF THE FUND
Shares of the Fund may be purchased at the Offering Price through any broker
which has a dealer agreement with Franklin Templeton Distributors, Inc.
("FTD"), the Principal Underwriter for the Shares of the Fund, or directly
from FTD upon receipt by FTD of a completed Shareholder Application and check.
Shares of both classes of the Fund are offered at their respective public
Offering Prices, which are determined by adding the net asset value per Share
plus a front-end sales charge, next computed (i) after the Shareholder's
securities dealer receives the order which is promptly transmitted to the Fund
or (ii) after receipt of an order by mail from the Shareholder directly in
proper form (which generally means a completed Shareholder Application
accompanied by negotiable check). The minimum initial investment is $100, and
subsequent investments must be $25 or more. These minimums may be waived when
the Shares are being purchased through retirement plans providing for regular
periodic investments, as described below under "Retirement Plans."
DIFFERENCES BETWEEN CLASS I AND CLASS II. The differences between Class I
and Class II Shares lie primarily in their front-end and contingent deferred
sales charges and Rule 12b-1 fees as described below.
Class I. All Fund Shares outstanding before the implementation of the
multiclass structure have been redesignated as Class I Shares, and will retain
their previous rights and privileges. Voting rights of each class will be the
same on matters affecting the Fund as a whole, but each will vote separately
on matters affecting its class. Class I Shares are generally subject to a
variable sales charge upon purchase and not subject to any sales charge upon
redemption. Class I Shares are subject to Rule 12b-1 fees of up to an annual
maximum of 0.25% of average daily net assets of such Shares. With this
multiclass structure, Class I Shares have higher front-end sales charges than
Class II Shares and comparatively lower Rule 12b-1 fees. Class I Shares may be
purchased at reduced front-end sales charges, or at net asset value if certain
conditions are met. In most circumstances, contingent deferred sales charges
will not be assessed against redemptions of Class I Shares. See "Management of
the Fund" and "How to Sell Shares of the Fund" for more information.
Class II. The current public Offering Price of Class II Shares is equal to
the net asset value per Share, plus a front-end sales charge of 1% of the
amount invested. Class II Shares are also subject to a contingent deferred
sales charge of 1% if Shares are redeemed within 18 months of the calendar
month of the purchase. In addition, Class II Shares are subject to Rule 12b-1
fees of up to a maximum of 1% per annum of average daily net assets of such
Shares, 0.75% of which will be retained by FTD during the first year of
investment. Class II Shares have lower front-end sales charges than Class I
Shares and comparatively higher Rule 12b-1 fees. See "How to Sell Shares of
the Fund--Contingent Deferred Sales Charge."
Purchases of Class II Shares are limited to purchases below $1 million. Any
purchases of $1 million or more will automatically be invested in Class I
Shares, since that is more beneficial to investors. Such purchases, however,
may be subject to a contingent deferred sales charge. Investors may exceed $1
million in Class II Shares by cumulative purchases over a period of time.
Investors who intend to make investments exceeding $1 million, however, should
consider purchasing Class I Shares through a Letter of Intent instead of
purchasing Class II Shares.
DECIDING WHICH CLASS TO PURCHASE. Investors should carefully evaluate their
anticipated investment amount and time horizon prior to determining which
class of Shares to purchase. Generally, an investor who expects to invest less
than $50,000 in the Franklin
7
<PAGE>
Templeton Funds and who expects to make substantial redemptions within
approximately six years or less of investment should consider purchasing Class
II Shares. However, the higher Rule 12b-1 fees on the Class II Shares will
result in higher operating expenses, which will accumulate over time to
outweigh the difference in front-end sales charges, and will lower dividends
for Class II Shares. For this reason, Class I Shares may be more attractive to
long-term investors even if no sales charge reductions are available to them.
Investors who qualify to purchase Class I Shares at reduced sales charges
definitely should consider purchasing Class I Shares, especially if they
intend to hold their Shares approximately six years or more. Investors who
qualify to purchase Class I Shares at reduced sales charges but who intend to
hold their Shares less than approximately six years should evaluate whether it
is more economical to purchase Class I Shares through a Letter of Intent or
under the cumulative quantity discount rather than purchasing Class II Shares.
INVESTORS INVESTING $1 MILLION OR MORE IN A SINGLE PAYMENT AND OTHER INVESTORS
WHO QUALIFY TO PURCHASE CLASS I SHARES AT NET ASSET VALUE WILL BE PRECLUDED
FROM PURCHASING CLASS II SHARES.
Each class represents the same interest in the investment portfolio of the
Fund and has the same rights, except that each class has a different sales
charge, bears the separate expenses of its Rule 12b-1 distribution plan, and
has exclusive voting rights with respect to such plan. The two classes also
have separate exchange privileges.
Each class also has a separate schedule for compensating securities dealers
for selling Fund Shares. Investors should take all of the factors regarding an
investment in each class into account before deciding which class of Shares to
purchase.
OFFERING PRICE--CLASS I. The sales charge for Class I Shares is a variable
percentage of the Offering Price depending upon the amount of the sale. The
method of calculating net asset value per Share is described under "Net Asset
Value."
The price to the public on purchases of Class I Shares made by a single
purchaser, by an individual together with his or her spouse and their children
under age 21 and their grandchildren under age 21, or by a single trust or
fiduciary account other than an employee benefit plan holding Shares of the
Fund on or before February 1, 1995, is the net asset value per Share plus a
sales charge not exceeding 5.75% of the Offering Price (equivalent to 6.10% of
the net asset value), which is reduced on larger sales as shown below.
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
--------------------------------------------
AS A PERCENTAGE OF AS A PERCENTAGE OF NET PORTION OF TOTAL
AMOUNT OF SALE OFFERING PRICE OF THE ASSET VALUE OF THE OFFERING PRICE
AT OFFERING PRICE SHARES PURCHASED SHARES PURCHASED RETAINED BY DEALERS/1/,/3/
- - ----------------- --------------------- ---------------------- --------------------------
<S> <C> <C> <C>
Less than $50,000............................. 5.75% 6.10% 5.00%
$50,000 but less than $100,000................ 4.50% 4.71% 3.75%
$100,000 but less than $250,000............... 3.50% 3.63% 2.80%
$250,000 but less than $500,000............... 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000............. 2.00% 2.04% 1.60%
$1,000,000 or more............................ none none (see below)/2/
</TABLE>
- - -------
/1/ Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
/2/ The following commissions will be paid by FTD, from its own resources, to
securities dealers who initiate and are responsible for purchases of $1
million or more: 1% on sales of $1 million but less than $2 million, plus
0.80% on sales of $2 million but less than $3 million, plus 0.50% on sales
of $3 million but less than $50 million, plus 0.25% on sales of $50 million
but less than $100 million, plus 0.15% on sales of $100 million or more.
Dealer concession breakpoints are reset every 12 months for purposes for
additional purchases.
/3/ At the discretion of FTD, all sales charges may at times be reallowed to the
securities dealer. If 90% or more of the sales commission is reallowed, such
securities dealer may be deemed to be an underwriter as that term is defined
in the Securities Act of 1933.
8
<PAGE>
No front-end sales charge applies to investments of $1 million or more, but
a contingent deferred sales charge of 1% is imposed on certain redemptions of
all or a portion of investments of $1 million or more within 12 months of the
calendar month of such investments ("contingency period"). See "How to Sell
Shares of the Fund--Contingent Deferred Sales Charge."
The size of a transaction which determines the applicable sales charge on
the purchase of Class I Shares is determined by adding the amount of the
Shareholder's current purchase plus the cost or current value (whichever is
higher) of a Shareholder's existing investment in one or more of the funds in
the Franklin Group of Funds (R) and the Templeton Family of Funds. Included
for these aggregation purposes are (i) the mutual funds in the Franklin Group
of Funds (R) except Franklin Valuemark Funds and Franklin Government
Securities Trust (the "Franklin Funds"); (ii) other investment products
underwritten by FTD or its affiliates (although certain investments may not
have the same schedule of sales charges and/or may not be subject to
reduction); and (iii) the U.S.-registered mutual funds in the Templeton Family
of Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund (the "Templeton
Funds"). (Franklin Funds and Templeton Funds are collectively referred to as
the "Franklin Templeton Funds.") Sales charge reductions based upon aggregate
holdings of (i), (ii) and (iii) above ("Franklin Templeton Investments") may
be effective only after notification to FTD that the investment qualifies for
a discount.
Other Payments to Securities Dealers. FTD, or one of its affiliates, may
make payments, from its own resources, of up to 1% of the amount purchased, to
securities dealers who initiate and are responsible for purchases made at net
asset value by certain designated retirement plans (as defined below)
(excluding IRA and IRA rollovers), certain non-designated plans (as defined
below), certain trust companies and trust departments of banks and certain
retirement plans of organizations with collective retirement plan assets of
$10 million or more. See definitions under "Description of Special Net Asset
Value Purchases" below and as set forth in the SAI.
A sales charge of 4% of the Offering Price (4.17% of the net asset value) is
applicable to all purchases of Shares made for any qualified or non-qualified
employee benefit plan account which was a Shareholder in the Fund on or before
February 1, 1995. Of the 4% sales charge applicable to such purchases, 3.20%
of the Offering Price will be retained by dealers.
Cumulative Quantity Discount. The schedule of reduced sales charges also may
be applied to qualifying sales of Class I Shares on a cumulative basis. For
this purpose, the dollar amount of the sale is added to the higher of (i) the
value (calculated at the applicable Offering Price) or (ii) the purchase
price, of Franklin Templeton Investments. The cumulative quantity discount
applies to Franklin Templeton Investments owned at the time of purchase by the
purchaser, his or her spouse, their children under age 21, and their
grandchildren under age 21. In addition, the aggregate investments of a
trustee or other fiduciary account (for an account under exclusive investment
authority) may be considered in determining whether a reduced sales charge is
available, even though there may be a number of beneficiaries of the account.
For example, if the investor held Class I Shares valued at $40,000 (or, if
valued at less than $40,000, had been purchased for $40,000) and purchased an
additional $20,000 of the Fund's Class I Shares, the sales charge for the
$20,000 purchase would be at the rate of 4.50%. It is FTD's policy to give
investors the best sales charge rate possible; however, there can be no
assurance than an investor will receive the appropriate discount unless, at
the time of placing the purchase order, the investor or the dealer makes a
request for the discount and gives FTD sufficient information to determine
whether the purchase will qualify for the discount. On telephone orders from
dealers for the purchase of Class I Shares to be registered in "street name,"
FTD will accept the dealer's instructions with respect to the applicable sales
charge rate to be applied. The cumulative quantity discount may be amended or
terminated at any time.
Letter of Intent. An Investor may be eligible for reduced sales charges on
all investments in Class I Shares by means of a Letter of Intent ("LOI") which
expresses the investor's intention to invest a certain amount within a 13-
month period in Class I Shares of the Fund or any other Franklin Templeton
Fund. See the Shareholder Application. Except for certain employee benefit
plans, the minimum initial investment under an LOI is 5% of the total LOI
amount. Except for Shares purchased by certain employee benefit plans, Shares
purchased with the first 5% of such amount will be held in escrow to secure
payment of the higher sales charge applicable to the Shares actually purchased
if the full amount indicated is not purchased, and such escrowed Shares will
be involuntarily redeemed
9
<PAGE>
to pay the additional sales charge, if necessary. A purchase not originally
made pursuant to an LOI may be included under a subsequent LOI executed within
90 days of the purchase. Any redemptions made by Shareholders, other than by
certain employee benefit plans, during the 13-month period will be subtracted
from the amount of the purchases for purposes of determining whether the terms
of the LOI have been completed. For a further description of the LOI, see
"Purchase, Redemption and Pricing of Shares -- Letter of Intent" in the SAI.
Group Purchases. An individual who is a member of a qualified group may also
purchase Class I Shares of the Fund at the reduced sales charge applicable to
the group as a whole. The sales charge is based upon the aggregate dollar
value of Class I Shares previously purchased and still owned by the group,
plus the amount of the current purchase. For example, if members of the group
had previously invested and still held $80,000 of Class I Shares and now were
investing $25,000, the sales charge would be 3.50%. Information concerning the
current sales charge applicable to a group may be obtained by contacting FTD.
A "qualified group" is one which (i) has been in existence for more than six
months, (ii) has a purpose other than acquiring Fund Shares at a discount, and
(iii) satisfies uniform criteria which enable FTD to realize economies of
scale in its costs of distributing Shares. A qualified group must have more
than 10 members, must be available to arrange for group meetings between
representatives of the Fund or FTD and the members, must agree to include
sales and other materials related to the Fund in its publications and mailings
to members at reduced or no cost to FTD, and must seek to arrange for payroll
deduction or other bulk transmission of investments to the Fund.
If an investor selects a payroll deduction plan, subsequent investments will
be automatic and will continue until such time as the investor notifies the
Fund and the investor's employer to discontinue further investments. Due to
the varying procedures to prepare, process and forward the payroll deduction
information to the Fund, there may be a delay between the time of the payroll
deduction and the time the money reaches the Fund. The investment in the Fund
will be made at the Offering Price per Share determined on the day that both
the check and payroll deduction data are received in required form by the
Fund.
OFFERING PRICE--CLASS II. Unlike Class I Shares, the front-end sales charges
and dealer concessions for Class II Shares do not vary depending on the amount
of purchase. The total sales charges or underwriting commissions and dealer
concessions for Class II Shares are set forth below.
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
--------------------------------------------
AS A PERCENTAGE OF AS A PERCENTAGE OF PORTION OF TOTAL
AMOUNT OF SALE OFFERING PRICE OF THE NET ASSET VALUE OF THE OFFERING PRICE
AT OFFERING PRICE SHARES PURCHASED SHARES PURCHASED RETAINED BY DEALERS*
- - ----------------- --------------------- ---------------------- --------------------
<S> <C> <C> <C>
any amount (less than $1
million)............... 1.00% 1.01% 1.00%
</TABLE>
- - -------
* FTD, or one of its affiliates, may make additional payments to securities
dealers, from its own resources, of up to 1% of the amount invested. During
the first year following a purchase of Class II Shares, FTD will keep a
portion of the Rule 12b-1 fees assessed on those Shares to partially recoup
fees FTD pays to securities dealers.
Class II Shares redeemed within 18 months of their purchase will be assessed
a contingent deferred sales charge of 1% on the lesser of the then-current net
asset value or the net asset value of such Shares at the time of purchase,
unless such charge is waived as described under "How To Sell Shares of the
Fund--Contingent Deferred Sales Charge."
NET ASSET VALUE PURCHASES (BOTH CLASSES). Class I Shares may be purchased
without the imposition of a front-end sales charge ("net asset value") or a
contingent deferred sales charge by (i) officers, trustees, directors, and
full-time employees of the Fund, any of the Franklin Templeton Funds, or
Franklin Resources, Inc. and its subsidiaries (the "Franklin Templeton
Group"), and their spouses and family members, including any subsequent
payments made by such parties after cessation of employment; (ii) companies
exchanging Shares with or selling assets pursuant to a merger, acquisition or
exchange offer; (iii) insurance company separate accounts for pension plan
contracts; (iv) accounts managed by the Franklin Templeton Group; (v)
shareholders of Templeton
10
<PAGE>
Institutional Funds, Inc. reinvesting redemption proceeds from that fund under
an employee benefit plan qualified under Section 401 of the Internal Revenue
Code of 1986, as amended (the "Code"), in Shares of the Fund; (vi) certain
unit investment trusts and unit holders of such trusts reinvesting their
distributions from the trusts in the Fund; (vii) registered securities dealers
and their affiliates, for their investment account only; and (viii) registered
personnel and employees of securities dealers and their affiliates, and by
their spouses and family members, in accordance with the internal policies and
procedures of the employing securities dealer.
For either Class I or Class II, the same class of Shares of the Fund may be
purchased at net asset value with the proceeds from (i) a redemption of Shares
of the Fund or shares of any other Franklin Templeton Fund, except any of the
Franklin Templeton money market funds (unless the redemption proceeds are from
Class I shares of a fund with a lower initial sales charge than that charged
by the Fund and have been held in that Fund for less than six months), or
(ii) a dividend or distribution paid by any of the Franklin Templeton Funds,
within 365 days after the date of the redemption or dividend or distribution.
See "How to Sell Shares of the Fund--Reinstatement Privilege." Class II
Shareholders may also invest such distributions at net asset value in Class I
shares of a Franklin Templeton Fund.
Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by investors who have, within
the past 60 days, redeemed an investment in a mutual fund which is not part of
the Franklin Templeton Funds, which was subject to a front-end sales charge or
a contingent deferred sales charge and which has investment objectives similar
to those of the Fund.
Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by broker-dealers who have
entered into a supplemental agreement with FTD, or by registered investment
advisers affiliated with such broker-dealers, on behalf of their clients who
are participating in a comprehensive fee program (also known as a wrap fee
program).
Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by anyone who has taken a
distribution from an existing retirement plan already invested in the Franklin
Templeton Funds (including former participants of the Franklin Templeton
Profit Sharing 401(k) plan), to the extent of such distribution. In order to
exercise this privilege, a written order for the purchase of Shares of the
Fund must be received by Franklin Templeton Trust Company ("FTTC"), the Fund,
or Franklin Templeton Investor Services, Inc. (the "Transfer Agent") within
365 days after the plan distribution.
Class I Shares may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge by any state, county or city,
or any instrumentality, department, authority or agency thereof which has
determined that the Fund is a legally permissible investment and which is
prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
management investment company (an "eligible governmental authority"). SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISERS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any,
of various payments made by the Fund or its investment manager on arbitrage
rebate calculations. If an investment by an eligible governmental authority at
net asset value is made through a securities dealer who has executed a dealer
agreement with FTD, FTD or one of its affiliates may make a payment, out of
its own resources, to such securities dealer in an amount not to exceed 0.25%
of the amount invested. Contact Franklin Templeton Institutional Services for
additional information.
DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES. Class I Shares may also be
purchased at net asset value and without the imposition of a contingent
deferred sales charge by certain designated retirement plans, including
profit-sharing, pension, 401(k) and simplified employee pension plans
("designated plans"), subject to minimum requirements with respect to number
of employees or amount of purchase, which may be established by FTD.
Currently, those criteria require that the employer establishing the plan have
200 or more employees or that the amount invested or to be invested during the
subsequent 13-month period in the Fund or in any of the Franklin Templeton
Investments totals at least $1 million. Employee benefit plans not designated
above or qualified under Section 401 of the Code ("non-designated plans") may
be afforded the same privilege if they meet the above requirements as well as
11
<PAGE>
the uniform criteria for qualified groups previously described under "Group
Purchases," which enable FTD to realize economies of scale in its sales
efforts and sales-related expenses.
Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trust companies and bank
trust departments for funds over which they exercise exclusive discretionary
investment authority and which are held in a fiduciary, agency, advisory,
custodial or similar capacity. Such purchases are subject to minimum
requirements with respect to amount of purchase, which may be established by
FTD. Currently, those criteria require that the amount invested or to be
invested during the subsequent 13-month period in the Fund or any of the
Franklin Templeton Investments must total at least $1 million. Orders for such
accounts will be accepted by mail accompanied by a check, or by telephone or
other means of electronic data transfer directly from the bank or trust
company, with payment by federal funds received by the close of business on
the next business day following such order.
Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trustees or other
fiduciaries purchasing securities for certain retirement plans of
organizations with collective retirement plan assets of $10 million or more,
without regard to where such assets are currently invested.
Refer to the SAI for further information regarding net asset value purchases
of Class I Shares.
ADDITIONAL DEALER COMPENSATION (BOTH CLASSES). FTD, or one of its
affiliates, from its own resources, may also provide additional compensation
to securities dealers in connection with sales of shares of the Franklin
Templeton Funds. Compensation may include financial assistance to securities
dealers in connection with conferences, sales or training programs for their
employees, seminars for the public, advertising, sales campaigns and/or
shareholder services and programs regarding one or more of the Franklin
Templeton Funds and other dealer-sponsored programs or events. In some
instances, this compensation may be made available only to certain securities
dealers whose representatives have sold or are expected to sell significant
amounts of shares of the Franklin Templeton Funds. Compensation may include
payment for travel expenses, including lodging, incurred in connection with
trips taken by invited registered representatives and members of their
families to locations within or outside of the United States for meetings or
seminars of a business nature. Securities dealers may not use sales of the
Fund's Shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. In addition, FTD or its
affiliates may make ongoing payments to brokerage firms, financial
institutions (including banks) and others to facilitate the administration and
servicing of shareholder accounts. None of the aforementioned additional
compensation is paid for by the Fund or its Shareholders.
Ongoing payments will be made to qualifying dealers at the annual rate of
0.25% of the average daily net asset value of Class I Shares (annual rate of
0.15% of the average daily net asset value of the Fund Shares purchased prior
to January 1, 1993), and 1% of the average daily net asset value of Class II
Shares, registered in the name of that broker-dealer as nominee or held in a
Shareholder account that designates that broker-dealer as dealer of record.
These payments are made in order to promote selling efforts and to compensate
dealers for providing certain services, including processing purchase and
redemption transactions, establishing Shareholder accounts and providing
certain information and assistance with respect to the Fund. For purchases of
Class I Shares on or after February 1, 1995 for which FTD advanced a
commission to a securities dealer, the dealer will receive ongoing payments
beginning in the thirteenth month after the date of purchase. For all
purchases of Class II Shares, the dealer will receive payments representing a
service fee (0.25% of average daily net asset value of the Shares) beginning
in the first month after the date of the purchase, and will receive additional
payments representing compensation for distribution (0.75% of average daily
net asset value of the Shares) beginning in the thirteenth month after the
date of the purchase, and beginning May 1, 1997 for exchanges from Templeton
American Trust, Inc. if the exchanged shares were purchased prior to May 1,
1995.
PURCHASING CLASS I AND CLASS II SHARES. When placing purchase orders,
investors should clearly indicate which class of Shares they intend to
purchase. A purchase order that fails to specify a class will automatically be
invested in Class I Shares. Purchases of $1 million or more in a single
payment will be invested in Class I Shares. There are no conversion features
attached to either class of Shares.
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Investors who qualify to purchase Class I Shares at net asset value should
purchase Class I rather than Class II Shares. See the section "Net Asset Value
Purchases (Both Classes)" and "Description of Special Net Asset Value
Purchases" above for a discussion of when Shares may be purchased at net asset
value.
As to telephone orders placed with FTD by dealers, the dealer must receive
the investor's order before the close of the New York Stock Exchange ("NYSE")
and transmit it to FTD by 5:00 p.m., New York time, for the investor to
receive that day's Offering Price. Payment for such orders must be by check in
U.S. currency and must be promptly submitted to FTD. Orders mailed to FTD by
dealers or individual investors are effected at the net asset value of the
Fund's Shares next computed after the purchase order accompanied by payment
has been received by FTD. Such payment must be by check in U.S. currency drawn
on a commercial bank in the U.S. and, if over $100,000, may not be deemed to
have been received until the proceeds have been collected unless the check is
certified or issued by such bank. Any subscription may be rejected by FTD or
by the Fund.
The Fund may impose a $10 charge against a Shareholder account in the event
that a check or draft submitted for the purchase of Fund Shares is returned
unpaid to the Fund.
Investors should promptly check the confirmation advice that is mailed after
each purchase (or redemption) in order to insure that it has been accurately
recorded in the investor's account.
AUTOMATIC INVESTMENT PLAN. Investors may accumulate Fund Shares regularly
each month by means of automatic debits to their checking accounts ($25
minimum). Forms for this purpose are in the Shareholder Application in this
Prospectus. Such a plan is voluntary and may be discontinued by written notice
to FTD, which must be received 10 days prior to the collection date, or by FTD
upon written notice to the investor at least 30 days prior to the collection
date.
INSTITUTIONAL ACCOUNTS. Institutional investors will likely be required to
complete an institutional account application. There may be additional methods
of opening accounts and purchasing, redeeming or exchanging Shares of the Fund
available for institutional accounts. To obtain an institutional account
application or additional information regarding institutional accounts,
contact Franklin Templeton Institutional Services at 1-800-321-8563.
ACCOUNT STATEMENTS. Shareholder accounts are opened in accordance with the
Shareholder's registration instructions. Transactions in the account, such as
additional investments and dividend reinvestments, will be reflected on
regular confirmation statements from the Transfer Agent.
TEMPLETON STAR SERVICE. From a touch-tone phone, Templeton and Franklin
shareholders may access an automated system (day or night) which offers the
following features:
By calling the Templeton STAR Service, shareholders may obtain current price
and yield information specific to a Templeton Fund, regardless of class;
obtain account information; and request duplicate confirmation or year-end
statements and money fund checks, if applicable.
By calling the Franklin TeleFACTS system, Class I shareholders may obtain
current price, yield or other performance information specific to a Class I
Franklin Fund; process an exchange into an identically registered Class I
Franklin account; obtain account information; and request duplicate
confirmation or year-end statements, money fund checks, if applicable, and
deposit slips.
Share prices and account information specific to Templeton Class I or II
shares and Franklin Class II shares may also be accessed on TeleFACTS by
Franklin and Templeton Class I and Class II shareholders.
The Templeton STAR Service is accessible by calling 1-800-654-0123. The
TeleFACTS system is accessible by calling 1-800-247-1753. TEMPLETON CLASS I
AND CLASS II SHARE CODES FOR THE FUND, WHICH WILL BE NEEDED TO ACCESS SYSTEM
INFORMATION, ARE 104
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AND 204, RESPECTIVELY. The system's automated operator will prompt the caller
with easy to follow step-by-step instructions from the main menu. Other
features may be added in the future.
RETIREMENT PLANS. Shares of the Fund may be purchased through various
retirement plans including the following plans for which FTTC or its affiliate
acts as trustee or custodian: IRAs, Simplified Employee Pensions, 403(b)
plans, qualified plans for corporations, self-employed individuals and
partnerships, and 401(k) plans. A plan document must be adopted in order for a
retirement plan to be in existence. For further information about any of the
plans, agreements, applications and annual fees, contact FTD. To determine
which retirement plan is appropriate, an investor should contact his or her
tax adviser.
NET ASSET VALUE. The net asset value per Share of each class of the Fund is
determined as of the scheduled closing time of the NYSE (generally 4:00 p.m.
New York time) each day that the NYSE is open for trading, by dividing the
value of the Fund's securities plus any cash and other assets (including
accrued interest and dividends receivable) less all liabilities (including
accrued expenses) by the number of Shares outstanding, adjusted to the nearest
whole cent. A security listed or traded on a recognized stock exchange or
NASDAQ is valued at its last sale price on the principal exchange on which the
security is traded. The value of a foreign security is determined in its
national currency as of the close of trading on the foreign exchange on which
it is traded or as of the scheduled closing time of the NYSE (generally 4:00
p.m., New York time), if that is earlier, and that value is then converted
into its U.S. dollar equivalent at the foreign exchange rate in effect at
noon, New York time, on the day the value of the foreign security is
determined. If no sale is reported at that time, the mean between the current
bid and asked price is used. Occasionally, events which affect the values of
such securities and such exchange rates may occur between the times at which
they are determined and the close of the NYSE, and will therefore not be
reflected in the computation of the Fund's net asset value. If events
materially affecting the value of such securities occur during such period,
then these securities will be valued at fair value as determined by the
management and approved in good faith by the Board of Directors. All other
securities for which over-the-counter market quotations are readily available
are valued at the mean between the current bid and asked price. Securities for
which market quotations are not readily available and other assets are valued
at fair value as determined by the management and approved in good faith by
the Board of Directors.
Each of the Fund's classes will bear, pro-rata, all of the common expenses
of the Fund. The net asset value of all outstanding Shares of each class of
the Fund will be computed on a pro-rata basis for each outstanding Share based
on the proportionate participation in the Fund represented by the value of
Shares of such classes, except that the Class I and Class II Shares will bear
the Rule 12b-1 expenses payable under their respective plans. Due to the
specific distribution expenses and other costs that will be allocable to each
class, the dividends paid to each class of the Fund may vary.
EXCHANGE PRIVILEGE
A Shareholder may exchange Shares for the same class of shares of other
Franklin Templeton Funds which are eligible for sale in the Shareholder's
state of residence and in conformity with such fund's stated eligibility
requirements and investment minimums. Some funds, however, may not offer Class
II shares. Class I Shares may be exchanged for Class I shares of any Franklin
Templeton Funds. Class II Shares may be exchanged for Class II shares of any
Franklin Templeton Funds. No exchanges between different classes of shares
will be allowed. A contingent deferred sales charge will not be imposed on
exchanges. If the exchanged Shares were subject to a contingent deferred sales
charge in the original fund purchased, and Shares are subsequently redeemed
within 12 months (Class I Shares) or 18 months (Class II Shares) of the
calendar month of the original purchase date, a contingent deferred sales
charge will be imposed. The period will be tolled (or stopped) for the period
Class I Shares are exchanged into and held in a Franklin Templeton money
market fund. See also "How to Sell Shares of the Fund--Contingent Deferred
Sales Charge."
Exchange purchases are subject to the minimum investment requirements of the
fund purchased and no sales charge generally applies. Exchanges of the same
class of shares are made on the basis of the net asset values of the class
involved, except as set
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forth below. Exchanges of shares of a class which were originally purchased
without a sales charge will be charged a sales charge in accordance with the
terms of the prospectus of the fund and the class of shares being purchased,
unless the original investment on which no sales charge was paid was
transferred in from a fund on which the investor paid a sales charge.
Exchanges of shares from the Franklin Templeton money market funds are subject
to applicable sales charges on the funds being purchased, unless the Franklin
Templeton money market fund shares were acquired by an exchange from a fund
having a sales charge, or by reinvestment of dividends or capital gain
distributions. Exchanges of Class I shares of the Fund which were purchased
with a lower sales charge to a fund which has a higher sales charge will be
charged the difference, unless the shares were held in the original fund for
at least six months prior to executing the exchange. All exchanges are
permitted only after at least 15 days have elapsed from the date of the
purchase of the Shares to be exchanged.
A Shareholder may exchange Shares by writing to the Transfer Agent (see "How
to Sell Shares of the Fund"), by contacting his or her investment dealer or--
if the Shareholder Application indicates that the Shareholder has not declined
the option--by telephoning 1-800-632-2301. Telephone exchange instructions
must be received by FTD by the scheduled closing time of the NYSE (generally
4:00 p.m., New York time). Telephonic exchanges can involve only Shares in
non-certificated form. Shares held in certificate form are not eligible, but
may be returned and qualify for these services. All accounts involved in a
telephonic exchange must have the same registration and dividend option as the
account from which the Shares are being exchanged. The Fund and the Transfer
Agent will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Please refer to "Telephone
Transactions--Verification Procedures." Forms for declining the telephone
exchange privilege and prospectuses of the other funds in the Franklin
Templeton Group may be obtained from FTD. Exchange redemptions and purchases
are processed simultaneously at the share prices next determined after the
exchange order is received. (See "How to Buy Shares of the Fund--Offering
Price.") A gain or loss for tax purposes generally will be realized upon the
exchange, depending on the tax basis of the Shares redeemed.
This exchange privilege is available only in states where shares of the fund
being acquired may legally be sold and may be modified, limited or terminated
at any time by the Fund upon 60 days' written notice. A Shareholder who wishes
to make an exchange should first obtain and review a current prospectus of the
fund into which he or she wishes to exchange. Broker-dealers who process
exchange orders on behalf of their customers may charge a fee for their
services. Such fee may be avoided by making requests for exchange directly to
the Transfer Agent.
If a substantial portion of the Fund's Shareholders should, within a short
period, elect to redeem their Shares of the Fund pursuant to the exchange
privilege, the Fund might have to liquidate portfolio securities it might
otherwise hold and incur the additional costs related to such transactions. On
the other hand, increased use of the exchange privilege may result in periodic
large inflows of money. If this should occur, it is the general policy of the
Fund to initially invest this money in short-term, interest-bearing money
market instruments, unless it is felt that attractive investment opportunities
consistent with the Fund's investment objective exist immediately.
Subsequently, this money will be withdrawn from such short-term money market
instruments and invested in portfolio securities in as orderly a manner as is
possible when attrractive investment opportunities arise.
EXCHANGES OF CLASS I SHARES. The contingency period of Class I Shares will
be tolled (or stopped) for the period such Shares are exchanged into and held
in a Franklin Templeton Class I money market fund. If a Class I account has
Shares subject to a contingent deferred sales charge, Class I Shares will be
exchanged into the new account on a "first-in, first-out" basis. See also "How
to Sell Shares of the Fund--Contingent Deferred Sales Charge."
EXCHANGES OF CLASS II SHARES. When an account is composed of Class II Shares
subject to the contingent deferred sales charge, and Shares that are not, the
Shares will be transferred proportionately into the new fund. Shares received
from reinvestment of dividends and capital gains are referred to as "free
Shares," Shares which were originally subject to a contingent deferred sales
charge but to which the contingent deferred sales charge no longer applies are
called "matured Shares," and Shares still subject to the contingent deferred
sales charge are referred to as "CDSC liable Shares." CDSC liable Shares held
for different periods of time are
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considered different types of CDSC liable Shares. For instance, if a
Shareholder has $1,000 in free Shares, $2,000 in matured Shares, and $3,000 in
CDSC liable Shares, and the Shareholder exchanges $3,000 into a new fund, $500
will be exchanged from free Shares, $1,000 from matured Shares, and $1,500
from CDSC liable Shares. Similarly, if CDSC liable Shares have been purchased
at different periods, a proportionate amount will be taken from Shares held
for each period. If, for example, the Shareholder holds $1,000 in Shares
bought three months ago, $1,000 bought six months ago, and $1,000 bought nine
months ago, and the Shareholder exchanges $1,500 into a new fund, $500 from
each of these Shares will be exchanged into the new fund.
The only money market fund exchange option available to Class II
Shareholders is the Franklin Templeton Money Fund II ("Money Fund II"), a
series of the Franklin Templeton Money Fund Trust. No drafts (checks) may be
written on Money Fund II accounts, nor may Shareholders purchase shares of
Money Fund II directly. Class II Shares exchanged for shares of Money Fund II
will continue to age and a contingent deferred sales charge will be assessed
if CDSC liable Shares are redeemed. No other money market funds are available
for Class II Shareholders for exchange purposes. Class I Shares may be
exchanged for shares of any of the money market funds in the Franklin
Templeton Funds except Money Fund II. Draft writing privileges and direct
purchases are allowed on these money market funds as described in their
respective prospectuses.
To the extent Shares are exchanged proportionately, as opposed to another
method, such as "first-in, first-out," or free Shares followed by CDSC liable
Shares, the exchanged Shares may, in some instances, be CDSC liable even
though a redemption of such Shares, as discussed elsewhere herein, may no
longer be subject to a CDSC. The proportional method is believed by management
to more closely meet and reflect the expectations of Class II Shareholders in
the event Shares are redeemed during the contingency period. For federal
income tax purposes, the cost basis of Shares redeemed or exchanged is
determined under the Code without regard to the method of transferring Shares
chosen by the Fund for purposes of exchanging or redeeming Shares.
TRANSFERS. Transfers between identically registered accounts in the same
fund and class are treated as non-monetary and non-taxable events, and are not
subject to a contingent deferred sales charge. The transferred Shares will
continue to age from the date of original purchase. Shares of each class will
be transferred on the same basis as described above for exchanges.
CONVERSION RIGHTS. It is not presently anticipated that Class II Shares will
be converted to Class I Shares. A Shareholder may, however, sell Class II
Shares and use the proceeds to purchase Class I Shares, subject to all
applicable sales charges.
EXCHANGES BY TIMING ACCOUNTS. In the case of market timing or allocation
services ("Timing Accounts"), FTD will deduct an administrative service fee of
$5.00 per exchange. Timing Accounts generally include accounts administered so
as to redeem or purchase Shares based upon certain predetermined market
indicators. In accordance with the terms of their respective prospectuses,
certain funds in the Franklin Templeton Group do not accept or may place
differing limitations than those described below on exchanges by Timing
Accounts.
The Fund reserves the right to temporarily or permanently terminate the
exchange privilege or reject any specific purchase order for any Timing
Account or any person whose transactions seem to follow a timing pattern who:
(i) makes an exchange request out of the Fund within two weeks of an earlier
exchange request out of the Fund, (ii) makes more than two exchanges out of
the Fund per calendar quarter, or (iii) exchanges Shares equal in value to at
least $5 million, or more than 1% of the Fund's net assets. Accounts under
common ownership or control, including accounts administered so as to redeem
or purchase Shares based upon certain predetermined market indicators, will be
aggregated for purposes of the exchange limits.
In addition, the Fund reserves the right to refuse the purchase side of
exchange requests by any Timing Account, person, or group if, in the
Investment Manager's judgment, the Fund would be unable to invest effectively
in accordance with its investment objective and policies, or would otherwise
potentially be adversely affected. A Shareholder's exchanges into the Fund may
be restricted or
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refused if the Fund receives or anticipates simultaneous orders affecting
significant portions of the Fund's assets. In particular, a pattern of
exchanges that coincides with a "market timing" strategy may be disruptive to
the Fund and therefore may be refused.
Finally, as indicated above, the Fund and FTD reserve the right to refuse
any order for the purchase of Shares.
HOW TO SELL SHARES OF THE FUND
Shares will be redeemed, without charge, on request of the Shareholder in
"Proper Order" to the Transfer Agent. "PROPER ORDER" MEANS THAT THE REQUEST TO
REDEEM MUST MEET ALL THE FOLLOWING REQUIREMENTS:
1. Except as provided below under "Redemptions by Telephone," it must be in
writing, signed by the Shareholder(s) exactly in the manner as the Shares are
registered, and must specify either the number of Shares, or the dollar amount
of Shares, to be redeemed and sent to Franklin Templeton Investor Services,
Inc., P.O. Box 33030, St. Petersburg, Florida 33733-8030;
2. The signature(s) of the redeeming Shareholder(s) must be guaranteed by an
"eligible guarantor," including (a) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (b) national securities
exchanges, registered securities associations and clearing agencies; (c)
securities broker-dealers which are members of a national securities exchange
or a clearing agency or which have minimum net capital of $100,000; or (d)
institutions that participate in the Securities Transfer Agent Medallion
Program ("STAMP") or other recognized signature medallion program. A notarized
signature will not be sufficient for the request to be in Proper Order. If the
Shares are registered in more than one name, the signature of each redeeming
Shareholder must be guaranteed. A signature guarantee is not required for
redemptions of $50,000 or less, requested by and payable to all Shareholders
of record, to be sent to the address of record for that account. However, the
Fund reserves the right to require signature guarantees on all redemptions. A
signature guarantee is required in connection with any written request for
transfer of Shares. Also, a signature guarantee is required if the Fund or the
Transfer Agent believes that a signature guarantee would protect against
potential claims based on the transfer instructions, including, for example,
when (i) the current address of one or more joint owners of an account cannot
be confirmed; (ii) multiple owners have a dispute or give inconsistent
instructions to the Fund; (iii) the Fund has been notified of an adverse
claim; (iv) the instructions received by the Fund are given by an agent, not
the actual registered owner; (v) the Fund determines that joint owners who are
married to each other are separated or may be the subject of divorce
proceedings; or (vi) the authority of a representative of a corporation,
partnership, association, or other entity has not been established to the
satisfaction of the Fund;
3. Any outstanding certificates must accompany the request together with a
stock power signed by the Shareholder(s), with signature(s) guaranteed as
described in Item 2 above;
4. Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction, require the following
documentation to be in proper form:
. Corporation--(i) Signature guaranteed letter of instruction from the
authorized officer(s) of the corporation, and (ii) a corporate
resolution in a form satisfactory to the Transfer Agent;
. Partnership--(i) Signature guaranteed letter of instruction from a
general partner and, if necessary, (ii) pertinent pages from the
partnership agreement identifying the general partners or other
documentation in a form satisfactory to the Transfer Agent;
. Trust--(i) Signature guaranteed letter of instruction from the
trustee(s), and (ii) a copy of the pertinent pages of the trust
document listing the trustee(s) or a certificate of incumbency if the
trustee(s) are not listed on the account registration;
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. Custodial (other than a retirement account) --Signature guaranteed
letter of instruction from the custodian;
. Accounts under court jurisdiction--Check court documents and the
applicable state law since these accounts have varying requirements,
depending upon the state of residence; and
5. Redemption of Shares held in a retirement plan for which FTTC or its
affiliate acts as trustee or custodian must conform to the distribution
requirements of the plan and the Fund's redemption requirements above.
Distributions from such plans are subject to additional requirements under the
Code, and certain documents (available from the Transfer Agent) must be
completed before the distribution may be made. For example, distributions from
retirement plans are subject to withholding requirements under the Code, and
the IRS Form W-4P (available from the Transfer Agent) may be required to be
submitted to the Transfer Agent with the distribution request, or the
distribution will be delayed. Franklin Templeton Investor Services, Inc. and
its affiliates assume no responsibility to determine whether a distribution
satisfies the conditions of applicable tax laws and will not be responsible
for any penalties assessed.
To avoid delay in redemption or transfer, Shareholders having questions
about these requirements should contact the Shareholder Services Department by
calling 1-800-632-2301.
The redemption price will be the net asset value of the Shares next computed
after the redemption request in Proper Order is received by the Transfer
Agent. A gain or loss for tax purposes generally will be realized upon the
redemption, depending on the tax basis of the Shares redeemed. Payment of the
redemption price ordinarily will be made by check (or by wire at the sole
discretion of the Transfer Agent if wire transfer is requested including name
and address of the bank and the Shareholder's account number to which payment
of the redemption proceeds is to be wired) within seven days after receipt of
the redemption request in Proper Order. However, if Shares have been purchased
by check, the Fund will make redemption proceeds available when a
Shareholder's check received for the Shares purchased has been cleared for
payment by the Shareholder's bank, which, depending upon the location of the
Shareholder's bank, could take up to 15 days or more. The check will be mailed
by first-class mail to the Shareholder's registered address (or as otherwise
directed). Remittance by wire (to a commercial bank account in the same
name(s) as the Shares are registered) or express mail, if requested, are
subject to a handling charge of up to $15, which will be deducted from the
redemption proceeds.
The Fund, through FTD, also repurchases Shares (whether in certificate or
book-entry form) through securities dealers. The Fund normally will accept
orders to repurchase such Shares by wire or telephone from dealers for their
customers at the net asset value next computed after the dealer has received
the Shareholder's request for repurchase, if the dealer received such request
before closing time of the NYSE on that day. Dealers have the responsibility
of submitting such repurchase requests by calling not later than 5:00 p.m.,
New York time, on such day in order to obtain that day's applicable redemption
price. Repurchase of Shares is for the convenience of Shareholders and does
not involve a charge by the Fund; however, securities dealers may impose a
charge on the Shareholder for transmitting the notice of repurchase to the
Fund. The Fund reserves the right to reject any order for repurchase, which
right of rejection might adversely affect Shareholders seeking redemption
through the repurchase procedure. Ordinarily payment will be made to the
securities dealer within seven days after receipt of a repurchase order and
Share certificate (if any) in "Proper Order" as set forth above. The Fund will
also accept, from member firms of the NYSE, orders to repurchase Shares for
which no certificates have been issued by wire or telephone without a
redemption request signed by the Shareholder, provided the member firm
indemnifies the Fund and FTD from any liability resulting from the absence of
the Shareholder's signature. Forms for such indemnity agreement can be
obtained from FTD.
The Fund may involuntarily redeem an investor's Shares if the net asset
value of such Shares is less than $100, except that involuntary redemptions
will not result from fluctuations in the value of an investor's Shares. In
addition, the Fund may involuntarily redeem the Shares of any investor who has
failed to provide the Fund with a certified taxpayer identification number or
such other tax-related certifications as the Fund may require. A notice of
redemption, sent by first-class mail to the investor's address of record, will
fix a date not less than 30 days after the mailing date, and Shares will be
redeemed at net asset value at the close of business on that
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date, unless sufficient additional Shares are purchased to bring the aggregate
account value up to $100 or more, or unless a certified taxpayer
identification number (or such other information as the Fund has requested)
has been provided, as the case may be. A check for the redemption proceeds
will be mailed to the investor at the address of record.
REINSTATEMENT PRIVILEGE. For either Class I or Class II, the same class of
Shares of the Fund may be purchased at net asset value with the proceeds from
(i) a redemption of Shares of the Fund or shares of any other Franklin
Templeton Fund except any of the Franklin Templeton money market funds (unless
the redemption proceeds are from Class I shares of a fund with a lower initial
sales charge than that charged by the Fund and have been held in that fund for
less than six months), or (ii) a dividend or distribution paid by any of the
Franklin Templeton Funds, within 365 days after the date of the redemption or
dividend or distribution. Class II Shareholders may also invest such
distributions at net asset value in a Class I Franklin Templeton Fund.
However, if a Shareholder's original investment was in Class I shares of a
fund with a lower sales charge, or no sales charge, the Shareholder must pay
the difference. An investor may reinvest an amount not exceeding the proceeds
of the redemption or the dividend or distribution. While credit will be given
for any contingent deferred sales charge paid on the shares redeemed, a new
contingency period will begin. Matured Shares will be reinvested at net asset
value and will not be subject to a new contingent deferred sales charge.
Shares of the Fund redeemed in connection with an exchange into another fund
(see "Exchange Privilege") are not considered "redeemed" for this privilege.
In order to exercise this privilege, a written order for the purchase of
Shares of the Fund must be received by the Fund or the Fund's Transfer Agent
within 365 days after the redemption or the payment date of the distribution.
The 365 days, however, do not begin to run on redemption proceeds placed
immediately after redemption in a Franklin Bank Certificate of Deposit ("CD")
until the CD (including any rollover) matures. Reinvestment at net asset value
may also be handled by a securities dealer or other financial institution, who
may charge the Shareholder a fee for this service. The redemption is a taxable
transaction but reinvestment without a sales charge may affect the tax basis
of the Shares reinvested, and the amount of gain or loss resulting from a
redemption may be affected by exercise of the reinstatement privilege if the
Shares redeemed were held for 90 days or less, or if a Shareholder reinvests
in the same fund within 30 days. Reinvestment will be at the next calculated
net asset value after receipt.
SYSTEMATIC WITHDRAWAL PLAN. A Shareholder may establish a Systematic
Withdrawal Plan ("Plan") and receive periodic payments from the account
provided that the net asset value of the Shares held by the Shareholder is at
least $5,000. There are no service charges for establishing or maintaining a
Plan. The minimum amount which the Shareholder may withdraw is $50 per
withdrawal transaction although this is merely the minimum amount allowed
under the Plan and should not be mistaken for a recommended amount. Retirement
plans subject to mandatory distribution requirements are not subject to the
$50 minimum. The Plan may be established on a monthly, quarterly, semiannual
or annual basis. If the Shareholder establishes a Plan, any capital gain
distributions and income dividends paid by the Fund to the Shareholder's
account must be reinvested for the Shareholder's account in additional Shares
at net asset value. Payments are then made from the liquidation of Shares at
net asset value on the day of the liquidation (which is generally on or about
the 25th of the month) to meet the specified withdrawals. Payments are
generally received three to five days after the date of liquidation. By
completing the "Special Payment Instructions for Distributions" section of the
Shareholder Application included with this Prospectus, a Shareholder may
direct the selected withdrawals to another of the Franklin Templeton Funds, to
another person, or directly to a checking account. Liquidation of Shares may
reduce or possibly exhaust the Shares in the Shareholder's account, to the
extent withdrawals exceed Shares earned through dividends and distributions,
particularly in the event of a market decline. If the withdrawal amount
exceeds the total Plan balance, the account will be closed and the remaining
balance will be sent to the Shareholder. As with other redemptions, a
liquidation to make a withdrawal payment is a sale for federal income tax
purposes. Because the amount withdrawn under the Plan may be more than the
Shareholder's actual yield or income, part of such a Plan payment may be a
return of the Shareholder's investment.
Maintaining a Plan concurrently with purchases of additional Shares of the
Fund would be disadvantageous because of the sales charge on the additional
purchases. Also, redemptions of Class I Shares and Class II Shares may be
subject to a contingent deferred sales charge if the Shares are redeemed
within 12 months (Class I Shares) or 18 months (Class II Shares) of the
calendar month of the original purchase date. The Shareholder should
ordinarily not make additional investments of less than $5,000 or three times
the annual withdrawals under the Plan during the time such a Plan is in
effect.
19
<PAGE>
With respect to Class I Shares, the contingent deferred sales charge is
waived for redemptions through a Systematic Withdrawal Plan set up prior to
February 1, 1995. With respect to Systematic Withdrawal Plans set up on or
after February 1, 1995, the applicable contingent deferred sales charge is
waived for Class I and Class II Share redemptions of up to 1% monthly of an
account's net asset value (12% annually, 6% semiannually, 3% quarterly). For
example, if a Class I account maintained an annual balance of $1,000,000, only
$120,000 could be withdrawn through a once-yearly Systematic Withdrawal Plan
free of charge; any amount over that $120,000 would be assessed a 1% (or
applicable) contingent deferred sales charge. Likewise, if a Class II account
maintained an annual balance of $10,000, only $1,200 could be withdrawn
through a once-yearly Systematic Withdrawal Plan free of charge.
A Plan may be terminated on written notice by the Shareholder or the Fund,
and it will terminate automatically if all Shares are liquidated or withdrawn
from the account, or upon the Fund's receipt of notification of the death or
incapacity of the Shareholder. Shareholders may change the amount (but not
below $50) and schedule of withdrawal payments or suspend one such payment by
giving written notice to the Transfer Agent at least seven business days prior
to the end of the month preceding a scheduled payment. Share certificates may
not be issued while a Plan is in effect.
REDEMPTIONS BY TELEPHONE. Shareholders who file a Telephone Redemption
Authorization Agreement (the "Agreement") (a copy of which is included in this
Prospectus) may redeem Shares of the Fund by telephone, subject to the
Restricted Account exception noted under "Telephone Transactions -- Restricted
Accounts." The Fund and the Transfer Agent will employ reasonable procedures
to confirm that instructions given by telephone are genuine. Shareholders,
however, bear the risk of loss in certain cases as described under "Telephone
Transactions -- Verification Procedures."
For Shareholder accounts with a completed Agreement on file, redemptions of
uncertificated Shares or Shares which have previously been deposited with the
Fund or the Transfer Agent may be made for up to $50,000 per day per Fund
account. Telephone redemption requests received before the scheduled closing
time of the NYSE (generally 4:00 p.m., New York time) on any business day will
be processed that same day. The redemption check will be sent within seven
days, made payable to all the registered owners on the account, and will be
sent only to the address of record. Redemption requests by telephone will not
be accepted within 30 days following an address change by telephone. In that
case, a Shareholder should follow the other redemption procedures set forth in
this Prospectus. Institutional accounts which wish to execute redemptions in
excess of $50,000 must complete an Institutional Telephone Privileges
Agreement which is available from Franklin Templeton Institutional Services by
telephoning 1-800-321-8563.
CONTINGENT DEFERRED SALES CHARGE. In order to recover commissions paid to
securities dealers, Class I investments of $1 million or more, and any Class
II investments, redeemed within the contingency period of 12 months (Class I)
or 18 months (Class II) of the calendar month of their purchase will be
assessed a contingent deferred sales charge, unless one of the exceptions
described below applies. The charge is 1% of the lesser of the net asset value
of the Shares redeemed (exclusive of reinvested dividends and capital gain
distributions) or the net asset value at the time of purchase of such Shares,
and is retained by FTD. The contingent deferred sales charge is waived in
certain instances. See below.
In determining if a contingent deferred sales charge applies, Shares not
subject to a contingent deferred sales charge are deemed to be redeemed first,
in the following order: (i) a calculated number of Shares representing amounts
attributable to capital appreciation of those Shares held less than the
contingency period (12 months in the case of Class I Shares and 18 months in
the case of Class II Shares); (ii) Shares purchased with reinvested dividends
and capital gain distributions; and (iii) other Shares held longer than the
contingency period, and followed by any Shares held less than the contingency
period, on a "first in, first out" basis. For tax purposes, a contingent
deferred sales charge is treated as either a reduction in redemption proceeds
or an adjustment to the cost basis of the Shares redeemed.
The contingent deferred sales charge on each class of Shares is waived, as
applicable, for: exchanges; any account fees; distributions from an individual
retirement plan account due to death or disability, or upon periodic
distributions based on life
20
<PAGE>
expectancy; tax-free returns of excess contributions from employee benefit
plans; distributions from employee benefit plans, including those due to plan
termination or plan transfer; redemptions through a Systematic Withdrawal Plan
set up for Shares prior to February 1, 1995 and, for Systematic Withdrawal
Plans set up thereafter, redemptions of up to 1% monthly of an account's net
asset value (3% quarterly, 6% semiannually or 12% annually); redemptions
initiated by the Fund due to a Shareholder's account falling below the minimum
specified account size; and redemptions following the death of the Shareholder
or the beneficial owner.
All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that
month and each subsequent month.
Requests for redemptions for a SPECIFIED DOLLAR amount, unless otherwise
specified, will result in additional Shares being redeemed to cover any
applicable contingent deferred sales charge, while requests for redemption of
a SPECIFIC NUMBER of Shares will result in the applicable contingent deferred
sales charge being deducted from the total dollar amount redeemed.
TELEPHONE TRANSACTIONS
Shareholders of the Fund and their investment representative of record, if
any, may be able to execute various transactions by calling Shareholder
Services at 1-800-632-2301.
All Shareholders will be able to: (i) effect a change in address; (ii)
change a dividend option (see "Restricted Accounts" below); (iii) transfer
Fund Shares in one account to another identically registered account in the
Fund; (iv) request the issuance of certificates (to be sent to the address of
record only); and (v) exchange Fund Shares by telephone as described in this
Prospectus. In addition, Shareholders who complete and file an Agreement as
described under "How to Sell Shares of the Fund-Redemptions by Telephone" will
be able to redeem Shares of the Fund.
VERIFICATION PROCEDURES. The Fund and the Transfer Agent will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine. These will include: recording all telephone calls requesting
account activity by telephone, requiring that the caller provide certain
personal and/or account information requested by the telephone service agent
at the time of the call for the purpose of establishing the caller's
identification, and sending a confirmation statement on redemptions to the
address of record each time account activity is initiated by telephone. So
long as the Fund and the Transfer Agent follow instructions communicated by
telephone which were reasonably believed to be genuine at the time of their
receipt, neither they nor their affiliates will be liable for any loss to the
Shareholder caused by an unauthorized transaction. The Fund and the Transfer
Agent may be liable for any losses due to unathorized or fraudulent
instructions in the event such reasonable procedures are not followed.
Shareholders are, of course, under no obligation to apply for or accept
telephone transaction privileges. In any instance where the Fund or the
Transfer Agent is not reasonably satisfied that instructions received by
telephone are genuine, the requested transaction will not be executed and
neither the Fund, the Transfer Agent, nor their affiliates will be liable for
any losses which may occur because of a delay in implementing a transaction.
RESTRICTED ACCOUNTS. Telephone redemptions and dividend option changes may
not be accepted on Franklin Templeton retirement accounts. To assure
compliance with all applicable regulations, special forms are required for any
distribution, redemption, or dividend payment. While the telephone exchange
privilege is extended to Franklin Templeton IRA and 403(b) retirement
accounts, certain restrictions may apply to other types of retirement plans.
Changes to dividend options must also be made in writing.
To obtain further information regarding distribution or transfer procedures,
including any required forms, retirement account Shareholders may call to
speak to a Retirement Plan Specialist at 1-800-527-2020.
21
<PAGE>
GENERAL. During periods of drastic economic or market changes, it is
possible that the telephone transaction privileges will be difficult to
execute because of heavy telephone volume. In such situations, Shareholders
may wish to contact their dealer for assistance, or to send written
instructions to the Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor the Transfer Agent will be liable for any losses
resulting from the inability of a Shareholder to execute a telephone
transaction. The telephone transaction privilege may be modified or
discontinued by the Fund at any time upon 60 days' written notice to
Shareholders.
MANAGEMENT OF THE FUND
The Company is managed by its Board of Directors and all powers of the
Company are exercised by or under authority of the Board. Information relating
to the Directors and Executive Officers is set forth under the heading
"Management of the Company" in the SAI.
The Board has carefully reviewed the multiclass structure to ensure that no
material conflict exists between the two classes of Shares. Although the Board
does not expect to encounter material conflicts in the future, the Board will
continue to monitor the Fund and will take appropriate action to resolve such
conflicts if any should later arise.
In developing the multiclass structure, the Fund has retained the authority
to establish additional classes of Shares. It is the Fund's present intention
to offer only two classes of Shares, but new classes may be offered in the
future.
INVESTMENT MANAGER. The Investment Manager of the Fund is Templeton Global
Advisors Limited, Nassau, Bahamas. The Investment Manager manages the
investment and reinvestment of the Fund's assets. The Investment Manager is an
indirect wholly owned subsidiary of Franklin Resources, Inc. ("Franklin").
Through its subsidiaries, Franklin is engaged in various aspects of the
financial services industry. The Investment Manager and its affiliates serve
as advisers for a wide variety of public investment mutual funds and private
clients in many nations. The Templeton organization has been investing
globally over the past 52 years and, with its affiliates, provides investment
management and advisory services to a worldwide client base, including over
4.3 million mutual fund shareholders, foundations, endowments, employee
benefit plans and individuals. The Investment Manager and its affiliates have
approximately 4,100 employees in the United States, Australia, Scotland,
Germany, Hong Kong, Luxembourg, Bahamas, Singapore, Canada and Russia.
The Investment Manager uses a disciplined, long-term approach to value-
oriented global and international investing. It has an extensive global
network of investment research sources. Securities are selected for the Fund's
portfolio on the basis of fundamental company-by-company analysis. Many
different selection methods are used for different funds and clients and these
methods are changed and improved by the Investment Manager's research on
superior selection methods.
The Investment Manager performs similar services for other funds and
accounts and there may be times when the actions taken with respect to the
Fund's portfolio will differ from those taken by the Investment Manager on
behalf of other funds and accounts. Neither the Investment Manager and its
affiliates, its officers, directors or employees, nor the officers or
Directors of the Company are prohibited from investing in securities held by
the Fund or other funds and accounts which are managed or administered by the
Investment Manager to the extent such transactions comply with the Company's
Code of Ethics. Please see "Investment Management and Other Services--
Investment Management Agreement" in the SAI for further information on
securities transactions and a summary of the Company's Code of Ethics.
The Investment Manager does not furnish any other services or facilities for
the Fund, although such expenses are paid by some investment advisers of other
investment companies. As compensation for its services, the Fund pays the
Investment Manager a fee which, during the most recent fiscal year,
represented 0.63% of its average daily net assets.
22
<PAGE>
The lead portfolio manager for the Fund is Mark G. Holowesko. Mr. Holowesko
holds a B.A. degree from the College of Holy Cross and an MBA from Babson
College. He joined the Templeton organization in 1985, and is responsible for
coordinating equity research worldwide for the Investment Manager. Prior to
joining the Templeton organization, Mr. Holowesko worked with Roy West Trust
Corporation (Bahamas) Limited as an investment administrator. His duties at
Roy West included managing trust and individual accounts, as well as
conducting research of worldwide equity markets. Jeffrey A. Everett and Sean
Farrington exercise secondary portfolio management responsibilities with
respect to the Fund. Mr. Everett holds a B.S. degree in finance from
Pennsylvania State University. He joined the Templeton organization in 1989
and is Vice President, Portfolio Management/Research, of the Investment
Manager. Prior to joining the Templeton organization, Mr. Everett was an
investment officer at First Pennsylvania Investment Research, a division of
First Pennsylvania Corporation, where he analyzed equity and convertible
securities. Mr. Everett was also responsible for coordinating research for
Centre Square Investment Group, the pension management subsidiary of First
Pennsylvania Corporation. Mr. Farrington holds an A.B. in Economics from
Harvard University. He is a member of the Investment Manager's research
technology group responsible for the maintenance of the internal research
database. Further information concerning the Investment Manager is included
under the heading "Investment Management and Other Services" in the SAI.
BUSINESS MANAGER. Templeton Global Investors, Inc. provides certain
administrative facilities and services for the Fund, including payment of
salaries of officers, preparation and maintenance of books and records,
preparation of tax returns and financial reports, monitoring compliance with
regulatory requirements and monitoring tax-deferred retirement plans. For its
services, the Business Manager receives a fee equivalent on an annual basis to
0.15% of the combined average daily net assets of the Funds included in the
Company (the Fund and Templeton World Fund), reduced to 0.135% of such
combined net assets in excess of $200 million, to 0.10% of such assets in
excess of $700 million, and to 0.075% of such assets in excess of $1,200
million.
TRANSFER AGENT. Franklin Templeton Investor Services, Inc. serves as
transfer agent and dividend disbursing agent for the Fund.
CUSTODIAN. The Chase Manhattan Bank, N.A. serves as custodian of the Fund's
assets.
PLANS OF DISTRIBUTION. A separate Plan of Distribution has been approved and
adopted for each class ("Class I Plan" and "Class II Plan," respectively, or
"Plans") pursuant to Rule 12b-1 under the 1940 Act. The Rule 12b-1 fees
charged to each class will be based solely on the distribution and servicing
fees attributable to that particular class. Any portion of fees remaining from
either Plan after distribution to securities dealers of up to the maximum
amount permitted under each Plan may be used by the class to reimburse FTD for
routine ongoing promotion and distribution expenses incurred with respect to
such class. Such expenses may include, but are not limited to, the printing of
prospectuses and reports used for sales purposes, expenses of preparing and
distributing sales literature and related expenses, advertisements, and other
distribution-related expenses, including a prorated portion of FTD's overhead
expenses attributable to the distribution of Fund Shares, as well as any
distribution or service fees paid to securities dealers or their firms or
others who have executed a servicing agreement with the Fund, FTD or its
affiliates.
The maximum amount which the Fund may pay to FTD or others under the Class I
Plan for such distribution expenses is 0.25% per annum of Class I's average
daily net assets, payable on a quarterly basis. All expenses of distribution
and marketing in excess of 0.25% per annum will be borne by FTD, or others who
have incurred them, without reimbursement from the Fund. Under the Class I
Plan, costs and expenses not reimbursed in any one given quarter (including
costs and expenses not reimbursed because they exceed the applicable limit
under the Plan) may be reimbursed in subsequent quarters or years, subject to
applicable law. FTD has informed the Fund that the costs and expenses of Class
I Shares that may be reimbursable in future quarters or years were $1,260,716
(0.02% of its net assets) at August 31, 1995.
Under the Class II Plan, the maximum amount which the Fund is permitted to
pay to FTD or others for distribution expenses and related expenses is 0.75%
per annum of Class II's average daily net assets, payable quarterly. All
expenses of distribution, marketing and related services over that amount will
be borne by FTD, or others who have incurred them, without reimbursement by
the Fund. In
23
<PAGE>
addition, the Class II Plan provides for an additional payment by the Fund of
up to 0.25% per annum of Class II's average daily net assets as a servicing
fee, payable quarterly. This fee will be used to pay securities dealers or
other for, among other things, assisting in establishing and maintaining
customer accounts and records; assisting with purchase and redemption
requests; receiving and answering correspondence; monitoring dividend payments
from the Fund on behalf of the customers; or similar activities related to
furnishing personal services and/or maintaining Shareholder accounts.
During the first year following the purchase of Class II Shares, FTD will
retain 0.75% per annum of Class II's average daily net assets to partially
recoup fees FTD pays to securities dealers. FTD, or its affiliates, may pay,
from its own resources, a commission of up to 1% of the amount invested to
securities dealers who initiate and are responsible for purchases of Class II
Shares.
Both Plans also cover any payments to or by the Fund, the Investment
Manager, FTD, or other parties on behalf of the Fund, the Investment Manager
or FTD, to the extent such payments are deemed to be for the financing of any
activity primarily intended to result in the sale of Shares issued by the Fund
within the context of Rule 12b-1. The payments under the Plans are included in
the maximum operating expenses which may be borne by each class of the Fund.
For more information including a discussion of the Board's policies with
regard to the amount of each Plan's fees, please see the SAI.
EXPENSES. For the fiscal year ended August 31, 1995, expenses borne by Class
I Shares of the Fund amounted to 1.15% of the average net assets of such class
and expenses borne by Class II Shares of the Fund amounted to 1.90%
(annualized) of the average net assets of such class. See the Expense Table
for information regarding estimated expenses for both classes of Shares for
the current fiscal year.
BROKERAGE COMMISSIONS. The Fund's brokerage policies are described under the
heading "Brokerage Allocation" in the SAI. The Fund's brokerage policies
provide that the receipt of research services from a broker and the sale of
Shares by a broker are factors which may be taken into account in allocating
securities transactions, so long as the prices and execution provided by the
broker equal the best available within the scope of the Fund's brokerage
policies.
GENERAL INFORMATION
DESCRIPTION OF SHARES/SHARE CERTIFICATES. The Company's authorized capital
consists of 3,200,000,000 Common Shares of $1 par value per Share of which
1,500,000,000 Shares are classified as Templeton Foreign Fund Class I Shares,
500,000,000 Shares are classified as Templeton Foreign Fund Class II Shares,
800,000,000 Shares are classified as Templeton World Fund Class I Shares, and
400,000,000 are classified as Templeton World Fund Class II Shares.
Shares for an initial investment, as well as subsequent investments,
including the reinvestment of dividends and capital gain distributions, are
generally credited to an account in the name of an investor on the books of
the Fund, without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss
or theft of a share certificate. No charge is made for the issuance of one
certificate for all or some of the Shares purchased in a single order. A lost,
stolen or destroyed certificate cannot be replaced without obtaining a
sufficient indemnity bond. The cost of such a bond, which is generally borne
by the Shareholder, can be 2% or more of the value of the lost, stolen or
destroyed certificate. A certificate will be issued if requested by the
Shareholder or by the securities dealer.
VOTING RIGHTS. Shares of each class represent proportionate interests in the
assets of the Fund and have the same voting and other rights and preferences
as the other class of the Fund for matters that affect the Fund as a whole.
For matters that only affect a certain class of the Fund's Shares, however,
only Shareholders of that class will be entitled to vote. Therefore, each
class of Shares will vote separately on matters (1) affecting only that class,
(2) expressly required to be voted on separately by state law, or (3) required
to be voted on separately by the 1940 Act or the rules adopted thereunder. For
instance, if a change to the Rule 12b-1 plan relating to
24
<PAGE>
Class I Shares requires Shareholder approval, only Shareholders of Class I may
vote on changes to the Rule 12b-1 plan affecting that class. Similarly, if a
change to the Rule 12b-1 plan relating to Class II Shares requires Shareholder
approval, only Shareholders of Class II may vote on the change to such plan.
On the other hand, if there is a proposed change to the investment objective
of the Fund, this affects all Shareholders, regardless of which class of
Shares they hold, and therefore, each Share has the same voting rights.
MEETINGS OF SHAREHOLDERS. The Company is not required to hold annual
meetings of Shareholders and may elect not to do so. The Company will call a
special meeting of Shareholders when requested to do so by Shareholders
holding at least 10% of the Company's outstanding Shares. In addition, the
Company is required to assist Shareholder communications in connection with
the calling of Shareholder meetings to consider removal of a Director or
Directors.
DIVIDENDS AND DISTRIBUTIONS. The Fund intends to pay a dividend at least
annually representing substantially all of its net investment income and any
net realized capital gains. According to the requirements of the Code,
dividends and capital gains will be calculated and distributed in the same
manner for Class I and Class II Shares. The per share amount of any income
dividends will generally differ only to the extent that each class is subject
to different Rule 12b-1 fees. Unless otherwise requested, income dividends and
capital gain distributions paid by the Fund, other than on those Shares whose
owners keep them registered in the name of a broker-dealer, are automatically
reinvested on the payment date in whole or fractional Shares at net asset
value as of the ex-dividend date, unless a Shareholder makes a written or
telephonic request for payments in cash. By completing the "Special Payment
Instructions for Distributions" section of the Shareholder Application, Class
I Shareholders may direct that their dividends and/or capital gain
distributions be reinvested in Class I Shares of the Fund or Class I Shares of
any other Franklin Templeton Fund, and Class II Shareholders may direct that
their dividends and/or capital gain distributions be reinvested in either
Class I or Class II Shares of the Fund or any other Franklin Templeton Fund.
Shareholders may also direct the payment of their dividends or capital gain
distributions to another person. The processing date for the reinvestment of
dividends may vary from time to time, and does not affect the amount or value
of the Shares acquired. Income dividends and capital gain distributions will
be paid in cash on Shares during the time that their owners keep them
registered in the name of a broker-dealer, unless the broker-dealer has made
arrangements with the Transfer Agent for reinvestment.
Prior to purchasing Shares of the Fund, the impact of dividends or capital
gain distributions which have been declared but not yet paid should be
carefully considered. Any dividend or capital gain distribution paid shortly
after a purchase by a Shareholder prior to the record date will have the
effect of reducing the per Share net asset value of the Shares by the amount
of the dividend or distribution. All or a portion of such dividend or
distribution, although in effect a return of capital, generally will be
subject to tax.
Checks are forwarded by first-class mail to the address of record. The
proceeds of any such checks which are not accepted by the addressee and
returned to the Fund will be reinvested in the Shareholder's account in whole
or fractional Shares at net asset value next computed after the check has been
received by the Transfer Agent. Subsequent distributions automatically will be
reinvested at net asset value as of the ex-dividend date in additional whole
or fractional Shares.
FEDERAL TAX INFORMATION. The Fund intends to elect to be treated and to
qualify each year as a regulated investment company under Subchapter M of the
Code. See the SAI for a summary of the requirements that must be satisfied to
so qualify. A regulated investment company generally is not subject to federal
income tax on income and gains distributed in a timely manner to its
shareholders. The Fund intends to distribute to Shareholders substantially all
of its net investment income and net realized capital gains, which generally
will be taxable income or capital gains in their hands. Distributions declared
in October, November or December to Shareholders of record on a date in such
month and paid during the following January will be treated as having been
received by Shareholders on December 31 in the year such distributions were
declared. The Fund will inform Shareholders each year of the amount and nature
of such income or gains. Sales or other dispositions of Fund Shares generally
will give rise to taxable gain or loss. A more detailed description of tax
consequences to Shareholders is contained in the SAI under the heading "Tax
Status."
25
<PAGE>
The Fund may be required to withhold federal income tax at the rate of 31%
of all taxable distributions (including redemptions) paid to Shareholders who
fail to provide the Fund with their correct taxpayer identification number or
to make required certifications or where the Fund or the Shareholder has been
notified by the Internal Revenue Service that the Shareholder is subject to
backup withholding. Corporate Shareholders and certain other Shareholders
specified in the Code are exempt from backup withholding. Backup withholding
is not an additional tax. Any amounts withheld may be credited against the
Shareholder's Federal income tax liability.
INQUIRIES. Shareholders' inquiries will be answered promptly. They should be
addressed to Franklin Templeton Investor Services, Inc., P.O. Box 33030, St.
Petersburg, Florida 33733-8030--telephone 1-800-632-2301. Transcripts of
Shareholder accounts less than the three-years old are provided on request
without charge; requests for transcripts going back more than three years from
the date the request is received by the Transfer Agent are subject to a fee of
up to $15 per account.
PERFORMANCE INFORMATION. The Fund may include its total return in
advertisements or reports to Shareholders or prospective investors. Quotations
of average annual total return will be expressed in terms of the average
annual compounded rate of return on a hypothetical investment in the Fund over
a period of 1, 5 and 10 years (or up to the life of the Fund), will reflect
the deduction of the maximum initial sales charge and deduction of a
proportional share of Fund expenses (on an annual basis), and will assume that
all dividends and distributions are reinvested when paid. Total return may be
expressed in terms of the cumulative value of an investment in the Fund at the
end of a defined period of time. For a description of the methods used to
determine total return for the Fund, see "Performance Information" in 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 semiannual
reports (containing unaudited financial statements) are sent to Shareholders
each year. To reduce the volume of mail sent to one household as well as to
reduce Fund expenses, the Transfer Agent will attempt to identify related
shareholders within a household and send only one copy of the report.
Additional copies may be obtained, without charge, upon request to the Fund
Information Department--telephone 1-800/DIAL BEN. The Fund also sends to each
Shareholder a confirmation statement after every transaction that affects the
Shareholder's account and a year-end historical confirmation statement.
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<PAGE>
INSTRUCTIONS AND IMPORTANT NOTICE
SUBSTITUTE W-9 INSTRUCTIONS INFORMATION
GENERAL. Backup withholding is not an additional tax. Rather, the tax
liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the Internal Revenue Service ("IRS").
OBTAINING A NUMBER. If you do not have a Social Security Number/Taxpayer
Identification Number ("SSN/TIN"), you must obtain Form SS-5 or Form SS-4 from
your local Social Security or IRS office and apply for one. If you have
checked the "Awaiting TIN" box and signed the certification, withholding will
apply to payments relating to your account unless you provide a certified TIN
within 60 days.
WHAT SSN/TIN TO GIVE. Please refer to the following guidelines:
<TABLE>
<CAPTION>
ACCOUNT TYPE GIVE SSN OF ACCOUNT TYPE GIVE TAXPAYER ID # OF
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
.. Individual Individual . Trust, Estate, or Trust, Estate, or
Pension Plan Trust Pension Plan Trust
- - -----------------------------------------------------------------------------------------
.. Joint Actual owner of . Corporation, Corporation,
Individual account, or if Partnership, or other Partnership, or other
combined funds, the organization organization
first-named
individual
- - -----------------------------------------------------------------------------------------
.. Unif. Minor . Broker nominee Broker nominee
Gift/Transfer
to Minor
- - -----------------------------------------------------------------------------------------
.. Sole Owner of business
Proprietor
- - -----------------------------------------------------------------------------------------
.. Legal Ward, Minor, or
Guardian Incompetent
- - -----------------------------------------------------------------------------------------
</TABLE>
EXEMPT RECIPIENTS. Please provide your TIN and check the "Exempt Recipient"
box if you are an exempt recipient. Exempt recipients generally include:
A corporation A real estate investment trust
A financial institution A common trust fund operated by a bank
under section 584(a)
An organization exempt from tax An entity registered at all times
under section 501(a), or an under the Investment Company
individual retirement plan Act of 1940
A registered dealer in securities
or commodities registered in the
U.S. or a U.S. possession
IRS PENALTIES. If you do not supply us with your SSN/TIN, you will be subject
to an IRS $50 penalty unless your failure is due to reasonable cause and not
willful neglect. If you fail to report certain income on your Federal income
tax return, you will be treated as negligent and subject to an IRS 20% penalty
on any underpayment of tax attributable to such negligence, unless there was
reasonable cause for the resulting underpayment and you acted in good faith.
If you falsify information on this form or make any other false statement
resulting in no backup withholding on an account which should be subject to
backup withholding, you may be subject to an IRS $500 penalty and certain
criminal penalties including fines and imprisonment.
SUBSTITUTE W-8 INSTRUCTIONS INFORMATION
EXEMPT FOREIGN PERSON. Check the "Exempt Foreign Person" box if you qualify as
a non-resident alien or foreign entity that is not subject to certain U.S.
information return reporting or to backup withholding rules. Dividends paid to
your account may be subject to withholding of up to 30%. Generally, you are an
"Exempt Foreign Person" if you are not (1) a citizen or resident of the U.S.,
or (2) a U.S. corporation, partnership, estate, or trust. In the case of an
individual, an "Exempt Foreign Person" is one who has been physically present
in the U.S. for less than 31 days during the current calendar year. An
individual who is physically present in the U.S. for at least 31 days during
the current calendar year will still be treated as an "Exempt Foreign Person,"
provided that the total number of days physically present in the current
calendar year and the two preceding calendar years does not equal or exceed
183 days (counting all of the days in the current calendar year, only one-
third of the days in the first preceding calendar year and only one-sixth of
the days in the second preceding calendar year). In addition, lawful permanent
residents or green card holders may not be treated as "Exempt Foreign
Persons." If you are an individual or an entity, you must not now be, or at
this time expect to be, engaged in a U.S. trade or business with respect to
which any gain derived from transactions effected by the Fund/Payer during the
calendar year is effectively connected to the U.S.
PERMANENT ADDRESS. The Shareholder Application must contain your permanent
address if you are an "Exempt Foreign Person." If you are an individual,
provide your permanent address. If you are a partnership or corporation,
provide the address of your principal office. If you are an estate or trust,
provide the address of your permanent residence or the principal office of any
fiduciary.
NOTICE OF CHANGE IN STATUS. If you become a U.S. citizen or resident after you
have provided certification of your foreign status, or if you cease to be an
"Exempt Foreign Person," you must notify the Fund/Payer within 30 days of your
change in status. Reporting will then begin on the account(s) listed, and
backup withholding may also begin unless you certify to the Fund/Payer that
(1) the taxpayer identification number you have given is correct, and (2) the
IRS has not notified you that you are subject to backup withholding because
you failed to report certain interest or dividend income. You may use Form W-
9, "Payer's Request for Taxpayer Identification Number and Certification," to
make these certifications. If an account is no longer active, you do not have
to notify a Fund/Payer or broker of your change in status unless you also have
another account with the same Fund/Payer that is still active. If you receive
interest from more than one Fund/Payer or have dealings with more than one
broker or barter exchange, file a certificate with each. If you have more than
one account with the same Fund/Payer, the Fund/Payer may require you to file a
separate certificate for each account.
WHEN TO FILE. File these certifications with the Fund before a payment is made
to you, unless you have already done this in either of the two preceding
calendar years. Only certifications that are in proper order will be treated
as having been filed with the Fund.
HOW OFTEN YOU MUST FILE. This certificate generally remains in effect for
three calendar years. A Fund/Payer or broker, however, may require that a new
certificate be filed each time a payment is made. On joint accounts for which
each joint owner is a foreign person, each must provide a certification of
foreign status.
27
<PAGE>
FOR CORPORATE SHAREHOLDERS--FORM OF RESOLUTION
It will be necessary for corporate shareholders to provide a certified copy of
a resolution or other certificate of authority to authorize the purchase as
well as sale (redemption) of shares and withdrawals by checks or drafts. You
may use the following form of resolution or you may prefer to use your own. It
is understood that each Fund, Franklin Templeton Distributors, Inc., Franklin
Templeton Investor Services, Inc., the custodian bank and their affiliates may
rely upon these authorizations until revoked or amended by written notice
delivered by registered or certified mail to a Fund.
CERTIFIED COPY OF RESOLUTION (Corporation or Association)
The undersigned hereby certifies and affirms that he/she is the duly elected
of
-------------------------------- ------------------------------------------
TITLE CORPORATE NAME
a organized under the laws of the State of
-------------------- ---------------
TYPE OF ORGANIZATION STATE
and that the following is a true and correct copy of a resolution adopted by
the Board of Directors at a meeting duly called and held on
--------------------
DATE
RESOLVED, that the of this
-------------------------------------------------
OFFICERS' TITLES
Corporation or Association are authorized to open an account in the name of
the Corporation or Association with one or more of the Franklin Group of
Funds (R) or Templeton Family of Funds (collectively, the "Funds") and to
deposit such funds of this Corporation or Association in this account as
they deem necessary or desirable; that the persons authorized below may
endorse checks and other instruments for deposit to said account or
accounts; and
FURTHER RESOLVED, that any of the following officers are authorized
--------
NUMBER
to sign any share assignment on behalf of this Corporation or Association and
to take any other actions as may be necessary to sell or redeem its shares in
the Funds or to sign checks or drafts withdrawing funds from the account; and
FURTHER RESOLVED, that this Corporation or Association shall hold harmless,
indemnify, and defend the Funds, their custodian bank, Franklin Templeton
Distributors, Inc., Franklin Templeton Investor Services, Inc., and their
affiliates, from any claim, loss or liability resulting in whole or in
part, directly or indirectly, from their reliance from time to time upon
any certifications by the secretary or any assistant secretary of this
Corporation or Association as to the names of the individuals occupying
such offices and their acting in reliance upon these resolutions until
actual receipt by them of a certified copy of a resolution of the Board of
Directors of the Corporation or Association modifying or revoking any or
all such resolutions.
The undersigned further certifies that the below named persons, whose
signatures appear opposite their names and office titles, are duly elected
officers of the Corporation or Association. (Attach additional list if
necessary.)
- - -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- - -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- - -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- - -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- - -------------------------------------- ---------------------------------------
NAME OF CORPORATION OR ASSOCIATION DATE
Certified from minutes
-------------------------------------------------------
NAME AND TITLE
CORPORATE SEAL (if appropriate)
28
<PAGE>
THE FRANKLIN TEMPLETON TELEPHONE REDEMPTION AUTHORIZATION AGREEMENT
You may use Franklin Templeton's telephone redemption privilege to redeem
uncertificated Franklin Templeton Fund shares for up to $50,000 (or your
Shareholder account balance, whichever is less) per day, per fund account in
accordance with the terms of the Fund's Prospectus.
The telephone redemption privilege is available only to Shareholders who
specifically request it. If you would like to add this redemption privilege to
the other telephone transaction privileges automatically available to Franklin
Templeton Fund shareholders, please sign and return this authorization to
Franklin Templeton Investor Services, Inc. ("Services"), transfer agent and
shareholder servicing agent for the Franklin Templeton Funds.
SHAREHOLDER AUTHORIZATION: I/We request the telephone redemption privilege
under the terms described below and in the prospectus for each investment
company in the Franklin Templeton Group of Funds (a "Franklin Templeton Fund"
or a "Fund"), now opened or opened at a later date, holding shares registered
as follows:
- - -------------------------------------- ---------------------------------------
PRINT NAME(S) AS SHOWN IN YOUR ACCOUNT
REGISTRATION ("SHAREHOLDER")
- - -------------------------------------- ---------------------------------------
ACCOUNT NUMBER(S)
I/We authorize each Fund and Services to honor and act upon telephone requests
given as provided in this agreement to redeem shares from any
Shareholder account:
- - -------------------------------------- ---------------------------------------
SIGNATURE(S) AND DATE
- - -------------------------------------- ---------------------------------------
PRINT NAME(S) (AND TITLE/CAPACITY,
IF APPLICABLE)
VERIFICATION PROCEDURES: I/We understand and agree that: (1) each Fund and
Services will employ reasonable procedures to confirm that redemption
instructions communicated by telephone are genuine and that if these
confirmation procedures are not followed, the Fund or Services may be liable
for any losses due to unauthorized or fraudulent telephone instructions; (2)
the confirmation procedures will include the recording of telephone calls
requesting redemptions, requiring that the caller provide certain personal
and/or account information requested by the telephone service agent at the
time of the call for the purpose of establishing the caller's identification,
and the sending of confirmation statements to the address of record each time
a redemption is initiated by telephone; and (3) so long as the Fund and
Services follow the confirmation procedures in acting on instructions
communicated by telephone which were reasonably believed to be genuine at the
time of receipt, neither they, nor their parent or affiliates, will be liable
for any loss, damages or expenses caused by an unauthorized or fraudulent
redemption request.
JOINTLY OWNED/CO-TRUSTEE ACCOUNTS: Each of us signing this agreement as either
joint owners or co-trustees authorizes each Fund and Services to honor
telephone redemption requests given by ANY ONE of the signers, or our
investment representative of record, if any, ACTING ALONE.
APPOINTMENT OF ATTORNEY-IN-FACT: In order to issue telephone redemption
requests acting alone, each of us individually makes the following
appointment: I hereby appoint the other joint owner(s)/co-trustee(s) as my
agent(s) (attorney[s]-in-fact) with full power and authority to individually
act for me in any lawful way with respect to the issuance of instructions to a
Fund or Services in accordance with the telephone redemption privilege we have
requested by signing this agreement. This appointment shall not be affected by
my subsequent disability or incompetency and shall remain in effect until it
is revoked by either written notice from any one of us delivered to a Fund or
Services by registered mail, return receipt requested or by a Fund or Services
upon receipt of any information that causes a Fund or Services to believe in
good faith that there is or that there may be a dispute among any of us with
respect to the Franklin Templeton Fund account(s) covered by this agreement.
Each of us agrees to notify the Fund or Services immediately upon the death of
any of the signers.
CORPORATE/PARTNERSHIP/TRUST/RETIREMENT ACCOUNTS: The Shareholder and each of
us signing this agreement on behalf of the Shareholder represent and warrant
to each Franklin Templeton Fund and Services that the Shareholder has the
authority to enter into this agreement and that each of us is duly authorized
to execute this agreement on behalf of the Shareholder. The Shareholder agrees
that its election of the telephone redemption privilege means that a Fund or
Services may honor a telephone redemption request given by ANY
officer/partner/member/administrator/or agent of the Shareholder ACTING ALONE.
RESTRICTED ACCOUNTS: Telephone redemptions may not be accepted on Franklin
Templeton Trust Company retirement accounts.
PLEASE RETURN THIS FORM TO:
Franklin Templeton Investor Services, Inc., Attn.: Telephone Redemptions
Dept., 700 Central Avenue, St. Petersburg, Florida 33701-3628.
29
<PAGE>
The Franklin Templeton Group
Literature Request -- Call today for a free descriptive brochure and
prospectus on any of the funds listed below. The prospectus contains more
complete information, including fees, charges and expenses, and should be read
carefully before investing or sending money.
<TABLE>
<S> <C> <C>
TEMPLETON FUNDS Maryland FRANKLIN FUNDS SEEKING
American Trust Massachusetts*** HIGH CURRENT INCOME
Americas Government Securities Fund Michigan*** AGE High Income Fund
Developing Markets Trust Minnesota*** German Government Bond Fund
Foreign Fund Missouri Global Government Income Fund
Global Infrastructure Fund New Jersey Investment Grade Income Fund
Global Opportunities Trust New York* U.S. Government Securities Fund
Greater European Fund North Carolina
Growth Fund Ohio*** FRANKLIN FUNDS SEEKING HIGH CURRENT
Growth and Income Fund Oregon INCOME AND STABILITY OF PRINCIPAL
Income Fund Pennsylvania Adjustable Rate Securities Fund
Japan Fund Tennessee** Adjustable U.S. Government Securities Fund
Latin America Fund Texas Short-Intermediate U.S. Government Securities Fund
Money Fund Virginia
Real Estate Securities Fund Washington** FRANKLIN FUNDS FOR NON-U.S. INVESTORS
Smaller Companies Growth Fund Tax-Advantaged High Yield Securities Fund
World Fund FRANKLIN FUNDS Tax-Advantaged International Bond Fund
SEEKING CAPITAL GROWTH Tax-Advantaged U.S. Government Securities Fund
FRANKLIN FUNDS California Growth Fund
SEEKING TAX-FREE INCOME DynaTech Fund FRANKLIN TEMPLETON INTERNATIONAL
Federal Intermediate Term Equity Fund CURRENCY FUNDS
Tax-Free Income Fund Global Health Care Fund Global Currency Fund
Federal Tax-Free Income Fund Gold Fund Hard Currency Fund
High Yield Tax-Free Income Growth Fund High Income Currency Fund
Fund International Equity Fund
Insured Tax-Free Income Fund*** Pacific Growth Fund FRANKLIN MONEY MARKET FUNDS
Puerto Rico Tax-Free Income Fund Real Estate Securities Fund California Tax-Exempt Money Fund
FRANKLIN STATE-SPECIFIC FUNDS Small Cap Growth Fund Federal Money Fund
SEEKING TAX-FREE INCOME IFT U.S. Treasury Money Market Portfolio
Alabama FRANKLIN FUNDS SEEKING Money Fund
Arizona* GROWTH AND INCOME New York Tax-Exempt Money Fund
Arkansas** Balance Sheet Investment Fund Tax-Exempt Money Fund
California* Convertible Securities Fund
Colorado Equity Income Fund FRANKLIN FUND FOR CORPORATIONS
Connecticut Global Utilities Fund Corporate Qualified Dividend Fund
Florida* Income Fund
Georgia Premier Return Fund FRANKLIN TEMPLETON VARIABLE ANNUITIES
Hawaii** Rising Dividends Fund Franklin Valuemark
Indiana Strategic Income Fund Franklin Templeton Valuemark Income
Kentucky Utilities Fund Plus (an immediate annuity)
Louisiana
</TABLE>
Toll-free 1-800-DIAL BEN (1-800-342-5236)
* Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of municipal securities, and a high yield portfolio
(CA).
** The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
*** Portfolio of insured municipal securities.
30
<PAGE>
NOTES
-----
31
<PAGE>
- - ---------------------------
TEMPLETON FOREIGN FUND
PRINCIPAL UNDERWRITER:
Franklin Templeton
Distributors, Inc.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Shareholder Services
1-800-632-2301
Fund Information
1-800/DIAL BEN
Institutional Services
1-800-321-8563
Dealer Services
1-800-524-4040
Retirement Plan Services
1-800-527-2020
This Prospectus is not
an offering of the
securities herein
described in any state
in which the offering
is not authorized. No
sales representative,
dealer, or other person
is authorized to give
any information or make
any representations
other than those
contained in this
Prospectus. Further
information may be
obtained from the
Principal Underwriter.
- - --------------------------
[RECYCLE LOGO APPEARS HERE] TL104 P 1/96
TEMPLETON
FOREIGN
FUND
Prospectus
January 1, 1996
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
<PAGE>
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
Mail to: FRANKLIN TEMPLETON
P.O. Box 33031 St. Petersburg, Florida 33733-8031 (800) 393-3001
Please do not use this form for any Retirement Plan for which Franklin Templeton
Trust Company serves as custodian or trustee, or for Templeton Money Fund,
Templeton Institutional Funds or Templeton Capital Accumulator Fund. Request
separate Applications and/or Prospectuses.
- - --------------------------------------------------------------------------------
SHAREHOLDER APPLICATION OR REVISION
[_] Please check the box if this is a revision and see Section 8
- - --------------------------------------------------------------------------------
Please check Class I or Class II, if applicable, next to your Fund selection.
Class I and Class II shares have different sales charges and operating expenses,
among other differences, as described in each Fund's prospectus.
Date __________________
<TABLE>
<CAPTION>
CLASS CLASS
I II TEMPLETON I II TEMPLETON
<S> <C> <C> <C>
[_] [_]$______ AMERICAN TRUST [_] [_]$______ GLOBAL OPPORTUNITIES TRUST
[_] ______ AMERICAS GOVERNMENT SECURITIES FUND [_] [_] ______ GREATER EUROPEAN FUND
[_] [_] ______ DEVELOPING MARKETS TRUST [_] [_] ______ GROWTH FUND
[_] [_] ______ FOREIGN FUND [_] [_] ______ GROWTH AND INCOME FUND
[_] [_] ______ GLOBAL INFRASTRUCTURE FUND [_] [_] ______ INCOME FUND
<CAPTION>
CLASS CLASS
I II TEMPLETON I II
<S> <C> <C>
[_] $______ JAPAN FUND [_] [_] OTHER: $___________
[_] [_] ______ LATIN AMERICA FUND (Except for Class II Money Fund)
[_] [_] ______ REAL ESTATE SECURITIES FUND _______________________________
[_] [_] ______ SMALLER COMPANIES GROWTH FUND _______________________________
[_] [_] ______ WORLD FUND _______________________________
</TABLE>
- - --------------------------------------------------------------------------------
1 ACCOUNT REGISTRATION (PLEASE PRINT)
- - --------------------------------------------------------------------------------
[_] INDIVIDUAL OR JOINT ACCOUNT
_ _
__________________________________________________ ____________________________
First Name Middle Initial Last Name Social Security Number (SSN)
_ _
__________________________________________________ ____________________________
Joint Owner(s) (Joint ownership means "Joint Social Security Number (SSN)
Tenants With Rights of Survivorship" unless
otherwise specified) All owners must sign Section 4.
- - --------------------------------------------------------------------------------
[_] GIFT/TRANSFER TO A MINOR
_______________________________ As Custodian For________________________________
Name of Custodian (one only) Minor's Name (one only)
_ _
_____________Uniform Gifts/Transfers to Minors Act______________________________
State of Residence Minor's Social Security Number
Please Note: Custodian's Signature, not Minor's, is required in Section 4.
- - --------------------------------------------------------------------------------
[_] TRUST, CORPORATION, PARTNERSHIP, RETIREMENT PLAN, OR OTHER ENTITY
_
__________________________________________ ___________________________________
Name Taxpayer Identification Number (TIN)
__________________________________________ ____________________________________
Name of Beneficiary (if to be included in Date of Trust Document (must be
the Registration) completed for registration)
________________________________________________________________________________
Name of Each Trustee (if to be included in the Registration)
- - --------------------------------------------------------------------------------
2 ADDRESS
- - --------------------------------------------------------------------------------
___________________________________________ Daytime Phone (___)________________
Street Address Area Code
_
___________________________________________ Evening Phone (___)________________
City State Zip Code Area Code
I am a Citizen of: [_] U.S. or [_]______________________________
Country of Residence
- - --------------------------------------------------------------------------------
3 INITIAL INVESTMENT ($100 minimum initial investment)
- - --------------------------------------------------------------------------------
Check(s) enclosed for $___________________ . (Payable to the Fund(s)
indicated above.)
- - --------------------------------------------------------------------------------
4 SIGNATURE AND TAX CERTIFICATIONS
(All registered owners must sign application)
- - --------------------------------------------------------------------------------
See "Important Notice Regarding Taxpayer IRS Certifications" in back of
prospectus. The Fund reserves the right to refuse to open an account without
either a certified Taxpayer Identification Number ("TIN") or a certification of
foreign status. Failure to provide tax certifications in this section may result
in backup withholding on payments relating to your account and/or in your
inability to qualify for treaty withholding rates.
I am(We are) not subject to backup withholding because I(we) have not been
notified by the IRS that I am(we are) subject to backup withholding as a result
of a failure to report all interest or dividends or because the IRS has notified
me(us) that I am(we are) no longer subject to backup withholding. (If you are
currently subject to backup withholding as a result of a failure to report all
interest or dividends, please cross out the preceding statement.)
[_] The number shown above is my(our) correct TIN, or that of the Minor named in
Section 1.
[_] AWAITING TIN. I am(We are) waiting for a number to be issued to me(us).
I(We) understand that if I(we) do not provide a TIN to the Fund within 60
days, the Fund is required to commence 31% backup withholding until I(we)
provide a certified TIN.
[_] EXEMPT RECIPIENT. Individuals cannot be exempt. Check this box only after
reading the instructions to see whether you qualify as an exempt recipient.
(You should still provide a TIN.)
[_] EXEMPT FOREIGN PERSON. Check this box only if the following statement
applies: "I am(we are) neither a citizen nor a resident of the United
States. I(we) certify to the best of my(our) knowledge and belief, I(we)
qualify as an exempt foreign person and/or entity as described in the
instructions."
Permanent address for tax purposes:
________________________________________________________________________________
Street Address City State Country Postal Code
PLEASE NOTE: The IRS only allows one TIN to be listed on an account. On joint
accounts, it is preferred that the primary account owner (or person listed first
on the account) list his/her number as requested above.
CERTIFICATION - Under the penalties of perjury, I(we) certify that (1) the
information provided on this application is true, correct and complete, (2)
I(we) have read the prospectus(es) for the Fund(s) in which I am(we are)
investing and agree to the terms thereof, and (3) I am(we are) of legal age or
an emancipated minor. I (we) acknowledge that Shares of the Fund(s) are not
insured or guaranteed by any agency or institution and that an investment in the
Shares involves risks, including the possible loss of principal.
X X
- - ---------------------------------------- ---------------------------------------
Signature Signature
X X
- - ---------------------------------------- ---------------------------------------
- - --------------------------------------------------------------------------------
5 BROKER/DEALER USE ONLY (PLEASE PRINT)
- - --------------------------------------------------------------------------------
-----------------------
We hereby submit this application for the purchase of Templeton Dealer Number
shares of the Fund indicated above in accordance with
the terms of our selling agreement with Franklin -----------------------
Templeton Distributors, Inc. ("FTD"), and with the
Prospectus for the Fund. We agree to notify FTD of any
purchases of Class I shares which may be eligible for
reduced or eliminated sales charges.
-----------------------------------------------------------------------------
WIRE ORDER ONLY: The attached check for $_______ should be applied against
Wire Order
Confirmation Number ___________ Dated___________ For__________ Shares
-----------------------------------------------------------------------------
Securities Dealer Name__________________________________________________________
Main Office Address________________ Main Office Telephone Number (___)__________
Branch Number________ Representative Number ________ Representative Name________
Branch Address_________________________ Branch Telephone Number (___)___________
Authorized Signature, Securities Dealer______________________ Title_____________
- - --------------------------------------------------------------------------------
ACCEPTED: Franklin Templeton Distributors, Inc. By___________ Date______________
- - --------------------------------------------------------------------------------
Please see reverse side for Shareholder Account Privileges:
[_] Distribution Options [_] Special Instructions for Distributions
[_] Systematic Withdrawal Plan [_] Automatic Investment Plan
[_] Telephone Exchange Service [_] Letter of Intent
[_] Cumulative Quantity Discount
This application must be preceded or accompanied by a prospectus for
the Fund(s) being purchased.
<PAGE>
- - --------------------------------------------------------------------------------
6 DISTRIBUTION OPTIONS (Check one)
- - --------------------------------------------------------------------------------
Check one - if no box is checked, all dividends and capital gains will be
reinvested in additional shares of the Fund.
[_] Reinvest all dividends [_] Pay all dividends in cash
and capital gains. and reinvest capital gains.
[_] Pay capital gains in cash [_] Pay all dividends and
and reinvest dividends. capital gains in cash.
- - --------------------------------------------------------------------------------
7 OPTIONAL SHAREHOLDER PRIVILEGES
- - --------------------------------------------------------------------------------
A. SPECIAL PAYMENT INSTRUCTIONS FOR DISTRIBUTIONS (Check one box)
[_] Invest Distributions, as noted in Section 6, or [_] withdrawals, as noted
in section 7(B), in another Franklin or Templeton Fund.
Restrictions may apply to purchases of shares of a different class. See
the prospectus for details.
Fund Name______________________ Existing Account Number___________________
[_] Send my Distributions to the person, named below, instead of as registered
and addressed in Sections 1 and 2.
Name___________________________ Street Address____________________________
City___________________________ State____________________Zip Code_________
- - --------------------------------------------------------------------------------
B. SYSTEMATIC WITHDRAWAL PLAN
Please withdraw from my Franklin Templeton account $_____($50 minimum)
[_]Monthly [_]Quarterly [_]Semi-Annually or [_]Annually as set forth in the
Prospectus, starting in ______________(Month). The net asset value of the
shares held must be at least $5,000 at the time the plan is established.
Additional restrictions may apply to Class II or other shares subject to
contingent deferred sales charge, as described in the prospectus. Send the
withdrawals to: [_]Address of Record OR [_]the Franklin Templeton Fund or
person specified in Section 7(A) - Special Payment Instructions for
Distributions.
- - --------------------------------------------------------------------------------
C. TELEPHONE TRANSACTIONS
TELEPHONE EXCHANGE PRIVILEGE: If the Fund does not receive specific
-----------------------------
instructions from the shareholder, either in writing or by telephone, the
Telephone Exchange Privilege (see the prospectus) is automatically extended
to each account. The shareholder should understand, however, that the Fund
and Franklin Templeton Investor Services, Inc. ("FTI") or Franklin Templeton
Trust Company and their agents will not be liable for any loss, injury,
damage or expense as a result of acting upon instructions communicated by
telephone reasonably believed to be genuine. The shareholder agrees to hold
the Fund and its agents harmless from any loss, claims, or liability arising
from its or their compliance with such instructions. The shareholder
understands that this option is subject to the terms and conditions set forth
in the prospectus of the fund to be acquired.
[_]No, I do NOT wish to participate in the Telephone Exchange Privilege or
authorize the Fund or its agents, including FTI or Templeton Funds Trust
Company, to act upon instructions received by telephone to exchange shares
for shares of any other account(s) within the Franklin Templeton Group of
Funds.
Telephone Redemption Privilege: This is available to shareholders who
-------------------------------
specifically request it and who complete the Franklin Templeton Telephone
Redemption Authorization Agreement in the back of the Fund's prospectus.
- - --------------------------------------------------------------------------------
D. AUTOMATIC INVESTMENT PLAN
IMPORTANT: ATTACH AN UNSIGNED, VOIDED CHECK (FOR CHECKING ACCOUNTS) OR A
SAVINGS ACCOUNT DEPOSIT SLIP HERE, AND COMPLETE THE INFORMATION BELOW. I(We)
would like to establish an Automatic Investment Plan (the "Plan") as
described in the Prospectus. I(We) agree to reimburse FTI and/or FTD for any
expenses or losses that they may incur in connection with my(our) plan,
including any caused by my(our) bank's failure to act in accordance with
my(our) request. If my(our) bank makes any erroneous payment or fails to make
a payment after shares are purchased on my(our) behalf, any such purchase may
be cancelled and I(we) hereby authorize redemptions and/or deductions from
my(our) account for that purpose.
Debit my (circle one) savings, checking, other ________ account monthly for
$__________($25 minimum) on or about the [_]1st [_]5th [_]15th or [_]20th day
starting_______(month), to be invested in (name of
Fund)___________________Account Number (if known)_______
INSTRUCTIONS TO BANK - AUTOMATIC INVESTMENT PLAN AUTHORIZATION
To:__________________________________ ______________________________________
Name of Your Bank ABA Number
___________________________ _________________ ____________ ______________
Street Address City State Zip Code
I(We) authorize you to charge my(our) Checking/Savings Account and to make
payment to FTD, upon instructions from FTD. I(We) agree that in making payment
for such charges your rights shall be the same as if each were a charge made and
signed personally by me(us). This authority shall remain in effect until you
receive written notice from me(us) changing its terms or revoking it. Until you
actually receive such notice, I(we) agree that you shall be fully protected in
paying any charge under this authority. I(we) further agree that if any such
charge is not made, whether with or without cause and whether intentionally or
inadvertently, you shall be under no liability whatsoever.
X_________________________________________________ ___________________________
Signature(s) EXACTLY as shown on your bank records Date
______________________________________ _______________________________________
Print Name(s) Account Number
______________________________ _________________ ____________ ______________
Your Street Address City State Zip Code
- - --------------------------------------------------------------------------------
E. LETTER OF INTENT (LOI) -- Not Applicable to Purchases of Class II
[_]I(We) agree to the terms of the LOI and provisions for reservations of
Class I shares and grant FTD the security interest set forth in the
Prospectus. Although I am(we are) not obligated to do so, it is my(our)
intention to invest over a 13 month period in Class I and/or Class II shares
of one or more Franklin or Templeton Funds (including all money market funds
in the Franklin Templeton Group) an aggregate amount at least equal to that
which is checked below. I understand that reduced sales charges will apply
only to purchases of Class I shares.
<TABLE>
<S> <C> <C> <C> <C>
[_]$50,000-99,999 (except for Income Fund [_]$100,000-249,999 [_]$250,000-499,999 [_]$500,000-999,999 [_]$1,000,0000 or more
and Americas Government Securities Fund)
</TABLE>
Purchases of Class I Shares under LOI of $1,000,000 or more are made at net
asset value and may be subject to a contingent deferred sales charge as
described in the prospectus.
Purchases made within the last 90 days will be included as part of your LOI.
Please write in your Account Number(s)____________ ____________ ____________
- - --------------------------------------------------------------------------------
F. CUMULATIVE QUANTITY DISCOUNT -- Not Applicable to Purchases of Class II
Class I shares may be purchased at the offering price applicable to the total
of (a) the dollar amount then being purchased plus (b) the amount equal to
the cost or current value (whichever is higher) of the combined holdings of
the purchaser, his or her spouse, and their children or grandchildren under
age 21, of Class I and/or Class II shares of funds in the Franklin Templeton
Group, as well as other holdings of Franklin Templeton Investments, as that
term is defined in the prospectus. In order for this cumulative quantity
discount to be made available, the shareholder or his or her securities
dealer must notify FTI or FTD of the total holdings in the Franklin Templeton
Group each time an order is placed. I understand that reduced sales charges
will apply only to purchases of Class I shares.
[_]I(We) own shares of more than one Fund in the Franklin Templeton Group and
qualify for the Cumulative Quantity Discount described above and in the
Prospectus.
My(Our) other Account Number(s) are ___________ ___________ _______________
- - --------------------------------------------------------------------------------
8 ACCOUNT REVISION (If Applicable)
- - --------------------------------------------------------------------------------
If you are using this application to revise your Account Registration, or wish
to have Distributions sent to an address other than the address on your existing
Account's Registration, a Signature Guarantee is required. Signatures of all
registered owners must be guaranteed by an "eligible guarantor" as defined in
the "How to Sell Shares of the Fund" section in the Fund's Prospectus. A Notary
Public is not an acceptable guarantor.
X________________________________________ ____________________________________
Signature(s) of Registered Account Owners Account Number(s)
X________________________________________ ____________________________________
X________________________________________
X________________________________________ ____________________________________
Signature Guarantee Stamp
NOTE: For any change in registration, please send us any outstanding
Certificates by Registered Mail.
- - --------------------------------------------------------------------------------
TLGOF APP 12/95
<PAGE>
SPECIAL MEETING OF SHAREHOLDERS OF FRANKLIN TEMPLETON
INTERNATIONAL TRUST
FRANKLIN INTERNATIONAL EQUITY FUND
May 3, 1996
The undersigned hereby revokes all previous proxies for his shares and appoints
[__________________], and each of them, proxies of the undersigned with full
power of substitution to vote all shares of Franklin International Equity Fund
(the "International Fund") of Franklin Templeton International Trust
("International Trust") which the undersigned is entitled to vote at
International Trust's Special Meeting to be held at 777 Mariners Island
Boulevard, San Mateo, California 94404 at 10:00 a.m., Pacific time on the 3rd
day of May 1996, including any adjournment thereof, upon such business as may
properly be brought before the Meeting.
No. 1 To approve an Agreement and Plan of Reorganization
between International Trust, on behalf of the
International Fund, and Templeton Funds, Inc., on
behalf of the Templeton Foreign Fund series (the
"Foreign Fund"), that provides for the acquisition
of substantially all of the assets of the
International Fund in exchange for shares of the
Templeton Foreign Fund - Class I class (the
"Foreign Class") of the Foreign Fund, the
distribution of such shares to the shareholders of
the International Fund, and the dissolution of the
International Fund (the "Reorganization").
FOR AGAINST ABSTAIN
To vote upon any other business which may legally come before
the Special Meeting or any adjournment thereof.
GRANT WITHHOLD
PLEASE SEE REVERSE SIDE
<PAGE>
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO
POSTAGE REQUIRED IF MAILED IN THE U.S.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF INTERNATIONAL
TRUST. IT WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY
SHALL BE VOTED IN FAVOR OF PROPOSAL 1, REGARDING THE REORGANIZATION OF THE
INTERNATIONAL FUND OF INTERNATIONAL TRUST PURSUANT TO THE AGREEMENT AND PLAN OF
REORGANIZATION WITH TEMPLETON FUNDS, INC. IF ANY OTHER MATTERS PROPERLY COME
BEFORE THE MEETING ABOUT WHICH THE PROXYHOLDERS WERE NOT AWARE PRIOR TO THE TIME
OF THE SOLICITATION, AUTHORIZATION IS GIVEN THE PROXYHOLDERS TO VOTE IN
ACCORDANCE WITH THE VIEWS OF MANAGEMENT THEREON. THE MANAGEMENT IS NOT AWARE OF
ANY SUCH MATTERS.
Dated:
Signature
Print Name
Signature
Print Name
Note: Please sign
exactly as your name
appears on the proxy. If
signing for estates,
trusts or corporations,
title or capacity should
be stated. If shares are
held jointly, each holder
must sign.
IMPORTANT: PLEASE SIGN IN YOUR PROXY. . . TODAY!
YOU ARE URGED TO DATE AND SIGN THE ATTACHED PROXY AND RETURN IT
PROMPTLY. THIS WILL HELP SAVE THE EXPENSE OF FOLLOW-UP LETTERS TO
STOCKHOLDERS WHO HAVE NOT RESPONDED.
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
FOR
TEMPLETON FUNDS, INC.
Acquisition of the Assets of the
Franklin International Equity Fund series
of FRANKLIN TEMPLETON INTERNATIONAL TRUST
By and in exchange for shares of the Templeton Foreign Fund-Class I class of the
Templeton Foreign Fund series of TEMPLETON FUNDS, INC.
This Statement of Additional Information relates specifically
to the proposed delivery of substantially all of the assets of the Franklin
International Equity Fund series (the "International Fund") of Franklin
Templeton International Trust (formerly known as "Franklin International Trust")
to and in exchange for shares of the Templeton Foreign Fund-Class I class (the
"Foreign Class") of the Templeton Foreign Fund series (the "Foreign Fund") of
Templeton Funds, Inc.
This Statement of Additional Information consists of this
Cover Page and the following described documents, each of which is attached
hereto and incorporated by reference herein:
1. Statement of Additional Information of Templeton
Funds, Inc. dated January 1, 1996.
2. Annual Report of the International Fund for the
fiscal year ended October 31, 1995.
3. Annual Report of the Foreign Fund for the fiscal
year ended August 31, 1995.
This Statement of Additional Information is not a Prospectus;
a Proxy Statement/Prospectus dated [______________], 1996, relating to the
above-referenced transaction may be obtained from Templeton Funds, Inc., 700
Central Avenue, St. Petersburg, Florida 33701-3628, 1-800/DIAL BEN and the
International Fund at 777 Mariners Island Boulevard, P.O. Box 7777, San Mateo,
California 94403-7777, 1-800/DIAL BEN. This document should be read in
conjunction with such Proxy Statement/Prospectus. The date of this Statement of
Additional Information is [__________________], 1996.
<PAGE>
TEMPLETON FUNDS, INC.
THIS STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY 1, 1996,
IS NOT A PROSPECTUS. IT SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUSES OF
TEMPLETON WORLD FUND AND TEMPLETON FOREIGN FUND DATED
JANUARY 1, 1996, AS AMENDED FROM TIME TO TIME, WHICH MAY BE OBTAINED
WITHOUT CHARGE UPON REQUEST TO THE PRINCIPAL UNDERWRITER,
FRANKLIN TEMPLETON DISTRIBUTORS, INC.,
700 CENTRAL AVENUE, P.O. BOX 33030
ST. PETERSBURG, FLORIDA 33733-8030
TOLL FREE TELEPHONE: 800/DIAL BEN
TABLE OF CONTENTS
General Information and History.......................1
Investment Objectives and Policies....................1
-Investment Policies.................................1
-Repurchase Agreements...............................2
-Loans of Portfolio Securities.......................2
-Debt Securities.....................................2
-Structured Investments .............................4
-Stock Index Futures Contracts.......................5
-Stock Index Options.................................6
-Investment Restrictions.............................7
-Risk Factors . . . . . . . . . .................10
-Trading Policies...................................15
-Personal Securities Transactions...................15
Management of the Company............................16
Director Compensation................................21
Principal Shareholders...............................22
Investment Management and Other
Services.......................................... 23
-Investment Management
Agreements.........................................23
-Management Fees....................................25
-The Investment Manager.............................26
-Business Manager...................................26
-Custodian and Transfer Agent.......................27
-Legal Counsel......................................28
-Independent Accountants............................28
-Reports to Shareholders............................28
Brokerage Allocation.................................28
Purchase, Redemption and
Pricing of Shares..................................31
-Ownership and Authority
Disputes..........................................32
-Tax-Deferred Retirement Plans......................32
-Letter of Intent...................................34
-Special Net Asset Value Purchases..................35
-Redemptions in Kind. . . . . . . ..................36
Tax Status...........................................36
Principal Underwriter................................43
Description of Shares................................45
Performance Information..............................46
Financial Statements.................................49
GENERAL INFORMATION AND HISTORY
After incorporating under the laws of Maryland as Templeton World Fund,
Inc. and registering under the Investment Company Act of 1940 (the "1940 Act"),
the Company commenced business as an investment company on January 17, 1978. On
October 1, 1982 the Company's name was changed to Templeton Funds, Inc. (the
"Company") and it became a series investment company with two separate classes
of Shares constituting, respectively, Templeton World Fund ("World Fund") and
Templeton Foreign Fund ("Foreign Fund") (collectively, the "Funds"). As such,
the holder of the Shares issued for one Fund has an interest only in the
portfolio, assets and liabilities of that Fund.
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT POLICIES. The investment objective and policies of each Fund
are described in each Fund's Prospectus under the heading "General
Description--Investment Objective and Policies." Each Fund may invest for
defensive purposes in commercial paper which, at the date of investment, must be
rated A-1 by Standard & Poor's Corporation ("S&P") or Prime-1 by Moody's
Investors
<PAGE>
Service, Inc. ("Moody's") or, if not rated, be issued by a
company which at the date of investment has an outstanding debt
issue rated AAA or AA by S&P or Aaa or Aa by Moody's.
REPURCHASE AGREEMENTS. Repurchase agreements are contracts under which
the buyer of a security simultaneously commits to resell the security to the
seller at an agreed-upon price and date. Under a repurchase agreement, the
seller is required to maintain the value of the securities subject to the
repurchase agreement at not less than their repurchase price. Templeton Global
Advisors Limited (the "Investment Manager") will monitor the value of such
securities daily to determine that the value equals or exceeds the repurchase
price. Repurchase agreements may involve risks in the event of default or
insolvency of the seller, including possible delays or restrictions upon a
Fund's ability to dispose of the underlying securities. A Fund will enter into
repurchase agreements only with parties who meet creditworthiness standards
approved by the Board of Directors, I.E., banks or broker-dealers which have
been determined by the Investment Manager to present no serious risk of becoming
involved in bankruptcy proceedings within the time frame contemplated by the
repurchase transaction.
LOANS OF PORTFOLIO SECURITIES. World Fund may lend to banks and
broker-dealers portfolio securities with an aggregate market value of up to
one-third of its total assets. Such loans must be secured by collateral
(consisting of any combination of cash, U.S. Government securities or
irrevocable letters of credit) in an amount at least equal (on a daily
marked-to-market basis) to the current market value of the securities loaned.
World Fund retains all or a portion of the interest received on investment of
the cash collateral or receives a fee from the borrower. World Fund may
terminate the loans at any time and obtain the return of the securities loaned
within five business days. World Fund will continue to receive any interest or
dividends paid on the loaned securities and will continue to have voting rights
with respect to the securities. However, as with other extensions of credit,
there are risks of delay in recovery or even loss of rights in collateral should
the borrower fail.
DEBT SECURITIES. The Funds may invest in debt securities which are
rated at least Caa by Moody's or CCC by S&P or deemed to be of comparable
quality by the Investment Manager. As an operating policy, neither Fund will
invest more than 5% of its assets in debt securities rated lower than Baa by
Moody's or BBB by S&P. The market value of debt securities generally varies in
response to changes in interest rates and the financial condition of each
issuer. During periods of declining interest rates, the value of debt securities
generally increases. Conversely, during periods of rising interest rates, the
value of such securities
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<PAGE>
generally declines. These changes in market value will be
reflected in a Fund's net asset value.
Although they may offer higher yields than do higher rated securities,
low rated and unrated debt securities generally involve greater volatility of
price and risk of principal and income, including the possibility of default by,
or bankruptcy of, the issuers of the securities. In addition, the markets in
which low rated and unrated debt securities are traded are more limited than
those in which higher rated securities are traded. The existence of limited
markets for particular securities may diminish a Fund's ability to sell the
securities at fair value either to meet redemption requests or to respond to a
specific economic event such as a deterioration in the creditworthiness of the
issuer. Reduced secondary market liquidity for certain low rated or unrated debt
securities may also make it more difficult for each Fund to obtain accurate
market quotations for the purposes of valuing the Fund's portfolio. Market
quotations are generally available on many low rated or unrated securities only
from a limited number of dealers and may not necessarily represent firm bids of
such dealers or prices for actual sales.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated debt
securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated debt securities may be more complex
than for issuers of higher rated securities, and the ability of a Fund to
achieve its investment objective may, to the extent of investment in low rated
debt securities, be more dependent upon such creditworthiness analysis than
would be the case if a Fund were investing in higher rated securities.
Low rated debt securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities. The prices of low rated debt securities have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic downturns or individual corporate developments. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in low rated debt securities prices because the
advent of a recession could lessen the ability of a highly leveraged company to
make principal and interest payments on its debt securities. If the issuer of
low rated debt securities defaults, a Fund may incur additional expenses to seek
recovery.
A Fund may accrue and report interest on high yield bonds structured as
zero coupon bonds or pay-in-kind securities as income even though it receives no
cash interest until the
- 3 -
<PAGE>
security's maturity or payment date. In order to qualify for beneficial tax
treatment afforded regulated investment companies, a Fund must distribute
substantially all of its net income to Shareholders (see "Tax Status"). Thus, a
Fund may have to dispose of its portfolio securities under disadvantageous
circumstances to generate cash in order to satisfy the distribution requirement.
Recent legislation, which requires federally insured savings and loan
associations to divest their investments in low rated debt securities, may have
a material adverse effect on the Funds' net asset values and investment
practices.
STRUCTURED INVESTMENTS. Included among the issuers of debt securities
in which the Funds may invest are entities organized and operated solely for the
purpose of restructuring the investment characteristics of various securities.
These entities are typically organized by investment banking firms which receive
fees in connection with establishing each entity and arranging for the placement
of its securities. This type of restructuring involves the deposit with or
purchases by an entity, such as a corporation or trust, of specified instruments
and the issuance by that entity of one or more classes of securities
("Structured Investments") backed by, or representing interests in, the
underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued Structured Investments to create securities
with different investment characteristics such as varying maturities, payment
priorities or interest rate provisions; the extent of the payments made with
respect to Structured Investments is dependent on the extent of the cash flow on
the underlying instruments. Because Structured Investments of the type in which
the Funds anticipate investing typically involve no credit enhancement, their
credit risk will generally be equivalent to that of the underlying instruments.
The Fund is permitted to invest in a class of Structured Investments
that is either subordinated or unsubordinated to the right of payment of another
class. Subordinated Structured Investments typically have higher yields and
present greater risks than unsubordinated Structures Investments. Although the
Fund's purchase of subordinated Structured Investments would have a similar
economic effect to that of borrowing against the underlying securities, the
purchase will not be deemed to be leverage for purposes of the limitations
placed on the extent of the Fund's assets that may be used for borrowing
activities.
Certain issuers of Structured Investments may be deemed to be
"investment companies" as defined in the 1940 Act. As a result, the Fund's
investment in these Structured Investments may be limited by the restrictions
contained in the 1940 Act.
- 4 -
<PAGE>
Structured Investments are typically sold in private placement transactions, and
there currently is no active trading market for Structured Investments. To the
extent such investments are illiquid, they will be subject to the Fund's
restrictions on investments in illiquid securities.
STOCK INDEX FUTURES CONTRACTS. World Fund's investment policies permit
it to buy and sell stock index futures contracts with respect to any stock index
traded on a recognized stock exchange or board of trade, to an aggregate amount
not exceeding 20% of World Fund's total assets as of the time when such
contracts are entered into. Successful use of stock index futures is subject to
the Investment Manager's ability to predict correctly movements in the direction
of the stock markets. No assurance can be given that the Investment Manager's
judgment in this respect will be correct.
A stock index futures contract is a contract to buy or sell units of a
stock index at a specified future date at a price agreed upon when the contract
is made. The value of a unit is the current value of the stock index. For
example, the Standard & Poor's 500 Stock Index (the "S&P 500 Index") is composed
of 500 selected common stocks, most of which are listed on the New York Stock
Exchange ("NYSE"). The S&P 500 Index assigns relative weightings to the value of
one share of each of these 500 common stocks included in the Index, and the
Index fluctuates with changes in the market values of the shares of those common
stocks. In the case of the S&P 500 Index, contracts are to buy or sell 500
units. Thus, if the value of the S&P 500 Index were $150, one contract would be
worth $75,000 (500 units x $150). The stock index futures contract specifies
that no delivery of the actual stocks making up the Index will take place.
Instead, settlement in cash must occur upon the termination of the contract,
with the settlement being the difference between the contract price and the
actual level of the stock index at the expiration of the contract. For example,
if World Fund enters into a futures contract to buy 500 units of the S&P 500
Index at a specified future date at a contract price of $150 and the S&P 500
Index is at $154 on that future date, World Fund will gain $2,000 (500 units x
gain of $4). If World Fund enters into a futures contract to sell 500 units of
the stock index at a specified future date at a contract price of $150 and the
S&P 500 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
- 5 -
<PAGE>
securities which World Fund proposes to buy change in value in correlation with
the stock index contracted for, the purchase of futures contracts on that index
would result in gains to World Fund which could be offset against rising prices
of such common stock.
During or in anticipation of a period of market decline, World Fund may
"hedge" common stock in its portfolio by selling stock index futures for the
purpose of limiting the exposure of its portfolio to such decline. To the extent
that World Fund's portfolio of securities changes in value in correlation with a
given stock index, the sale of futures contracts on that index could
substantially reduce the risk to the portfolio of a market decline and, by so
doing, provide an alternative to the liquidation of securities positions in the
portfolio with resultant transaction costs.
Parties to an index futures contract must make initial margin deposits
to secure performance of the contract, which currently range from 1 1/2% to 5%
of the contract amount. Initial margin requirements are determined by the
respective exchanges on which the futures contracts are traded. There also are
requirements to make variation margin deposits as the value of the futures
contract fluctuates.
At the time World Fund purchases a stock index futures contract, an
amount of cash, U.S. Government securities, or other highly liquid debt
securities equal to the market value of the contract will be deposited in a
segregated account with World Fund's Custodian. When selling a stock index
futures contract, World Fund will maintain with its Custodian liquid assets
that, when added to the amounts deposited with a futures commission merchant or
broker as margin, are equal to the market value of the instruments underlying
the contract. Alternatively, World Fund may "cover" its position by owning a
portfolio with a volatility substantially similar to that of the index on which
the futures contract is based, or holding a call option permitting World Fund to
purchase the same futures contract at a price no higher than the price of the
contract written by World Fund (or at a higher price if the difference is
maintained in liquid assets with World Fund's Custodian).
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,
- 6 -
<PAGE>
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.
- 7 -
<PAGE>
In accordance with these restrictions, neither of the Funds will:
1. Invest in real estate or mortgages on real estate
(although each Fund may invest in marketable securities
secured by real estate or interests therein or issued
by companies or investment trusts which invest in real
estate or interests therein); invest in other open-end
investment companies; invest in interests (other than
debentures or equity stock interests) in oil, gas or
other mineral exploration or development programs; or
purchase or sell commodity contracts except that World
Fund may purchase or sell stock index futures
contracts.
2. Purchase or retain securities of any company in which
Directors or officers of the Company or of its Investment
Manager, individually owning more than 1/2 of 1% of the
securities of such company, in the aggregate own more than 5%
of the securities of such company.
3. Purchase more than 10% of any class of securities of any one
company, including more than 10% of its outstanding voting
securities, or invest in any company for the purpose of
exercising control or management.
4. Act as an underwriter; issue senior securities; purchase on
margin or sell short; write, buy or sell puts, calls,
straddles or spreads (but World Fund may make margin payments
in connection with, and purchase and sell, stock index futures
contracts and options on securities indices).
5. Loan money apart from the purchase of a portion of an
issue of publicly distributed bonds, debentures, notes
and other evidences of indebtedness, although the Funds
may buy from a bank or broker-dealer United States and
Canadian government obligations with a simultaneous
agreement by the seller to repurchase them within no
more than seven days at the original purchase price
plus accrued interest.
6. Borrow money for any purpose other than redeeming its
Shares or purchasing its Shares for cancellation, and
then only as a temporary measure up to an amount not
exceeding 5% of the value of its total assets; or
pledge, mortgage or hypothecate its assets for any
purpose other than to secure such borrowings, and then
only up to such extent not exceeding 10% of the value
of its total assets as the Company's Board of Directors
- 8 -
<PAGE>
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.)
- 9 -
<PAGE>
Whenever any investment policy or investment restriction states a
maximum percentage of either Fund's assets which may be invested in any security
or other property, it is intended that such maximum percentage limitation be
determined immediately after and as a result of that Fund's acquisition of such
security or property. The value of a Fund's assets is calculated as described in
its Prospectus under the heading "How to Buy Shares of the Fund." Nothing in the
investment policy or investment restrictions (except restrictions 9 and 10)
shall be deemed to prohibit either Fund from purchasing securities pursuant to
subscription rights distributed to either Fund by any issuer of securities held
at the time in its portfolio (as long as such purchase is not contrary to either
Fund's status as a diversified investment company under the 1940 Act).
RISK FACTORS. Each Fund has an unlimited right to purchase securities
in any foreign country, developed or developing, if they are listed on a stock
exchange, as well as a limited right to purchase such securities if they are
unlisted. Investors should consider carefully the substantial risks involved in
securities of companies and governments of foreign nations, which are in
addition to the usual risks inherent in domestic investments.
There may be less publicly available information about foreign
companies comparable to the reports and ratings published about companies in the
United States. Foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards, and auditing practices
and requirements may not be comparable to those applicable to United States
companies. A Fund, therefore, may encounter difficulty in obtaining market
quotations for purposes of valuing its portfolio and calculating its net asset
value. Foreign markets have substantially less volume than the NYSE and
securities of some foreign companies are less liquid and more volatile than
securities of comparable United States companies. Although neither Fund may
invest more than 15% of its total assets in unlisted foreign securities,
including not more than 10% of its total assets in securities with a limited
trading market, in the opinion of management such securities with a limited
trading market do not present a significant liquidity problem. Commission rates
in foreign countries, which are generally fixed rather than subject to
negotiation as in the United States, are likely to be higher. In many foreign
countries there is less government supervision and regulation of stock
exchanges, brokers and listed companies than in the United States.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
These risks include (i) less social,
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<PAGE>
political and economic stability; (ii) the small current size of the markets for
such securities and the currently low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies which may restrict a Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed legal
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until recently in
certain Eastern European countries, of a capital market structure or
market-oriented economy; and (vii) the possibility that recent favorable
economic developments in Eastern Europe may be slowed or reversed by
unanticipated political or social events in such countries.
In addition, many countries in which a Fund may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had any may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some developing countries may
differ favorably or unfavorably from the United States economy in such respects
as growth of gross domestic product, rate of inflation, currency depreciation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
Investments in Eastern European countries may involve risks of
nationalization, expropriation and confiscatory taxation. The Communist
governments of a number of Eastern European countries expropriated large amounts
of private property in the past, in many cases without adequate compensation,
and there can be no assurance that such expropriation will not occur in the
future. In the event of such expropriation, a Fund could lose a substantial
portion of any investments it has made in the affected countries. Further, no
accounting standards exist in Eastern European countries. Finally, even though
certain Eastern European currencies may be convertible into United States
dollars, the conversion rates may be artificial to the actual market values and
may be adverse to a Fund's Shareholders.
Investing in Russian companies involves a high degree of risk and
special considerations not typically associated with investing in the United
States securities markets, and should be considered highly speculative. Such
risks include: (1) delays in settling portfolio transactions and risk of loss
arising out of Russia's system of share registration and custody; (2) the risk
that it may be impossible or more difficult than in other countries to obtain
and/or enforce a judgment; (3) pervasiveness
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<PAGE>
of corruption and crime in the Russian economic system; (4) currency exchange
rate volatility and the lack of available currency hedging instruments; (5)
higher rates of inflation (including the risk of social unrest associated with
periods of hyper-inflation); (6) controls on foreign investment and local
practices disfavoring foreign investors and limitations on repatriation of
invested capital, profits and dividends, and on a Fund's ability to exchange
local currencies for U.S. dollars; (7) the risk that the government of Russia or
other executive or legislative bodies may decide not to continue to support the
economic reform programs implemented since the dissolution of the Soviet Union
and could follow radically different political and/or economic policies to the
detriment of investors, including non-market-oriented policies such as the
support of certain industries at the expense of other sectors or investors, or a
return to the centrally planned economy that existed prior to the dissolution of
the Soviet Union; (8) the financial condition of Russian companies, including
large amounts of inter-company debt which may create a payments crisis on a
national scale; (9) dependency on exports and the corresponding importance of
international trade; (10) the risk that the Russian tax system will not be
reformed to prevent inconsistent, retroactive and/or exorbitant taxation; and
(11) possible difficulty in identifying a purchaser of securities held by a Fund
due to the underdeveloped nature of the securities markets.
There is little historical data on Russian securities markets because
they are relatively new and a substantial proportion of securities transactions
in Russia are privately negotiated outside of stock exchanges. Because of the
recent formation of the securities markets as well as the underdeveloped state
of the banking and telecommunications systems, settlement, clearing and
registration of securities transactions are subject to significant risks.
Ownership of shares (except where shares are held through depositories that meet
the requirements of the 1940 Act) is defined according to entries in the
company's share register and normally evidenced by extracts from the register or
by formal share certificates. However, there is no central registration system
for shareholders and these services are carried out by the companies themselves
or by registrars located throughout Russia. These registrars are not necessarily
subject to effective state supervision and it is possible for a Fund to lose its
registration through fraud, negligence or even mere oversight. While a Fund will
endeavor to ensure that its interest continues to be appropriately recorded
either itself or through a custodian or other agent inspecting the share
register and by obtaining extracts of share registers through regular
confirmations, these extracts have no legal enforceability and it is possible
that subsequent illegal amendment or other fraudulent act may deprive the Fund
of its ownership rights or improperly
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<PAGE>
dilute its interests. In addition, while applicable Russian regulations impose
liability on registrars for losses resulting from their errors, it may be
difficult for a Fund to enforce any rights it may have against the registrar or
issuer of the securities in the event of loss of share registration.
Furthermore, although a Russian public enterprise with more than 1,000
shareholders is required by law to contract out the maintenance of its
shareholder register to an independent entity that meets certain criteria, in
practice this regulation has not always been strictly enforced. Because of this
lack of independence, management of a company may be able to exert considerable
influence over who can purchase and sell the company's shares by illegally
instructing the registrar to refuse to record transactions in the share
register. This practice may prevent a Fund from investing in the securities of
certain Russian companies deemed suitable by the Investment Manager. Further,
this also could cause a delay in the sale of Russian company securities by a
Fund if a potential purchaser is deemed unsuitable, which may expose the Fund to
potential loss on the investment.
Each Fund endeavors to buy and sell foreign currencies on as favorable
a basis as practicable. Some price spread in currency exchange (to cover service
charges) will be incurred, particularly when a Fund changes investments from one
country to another or when proceeds of the sale of Shares in U.S. dollars are
used for the purchase of securities in foreign countries. Also, some countries
may adopt policies which would prevent a Fund from transferring cash out of the
country or withhold portions of interest and dividends at the source. There is
the possibility of cessation of trading on national exchanges, expropriation,
nationalization or confiscatory taxation, withholding and other foreign taxes on
income or other amounts, foreign exchange controls (which may include suspension
of the ability to transfer currency from a given country), default in foreign
government securities, political or social instability, or diplomatic
developments which could affect investments in securities of issuers in foreign
nations.
Either Fund may be affected either unfavorably or favorably by
fluctuations in the relative rates of exchange between the currencies of
different nations, by exchange control regulations and by indigenous economic
and political developments. Some countries in which a Fund may invest may also
have fixed or managed currencies that are not free-floating against the U.S.
dollar. Further, certain currencies may not be internationally traded. Certain
of these currencies have experienced a steady devaluation relative to the U.S.
dollar. Any devaluations in the currencies in which a Fund's portfolio
securities are denominated may have a detrimental impact on that Fund. Through
the flexible
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<PAGE>
policy of the Funds, the Investment Manager endeavors to avoid unfavorable
consequences and to take advantage of favorable developments in particular
nations where from time to time it places the investments of either Fund.
The exercise of this flexible policy may include decisions to purchase
securities with substantial risk characteristics and other decisions such as
changing the emphasis on investments from one nation to another and from one
type of security to another. Some of these decisions may later prove profitable
and others may not. No assurance can be given that profits, if any, will exceed
losses.
The Directors consider at least annually the likelihood of the
imposition by any foreign government of exchange control restrictions which
would affect the liquidity of either Fund's assets maintained with custodians in
foreign countries, as well as the degree of risk from political acts of foreign
governments to which such assets may be exposed. The Directors also consider the
degree of risk involved through the holding of portfolio securities in domestic
and foreign securities depositories (see "Investment Management and Other
Services -- Custodian and Transfer Agent"). However, in the absence of willful
misfeasance, bad faith or gross negligence on the part of the Investment
Manager, any losses resulting from the holding of either Fund's portfolio
securities in foreign countries and/or with securities depositories will be at
the risk of the Shareholders. No assurance can be given that the Directors'
appraisal of the risks will always be correct or that such exchange control
restrictions or political acts of foreign governments might not occur.
There are additional risks involved in stock index futures
transactions. These risks relate to World Fund's ability to reduce or eliminate
its futures positions, which will depend upon the liquidity of the secondary
markets for such futures. World Fund intends to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, but there is no assurance that a liquid secondary market will exist for
any particular contract at any particular time. Use of stock index futures for
hedging may involve risks because of imperfect correlations between movements in
the prices of the stock index futures on the one hand and movements in the
prices of the securities being hedged or of the underlying stock index on the
other. Successful use of stock index futures by World Fund for hedging purposes
also depends upon the Investment Manager's ability to predict correctly
movements in the direction of the market, as to which no assurance can be given.
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<PAGE>
There are several risks associated with transactions in options on
securities indices. For example, there are significant differences between the
securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its
objectives. A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when World Fund seeks
to close out an option position. If World Fund were unable to close out an
option that it had purchased on a securities index, it would have to exercise
the option in order to realize any profit or the option may expire worthless. If
trading were suspended in an option purchased by World Fund, it would not be
able to close out the option. If restrictions on exercise were imposed, World
Fund might be unable to exercise an option it has purchased. Except to the
extent that a call option on an index written by World Fund is covered by an
option on the same index purchased by World Fund, movements in the index may
result in a loss to World Fund; however, such losses may be mitigated by changes
in the value of World Fund's securities during the period the option was
outstanding.
TRADING POLICIES. The Investment Manager and its affiliated companies
serve as investment adviser to other investment companies and private clients.
Accordingly, the respective portfolios of certain of these funds and clients may
contain many or some of the same securities. When certain funds or clients are
engaged simultaneously in the purchase or sale of the same security, the trades
may be aggregated for execution and then allocated in a manner designed to be
equitable to each party. The larger size of the transaction may affect the price
of the security and/or the quantity which may be bought or sold for each party.
If the transaction is large enough, brokerage commissions in certain countries
may be negotiated below those otherwise chargeable.
Sale or purchase of securities, without payment of brokerage
commissions, fees (except customary transfer fees) or other remuneration in
connection therewith, may be effected between any of these funds, or between
funds and private clients, under procedures adopted pursuant to Rule 17a-7 under
the 1940 Act.
PERSONAL SECURITIES TRANSACTIONS. Access persons of the
Franklin Templeton Group, as defined in SEC Rule 17(j) under the
1940 Act, who are employees of Franklin Resources, Inc. or their
subsidiaries, are permitted to engage in personal securities
transactions subject to the following general restrictions and
procedures: (1) The trade must receive advance clearance from a
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<PAGE>
Compliance Officer and must be completed within 24 hours after this clearance;
(2) Copies of all brokerage confirmations must be sent to the Compliance Officer
and within 10 days after the end of each calendar quarter, a report of all
securities transactions must be provided to the Compliance Officer; (3) In
addition to items (1) and (2), access persons involved in preparing and making
investment decisions must file annual reports of their securities holdings each
January and also inform the Compliance Officer (or other designated personnel)
if they own a security that is being considered for a fund or other client
transaction or if they are recommending a security in which they have an
ownership interest for purchase or sale by a fund or other client.
MANAGEMENT OF THE COMPANY
The name, address, principal occupation during the past five years and
other information with respect to each of the Directors and Executive Officers
of the Company are as follows:
NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH COMPANY DURING PAST FIVE YEARS
HARRIS J. ASHTON
Metro Center
1 Station Place
Stamford, Connecticut
Director
Chairman of the Board, president
and chief executive officer of
General Host Corporation (nursery
and craft centers); and a director
of RBC Holdings (U.S.A.) Inc. (a
bank holding company) and Bar-S
Foods. Age 63.
NICHOLAS F. BRADY*
The Bullitt House
102 East Dover Street
Easton, Maryland
Director
Chairman of Templeton Emerging Markets Investment Trust PLC; chairman
of Templeton Latin America Investment Trust PLC; chairman of Darby Overseas
Investments, Ltd. (an investment firm) (1994- present); director of the Amerada
Hess Corporation, Capital Cities/ABC, Inc., Christiana Companies, and the H.J.
Heinz Company; Secretary of the United States Department of the Treasury
(1988-January 1993); and chairman of the board of Dillon, Read & Co. Inc.
(investment banking) prior thereto. Age 65.
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<PAGE>
NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH COMPANY DURING PAST FIVE YEARS
F. BRUCE CLARKE
19 Vista View Blvd.
Thornhill, Ontario
Director
Retired; formerly, credit adviser for the National Bank of Canada.
Age 85.
HASSO-G VON DIERGARDT-NAGLO
R.R. 3
Stouffville, Ontario
Director
Farmer; and president of Clairhaven
Investments, Ltd. and other private
investment companies. Age 79.
S. JOSEPH FORTUNATO
200 Campus Drive
Florham Park, New Jersey
Director
Member of the law firm of Pitney,
Hardin, Kipp & Szuch; and a
director of General Host
Corporation. Age 63.
JOHN Wm. GALBRAITH
360 Central Avenue
Suite 1300
St. Petersburg, Florida
Director
President of Galbraith Properties,
Inc. (personal investment company);
director of Gulfwest Banks, Inc.
(bank holding company) (1995-
present) and Mercantile Bank (1991-
present); vice chairman of
Templeton, Galbraith & Hansberger
Ltd. (1986-1992); and chairman of
Templeton Funds Management, Inc.
(1974-1991). Age 74.
ANDREW H. HINES, JR.
150 2nd Avenue N.
St. Petersburg, Florida
Director
Consultant for the Triangle Consulting Group; chairman of the board
and chief executive officer of Florida Progress Corporation (1982-February 1990)
and director of various of its subsidiaries; chairman and director of Precise
Power Corporation; executive-in-residence of Eckerd College (1991- present); and
a director of Checkers Drive-In Restaurants, Inc.
Age 72.
- 17 -
<PAGE>
NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH COMPANY DURING PAST FIVE YEARS
CHARLES B. JOHNSON*
777 Mariners Island Blvd.
San Mateo, California
Chairman of the Board
and Vice President
President, chief executive officer, and director of Franklin Resources, Inc.;
chairman of the board and director of Franklin Advisers, Inc. and Franklin
Templeton Distributors, Inc.; director of General Host Corporation, and
Templeton Global Investors, Inc.; and officer and director, trustee or managing
general partner, as the case may be, of most other subsidiaries of Franklin and
of 55 of the investment companies in the Franklin Templeton Group. Age 62.
RUPERT H. JOHNSON, JR.*
777 Mariners Island Blvd.
San Mateo, California
Director
Executive vice president and director of Franklin Resources, Inc.;
president and director of Franklin Advisers, Inc.; executive vice president and
director of Franklin Templeton Distributors, Inc.; and officer and/or director,
trustee or managing general partner, as the case may be, of most other
subsidiaries of Franklin, and of 42 of the investment companies in the Franklin
Templeton Group. Age 55.
BETTY P. KRAHMER
2201 Kentmere Parkway
Wilmington, Delaware
Director
Director or trustee of various
civic associations; formerly,
economic analyst, U.S. Government.
Age 66.
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<PAGE>
NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH COMPANY DURING PAST FIVE YEARS
GORDON S. MACKLIN
8212 Burning Tree Road
Bethesda, Maryland
Director
Chairman of White River Corporation (information services); director of Fund
America Enterprises Holdings, Inc., Lockheed Martin Corporation, MCI
Communications Corporation, Fusion Systems Corporation, Infovest Corporation,
and Medimmune, Inc.; formerly, chairman of Hambrecht and Quist Group, director
of H&Q Healthcare Investors, and president of the National Association of
Securities Dealers, Inc. Age 67.
FRED R. MILLSAPS
2665 NE 37th Drive
Fort Lauderdale, Florida
Director
Manager of personal investments (1978-present); chairman and chief executive
officer of Landmark Banking Corporation (1969-1978); financial vice president of
Florida Power and Light (1965-1969); vice president of The Federal Reserve Bank
of Atlanta (1958-1965); and a director of various other business and nonprofit
organizations. Age 66.
MARK G. HOLOWESKO
Lyford Cay
Nassau, Bahamas
President
President and director of Templeton Global Advisors Limited; chief investment
officer of global equity research for Templeton Worldwide, Inc.; president or
vice president of the Templeton Funds; formerly, investment administrator with
Roy West Trust Corporation (Bahamas) Limited (1984-1985). Age 35.
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<PAGE>
NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH COMPANY DURING PAST FIVE YEARS
MARTIN L. FLANAGAN
777 Mariners Island Blvd.
San Mateo, California
Vice President
Senior vice president, treasurer and chief financial officer of
Franklin Resources, Inc.; director and executive vice president of Templeton
Investment Counsel, Inc.; director, president and chief executive officer of
Templeton Global Investors, Inc.; president or vice president of various
Templeton Funds; director or trustee of six Templeton Funds; accountant, Arthur
Andersen & Company (1982-1983); and a member of the International Society of
Financial Analysts and the American Institute of Certified Public Accountants.
Age 35.
JOHN R. KAY
500 East Broward Blvd.
Fort Lauderdale, Florida
Vice President
Vice president of the Templeton Funds; vice president and
treasurer of Templeton Global Investors, Inc. and Templeton Worldwide, Inc.;
assistant vice president of Franklin Templeton Distributors, Inc.; formerly,
vice president and controller of the Keystone Group, Inc. Age 55.
JAMES R. BAIO
500 East Broward Blvd.
Fort Lauderdale, Florida
Treasurer
Certified public accountant; treasurer of the Templeton Funds;
senior vice president of Templeton Worldwide, Inc., Templeton Global Investors,
Inc., and Templeton Funds Trust Company; formerly, senior tax manager of Ernst &
Young (certified public accountants) (1977-1989). Age 41.
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<PAGE>
THOMAS M. MISTELE
700 Central Avenue
St. Petersburg, Florida
Secretary
Senior vice president of Templeton Global Investors, Inc.; vice president of
Franklin Templeton Distributors, Inc.; formerly, secretary of the Templeton
Funds; attorney, Dechert Price & Rhoads (1985-1988) and Freehill, Hollingdale &
Page (1988); and judicial clerk, U.S. District Court (Eastern District of
Virginia) (1984-1985). Age 42.
JEFFREY L. STEELE
1500 K Street, N.W.
Washington, D.C.
Assistant Secretary
Partner, Dechert Price & Rhoads.
Age 50.
- - --------------------
* These Directors are "interested persons" of the Company as
that term is defined in the 1940 Act. Mr. Brady and
Franklin Resources, Inc. are limited partners of Darby
Overseas Partners, L.P. ("Darby Overseas"). Mr. Brady
established Darby Overseas in February, 1994, and is
Chairman and a shareholder of the corporate general partner
of Darby Overseas. In addition, Darby Overseas and
Templeton Global Advisors Limited are limited partners of
Darby Emerging Markets Fund, L.P.
There are no family relationships between any of the Directors, except
that Messrs. Charles B. Johnson and Rupert H.
Johnson, Jr. are brothers.
DIRECTOR COMPENSATION
All of the Company's Officers and Directors also hold positions with
other investment companies in the Franklin Templeton Group. No compensation is
paid by the Company to any officer or Director who is an officer, trustee or
employee of the Investment Manager or its affiliates. Each Templeton Fund pays
its independent directors and trustees and Mr. Brady an annual retainer and/or
fees for attendance at Board and Committee meetings, the amount of which is
based on the level of assets in each fund. Accordingly, the Company currently
pays the independent Directors and Mr. Brady an annual retainer of $12,500
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<PAGE>
and a fee of $950 per meeting attended of the Board and its Committees. The
independent Directors and Mr. Brady are reimbursed for any expenses incurred in
attending meetings, paid pro rata by each Franklin Templeton Fund in which they
serve. No pension or retirement benefits are accrued as part of Company
expenses.
The following table shows the total compensation paid to the Directors
by the Company and by all investment companies in the Franklin Templeton Group:
<TABLE>
<CAPTION>
Number of Total Compensation
Aggregate Franklin Templeton from all Fund in
Name of Compensation Fund Boards on which Franklin Templeton
DIRECTOR FROM THE COMPANY* DIRECTOR SERVES GROUP**
- - -------- ----------------- -------------------- ---------------
<S> <C> <C> <C>
Harris J. Ashton $14,225 56 $ 327,925
Nicholas F. Brady 14,225 24 98,225
F. Bruce Clarke 16,225 20 83,350
Hasso G. von Diergardt-Naglo 14,225 20 77,350
S. Joseph Fortunato 14,225 58 344,745
John Wm. Galbraith 4,075 23 70,100
Andrew H. Hines, Jr. 16,225 24 106,325
Betty P. Krahmer 14,225 24 93,475
Gordon S. Macklin 14,225 53 321,525
Fred R. Millsaps 16,225 24 104,325
</TABLE>
- - ---------------
* For the fiscal year ended August 31, 1995.
** For the calendar year ended December 31, 1995
PRINCIPAL SHAREHOLDERS
As of December 1, 1995, there were 394,994,390 World Fund Shares
outstanding, of which 912,183 Shares (or 0.231% of the total outstanding World
Fund Shares) were owned beneficially by all the Directors and Officers of the
Company as a group. As of December 1, 1995, no person owned of record or, to the
knowledge of management, owned beneficially or of record, 5% or more of the
outstanding World Fund-Class I Shares, and no person owned of record or, to the
knowledge of management, owned beneficially, 5% or more of the outstanding World
Fund-Class II Shares, except Merrill Lynch, Pierce, Fenner & Smith, Inc., 4800
Deer Lake Drive East, Jacksonville, Florida 32246-6484 owned of record 145,954
Shares (representing 14% of the outstanding Shares). As of December 1, 1995,
there were 790,763,336 Foreign Fund Shares
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<PAGE>
outstanding, of which 653,565 Shares (or 0.083% of the total outstanding Foreign
Fund Shares) were owned beneficially by all the Directors and officers of the
Company as a group. As of December 1, 1995, to the knowledge of management, no
person owned beneficially of record 5% or more of the outstanding Foreign
Fund-Class I Shares, except Merrill Lynch, Pierce, Fenner & Smith, Inc., 4800
Deer Lake Drive East, P.O. Box 45286, Jacksonville, Florida 32246-6484 owned of
record 48,828,748 Shares (representing 6% of the outstanding Shares) and no
person owned beneficially 5% or more of the outstanding Foreign Fund-Class II
Shares, except Merrill Lynch, Pierce, Fenner & Smith, Inc., 4800 Deer Lake Drive
East, P.O. Box 45286, Jacksonville, Florida 32246-6484 owned 3,858,566 Shares
(representing 25% of the outstanding Shares).
INVESTMENT MANAGEMENT AND OTHER SERVICES
INVESTMENT MANAGEMENT AGREEMENTS. The Investment Manager of each Fund
is Templeton Global Advisors Limited, a Bahamian corporation with offices in
Nassau, Bahamas. On October 30, 1992, the Investment Manager assumed the
investment management duties of Templeton, Galbraith & Hansberger Ltd. ("Old
TGH"), a Cayman Islands corporation, with respect to the Funds in connection
with the merger of the business of Old TGH with that of Franklin Resources, Inc.
("Franklin"). The Investment Management Agreements between the Investment
Manager and the Company on behalf of World Fund and Foreign Fund, dated October
30, 1992, amended and restated December 6, 1994, was approved by the
Shareholders of each Fund on October 30, 1992, and was last approved by the
Board of Directors, including approval by a majority of the Directors who were
not parties to the Investment Management Agreements or interested persons of any
such party, at a meeting on December 5, 1995 and will continue through December
31, 1996.
The Investment Management Agreements will continue from year to year
thereafter, subject to approval annually by the Board of Directors or by vote of
a majority of the outstanding Shares of each Fund (as defined in the 1940 Act)
and also, in either event, with the approval of a majority of those Directors
who are not parties to the Agreements or interested persons of any such party in
person at a meeting called for the purpose of voting on such approval.
Each Investment Management Agreement requires the Investment Manager to
manage the investment and reinvestment of each Fund's assets. The Investment
Manager is not required to furnish any personnel, overhead items or facilities
for the Funds, including daily pricing or trading desk facilities, although such
expenses are paid by investment advisers of some other investment
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<PAGE>
companies. These expenses have been and may continue to be borne
by the Funds.
Each Investment Management Agreement provides that the Investment
Manager will select brokers and dealers for execution of each Fund's portfolio
transactions consistent with the Company's brokerage policies (see "Brokerage
Allocation"). Although the services provided by broker-dealers in accordance
with the brokerage policies incidentally may help reduce the expenses of or
otherwise benefit the Investment Manager and other investment advisory clients
of the Investment Manager and of its affiliates, as well as the Funds, the value
of such services is indeterminable and the Investment Manager's fee is not
reduced by any offset arrangement by reason thereof.
The Investment Manager renders its services to the Funds from outside
the United States. When the Investment Manager determines to buy or sell the
same securities for a Fund that the Investment Manager or certain of its
affiliates have selected for one or more of the Investment Manager's other
clients or for clients of its affiliates, the orders for all such securities
trades may be placed for execution by methods determined by the Investment
Manager, with approval by the Company's Board of Directors, to be impartial and
fair, in order to seek good results for all parties (see "Investment Objectives
and Policies--Trading Policies"). Records of securities transactions of persons
who know when orders are placed by a Fund are available for inspection at least
four times annually by the Compliance Officer of the Company so that the
non-interested Directors (as defined in the 1940 Act) can be satisfied that the
procedures are generally fair and equitable for all parties.
The Investment Manager also provides management services to numerous
other investment companies or funds and accounts pursuant to management
agreements with each fund or account. The Investment Manager may give advice and
take action with respect to any of the other funds and accounts it manages, or
for its own account, which may differ from action taken by the Investment
Manager on behalf of a Fund. Similarly, with respect to a Fund, the Investment
Manager is not obligated to recommend, purchase or sell, or to refrain from
recommending, purchasing or selling any security that the Investment Manager and
access persons, as defined by the 1940 Act, may purchase or sell for its or
their own account or for the accounts of any other fund or account. Furthermore,
the Investment Manager is not obligated to refrain from investing in securities
held by a Fund or other funds or accounts which it manages or administers. Any
transactions for the accounts of the Investment Manager and other access persons
will be made in compliance with the Company's Code of Ethics as
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<PAGE>
described in section "Investment Objectives and Policies --
Personal Securities Transactions."
Each Investment Management Agreement further provides that the
Investment Manager shall have no liability to the Company, a Fund or any
Shareholder of a Fund for any error of judgment, mistake of law, or any loss
arising out of any investment or other act or omission in the performance by the
Investment Manager of its duties under the Agreement or for any loss or damage
resulting from the imposition by any government of exchange control restrictions
which might affect the liquidity of a Fund's assets, or from acts or omissions
of custodians or securities depositories, or from any wars or political acts of
any foreign governments to which such assets might be exposed, except for any
liability, loss or damage resulting from willful misfeasance, bad faith or gross
negligence on the Investment Manager's part or reckless disregard of its duties
under the Investment Management Agreement. Each Investment Management Agreement
will terminate automatically in the event of its assignment, and may be
terminated by the Company on behalf of a Fund at any time without payment of any
penalty on 60 days' written notice, with the approval of a majority of the
Directors of the Company in office at the time or by vote of a majority of the
outstanding Shares of a Fund (as defined by the 1940 Act).
MANAGEMENT FEES. For its services, each Fund pays the Investment
Manager a monthly fee equal on an annual basis to 0.75% of the average daily net
assets of the Fund up to the first $200,000,000, reduced to a fee of 0.675% of
such average daily net assets in excess of $200,000,000 up to $1,300,000,000,
and further reduced to a fee of 0.60% of such average daily net assets in excess
of $1,300,000,000. Each class of Shares pays a portion of the fee, determined by
the proportion of the Fund that it represents. During the fiscal years ended
August 31, 1995, 1994 and 1993, the Investment Manager received fees from World
Fund of $33,261,874, $31,051,062, and $25,931,668, respectively, and from
Foreign Fund of $36,110,792, $23,889,119, and $12,676,159, respectively,
pursuant to the Investment Management Agreements.
The amount of such fee would be reduced by the amount by which a Fund's
annual expenses for all purposes (including the investment management fee)
except taxes, brokerage fees and commissions, and extraordinary expenses such as
litigation, exceed any applicable state regulations. The strictest rule
currently applicable to a Fund is 2.5% of the first $30,000,000 of net assets,
2.0% of the next $70,000,000 of net assets and 1.5% of the remainder.
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THE INVESTMENT MANAGER. The Investment Manager is an
indirect wholly owned subsidiary of Franklin, a publicly traded
company whose shares are listed on the NYSE. Charles B. Johnson
(a Director and Officer of the Fund) and Rupert H. Johnson, Jr.
(a Director of the Fund) are principal shareholders of Franklin
and own, respectively, approximately 20% and 16% of its
outstanding shares. Messrs. Charles B. Johnson and Rupert H.
Johnson, Jr. are brothers.
BUSINESS MANAGER. Templeton Global Investors, Inc. performs
certain administrative functions for the Company including:
o providing office space, telephone, office equipment and
supplies for the Company;
o paying all compensation of the Company's officers;
o authorizing expenditures and approving bills for
payment on behalf of the Company;
o supervising preparation of annual and semiannual reports to
Shareholders, notices of dividends, capital gain distributions
and tax credits, and attending to correspondence and other
communications with individual Shareholders;
o daily pricing of each Fund's investment portfolio and
preparing and supervising publication of daily quotations of
the bid and asked prices of each Fund's Shares, earnings
reports and other financial data;
o monitoring relationships with organizations serving the
Company, including the custodian and printers;
o providing trading desk facilities to the Company;
o supervising compliance by the Company and each Fund
with recordkeeping requirements under the 1940 Act and
regulations thereunder, and with state regulatory
requirements; maintaining books and records for the
Company and each Fund (other than those maintained by
the Custodian and Transfer Agent); and preparing and
filing tax reports other than the Funds' income tax
returns;
o monitoring the qualifications of the tax-deferred
retirement plans offered by the Company; and
o providing executive, clerical and secretarial help
needed to carry out these responsibilities.
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For its services, the Business Manager receives a monthly fee equal on
an annual basis to 0.15% of the first $200,000,000 of the Company's aggregate
average daily net assets (I.E., total of World Fund and Foreign Fund), reduced
to 0.135% annually of the Company's aggregate net assets in excess of
$200,000,000, further reduced to 0.1% annually of such net assets in excess of
$700,000,000, and further reduced to a fee of 0.075% annually of such net assets
in excess of $1,200,000,000. The fee is allocated between World Fund and Foreign
Fund according to their respective average daily net assets. Each class of
Shares pays a portion of the fee, determined by the proportion of the Fund that
it represents. Since the Business Manager's fee covers services often provided
by investment advisers to other funds, each Fund's combined expenses for
advisory and administrative services may be higher than those of other
investment companies. During the fiscal years ended August 31, 1995, 1994, and
1993, the Business Manager (and, prior to April 1, 1993, Templeton Funds
Management, Inc., the previous business manager) received business management
fees of $8,965,630, $7,161,271, and $5,119,730, respectively.
The Business Manager is relieved of liability to the Company for any
act or omission in the course of its performance under the Business Management
Agreement in the absence of willful misfeasance, bad faith or gross negligence.
The Business Management Agreement may be terminated by the Company at any time
on 60 days' written notice without payment of penalty, provided that such
termination by the Company shall be directed or approved by vote of a majority
of the Directors of the Company in office at the time or by vote of a majority
of the outstanding voting securities of the Company (as defined by the 1940
Act), and shall terminate automatically and immediately in the event of its
assignment.
Templeton Global Investors, Inc. is an indirect wholly owned
subsidiary of Franklin.
CUSTODIAN AND TRANSFER AGENT. The Chase Manhattan Bank, N.A. serves as
Custodian of the Funds' assets, which are maintained at the Custodian's
principal office, MetroTech Center, Brooklyn, New York 11245, and at the offices
of its branches and agencies throughout the world. The Custodian has entered
into agreements with foreign sub-custodians approved by the Directors pursuant
to Rule 17f-5 under the 1940 Act. The Custodian, its branches and sub-custodians
generally do not hold certificates for the securities in their custody, but
instead have book records with domestic and foreign securities depositories,
which in turn have book records with the transfer agents of the issuers of the
securities. Compensation for the services of the Custodian is based on a
schedule of charges agreed on from time to time.
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Franklin Templeton Investor Services, Inc. serves as the Company's
Transfer Agent. Services performed by the Transfer Agent include processing
purchase, transfer and redemption orders; making dividend payments, capital gain
distributions and reinvestments; and handling all routine communications with
Shareholders. The Transfer Agent receives from the Company an annual fee of
$13.74 per Shareholder account plus out-of-pocket expenses, such fee to be
adjusted each year to reflect changes in the Department of Labor Consumer Price
Index.
LEGAL COUNSEL. Dechert Price & Rhoads, 1500 K Street, N.W.,
Washington, D.C. 20005, is legal counsel for the Company.
INDEPENDENT ACCOUNTANTS. The firm of McGladrey & Pullen, LLP, 555 Fifth
Avenue, New York, New York 10017, serves as independent accountants for the
Company. Its audit services comprise examination of the Funds' financial
statements and review of the Funds' filings with the Securities and Exchange
Commission ("SEC") and the Internal Revenue Service ("IRS").
REPORTS TO SHAREHOLDERS. The Company's fiscal year ends on August 31.
Shareholders will be provided at least semiannually with reports showing the
portfolio of each Fund and other information, including an annual report with
financial statements audited by the independent accountants. Shareholders who
would like to receive an interim quarterly report may phone the Fund Information
Department at 1-800/DIAL BEN.
BROKERAGE ALLOCATION
The Investment Management Agreements provide that the Investment
Manager is responsible for selecting members of securities exchanges, brokers
and dealers (such members, brokers and dealers being hereinafter referred to as
"brokers") for the execution of the Company's portfolio transactions and, when
applicable, the negotiation of commissions in connection therewith. All
decisions and placements are made in accordance with the following principles:
1. Purchase and sale orders will usually be placed with
brokers who are selected by the Investment Manager as
able to achieve "best execution" of such orders. "Best
execution" means prompt and reliable execution at the
most favorable securities price, taking into account
the other provisions hereinafter set forth. The
determination of what may constitute best execution and
price in the execution of a securities transaction by a
broker involves a number of considerations, including
without limitation, the overall direct net economic
result to a Fund (involving both price paid or received
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<PAGE>
and any commissions and other costs paid), the efficiency with
which the transaction is effected, the ability to effect the
transaction at all where a large block is involved,
availability of the broker to stand ready to execute possibly
difficult transactions in the future, and the financial
strength and stability of the broker. Such considerations are
judgmental and are weighed by the Investment Manager in
determining the overall reasonableness of brokerage
commissions.
2. In selecting brokers for portfolio transactions, the
Investment Manager takes into account its past experience as
to brokers qualified to achieve "best execution," including
brokers who specialize in any foreign securities held by a
Fund.
3. The Investment Manager is authorized to allocate
brokerage business to brokers who have provided
brokerage and research services, as such services are
defined in Section 28(e) of the Securities Exchange Act
of 1934 (the "1934 Act"), for the Company and/or other
accounts, if any, for which the Investment Manager
exercises investment discretion (as defined in Section
3(a)(35) of the 1934 Act) and, as to transactions as to
which fixed minimum commission rates are not
applicable, to cause a Fund to pay a commission for
effecting a securities transaction in excess of the
amount another broker would have charged for effecting
that transaction, if the Investment Manager determines
in good faith that such amount of commission is
reasonable in relation to the value of the brokerage
and research services provided by such broker, viewed
in terms of either that particular transaction or the
Investment Manager's overall responsibilities with
respect to the Company and the other accounts, if any,
as to which it exercises investment discretion. In
reaching such determination, the Investment Manager is
not required to place or attempt to place a specific
dollar value on the research or execution services of a
broker or on the portion of any commission reflecting
either of said services. In demonstrating that such
determinations were made in good faith, the Investment
Manager shall be prepared to show that all commissions
were allocated and paid for purposes contemplated by
the Company's brokerage policy; that commissions were
paid only for products or services which provide lawful
and appropriate assistance to the Investment Manager in
the performance of its investment decision-making
responsibilities; and that the commissions paid were
within a reasonable range. The determination that
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<PAGE>
commissions were within a reasonable range shall be based on
any available information as to the level of commissions known
to be charged by other brokers on comparable transactions, but
there shall be taken into account the Company's policies that
(i) obtaining a low commission is deemed secondary to
obtaining a favorable securities price, since it is recognized
that usually it is more beneficial to a Fund to obtain a
favorable price than to pay the lowest commission; and (ii)
the quality, comprehensiveness and frequency of research
studies which are provided for the Company and the Investment
Manager are useful to the Investment Manager in performing its
advisory services under its Investment Management Agreements
with the Company. Research services provided by brokers to the
Investment Manager are considered to be in addition to, and
not in lieu of, services required to be performed by the
Investment Manager under its Investment Management Agreements.
Research furnished by brokers through whom the Company effects
securities transactions may be used by the Investment Manager
for any of its accounts, and not all such research may be used
by the Investment Manager for the Company. When execution of
portfolio transactions is allocated to brokers trading on
exchanges with fixed brokerage commission rates, account may
be taken of various services provided by the broker, including
quotations outside the United States for daily pricing of
foreign securities held in a Fund's portfolio.
4. Purchases and sales of portfolio securities within the United
States other than on a securities exchange shall be executed
with primary market makers acting as principal except where,
in the judgment of the Investment Manager, better prices and
execution may be obtained on a commission basis or from other
sources.
5. Sales of the Funds' Shares (which shall be deemed to
include also shares of other investment companies
registered under the 1940 Act which have either the
same investment adviser or an investment adviser
affiliated with the Funds' Investment Manager) made by
a broker are one factor among others to be taken into
account in deciding to allocate portfolio transactions
(including agency transactions, principal transactions,
purchases in underwritings or tenders in response to
tender offers) for the account of a Fund to that
broker; provided that the broker shall furnish "best
execution" as defined in paragraph 1 above, and that
such allocation shall be within the scope of a Funds
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<PAGE>
policies as stated above; and provided further, that in every
allocation made to a broker in which the sale of Shares is
taken into account there shall be no increase in the amount of
the commissions or other compensation paid to such broker
beyond a reasonable commission or other compensation
determined, as set forth in paragraph 3 above, on the basis of
best execution alone or best execution plus research services,
without taking account of or placing any value upon such sale
of Shares.
Insofar as known to management, no Director or officer of the Company,
nor the Investment Manager or the Principal Underwriter or any person affiliated
with any of them, has any material direct or indirect interest in any broker
employed by or on behalf of the Company for either World Fund or Foreign Fund.
Franklin Templeton Distributors, Inc., the Principal Underwriter for the
Company, is a registered broker-dealer but has never executed any purchase or
sale transactions for either Fund's portfolio or participated in commissions on
any such transactions, and has no intention of doing so in the future. The total
brokerage commissions on World Fund's portfolio transactions during the fiscal
years ended August 31, 1995, 1994, and 1993 (not including any spreads or
concessions on principal transactions) were $8,042,091, $6,895,789, and
$4,751,804. The total brokerage commissions on Foreign Fund's portfolio
transactions during the fiscal years ended August 31, 1995, 1994, and 1993 (not
including any spreads or concessions on principal transactions) were
$11,925,138, $7,329,697, and $3,185,372. All portfolio transactions are
allocated to broker-dealers only when their prices and execution, in the good
faith judgment of the Investment Manager, are equal to the best available within
the scope of the Company's policies. There is no fixed method used in
determining which broker-dealers receive which order or how many orders.
PURCHASE, REDEMPTION AND PRICING OF SHARES
The Prospectuses describe the manner in which the Funds'
Shares may be purchased and redeemed. See "How to Buy Shares of
the Fund" and "How to Sell Shares of the Fund."
Net asset value is determined separately for each Fund. Net asset value
per Share is determined as of the scheduled closing of the NYSE (generally 4:00
p.m., New York time), every Monday through Friday (exclusive of national
business holidays). The Company's offices will be closed, and net asset value
will not be calculated, on those days on which the NYSE is closed, which
currently are: New Year's Day, Presidents' Day, Good Friday,
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Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Trading in securities on European and Far Eastern securities exchanges
and over-the-counter markets is normally completed well before the close of
business in New York on each day on which the NYSE is open. Trading of European
or Far Eastern securities generally, or in a particular country or countries,
may not take place on every New York business day. Furthermore, trading takes
place in various foreign markets on days which are not business days in New York
and on which a Fund's net asset value is not calculated. Each Fund calculates
net asset value per Share, and therefore effects sales, redemptions and
repurchases of its Shares, as of the close of the NYSE once on each day on which
that Exchange is open. Such calculation does not take place contemporaneously
with the determination of the prices of many of the portfolio securities used in
such calculation and if events occur which materially affect the value of those
foreign securities, they will be valued at fair market value as determined by
the management and approved in good faith by the Board of Directors.
The Board of Directors may establish procedures under which a Fund may
suspend the determination of net asset value for the whole or any part of any
period during which (1) the NYSE is closed other than for customary weekend and
holiday closings, (2) trading on the NYSE is restricted, (3) an emergency exists
as a result of which disposal of securities owned by either Fund is not
reasonably practicable or it is not reasonably practicable for either Fund
fairly to determine the value of its net assets, or (4) for such other period as
the SEC may by order permit for the protection of the holders of either Fund's
Shares.
OWNERSHIP AND AUTHORITY DISPUTES. In the event of disputes involving
multiple claims of ownership or authority to control a Shareholder's account,
each Fund has the right (but has no obligation) to: (1) freeze the account and
require the written agreement of all persons deemed by the Fund to have a
potential property interest in the account, prior to executing instructions
regarding the account; or (2) interplead disputed funds or accounts with a court
of competent jurisdiction. Moreover, the Funds may surrender ownership of all or
a portion of an account to the IRS in response to a Notice of Levy.
In addition to the special purchase plans described in the
Prospectuses, other special purchase plans also are available:
TAX-DEFERRED RETIREMENT PLANS. Each Fund offers its
Shareholders the opportunity to participate in the following
types of retirement plans:
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o For individuals whether or not covered by other
qualified plans;
o For simplified employee pensions;
o For employees of tax-exempt organizations; and
o For corporations, self-employed individuals and
partnerships.
Capital gains and income received by the foregoing plans generally are
exempt from taxation until distribution from the plans. Investors considering
participation in any such plan should review specific tax laws relating thereto
and should consult their attorneys or tax advisers with respect to the
establishment and maintenance of any such plan. Additional information,
including the fees and charges with respect to all of these plans, is available
upon request to the Principal Underwriter. No distribution under a retirement
plan will be made until Franklin Templeton Trust Company ("FTTC") receives the
participant's election on IRS Form W-4P (available on request from FTTC) and
such other documentation as it deems necessary, as to whether or not U.S. income
tax is to be withheld from such distribution.
INDIVIDUAL RETIREMENT ACCOUNT (IRA). All individuals (whether or not
covered by qualified private or governmental retirement plans) may purchase
Shares of either Fund pursuant to an IRA. However, contributions to an IRA by an
individual who is covered by a qualified private or governmental plan may not be
tax-deductible depending on the individual's income. Custodial services for IRAs
are available through FTTC. Disclosure statements summarizing certain aspects of
IRAs are furnished to all persons investing in such accounts, in accordance with
IRS regulations.
SIMPLIFIED EMPLOYEE PENSIONS (SEP-IRA). For employers who wish to
establish a simplified form of employee retirement program investing in Shares
of either Fund, there are available Simplified Employee Pensions invested in IRA
Plans. Details and materials relating to these Plans will be furnished upon
request to the Principal Underwriter.
RETIREMENT PLAN FOR EMPLOYEES OF TAX-EXEMPT ORGANIZATIONS (403(B)).
Employees of public school systems and certain types of charitable organizations
may enter into a deferred compensation arrangement for the purchase of Shares of
either Fund without being taxed currently on the investment. Contributions which
are made by the employer through salary reduction are excludable from the gross
income of the employee.
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<PAGE>
Such deferred compensation plans, which are intended to qualify under Section
403(b) of the Internal Revenue Code of 1986, as amended (the "Code"), are
available through the Principal Underwriter. Custodian services are provided by
FTTC.
QUALIFIED PLAN FOR CORPORATIONS, SELF-EMPLOYED INDIVIDUALS AND
PARTNERSHIPS. For employers who wish to purchase Shares of either Fund in
conjunction with employee retirement plans, there is a prototype master plan
which has been approved by the IRS. A "Section 401(k) plan" is also available.
FTTC furnishes custodial services for these plans. For further details,
including custodian fees and plan administration services, see the master plan
and related material which is available from the Principal Underwriter.
LETTER OF INTENT. Purchasers who intend to invest $50,000 or more in
Class I Shares of the Funds or any other fund in the Franklin Group of Funds and
the Templeton Family of Funds, except Templeton Capital Accumulator Fund, Inc.,
Templeton Variable Annuity Fund, Templeton Variable Products Series Fund,
Franklin Valuemark Funds and Franklin Government Securities Trust (the "Franklin
Templeton Funds"), within 13 months (whether in one lump sum or in installments,
the first of which may not be less than 5% of the total intended amount and each
subsequent installment not less than $25 unless the investor is a qualifying
employee benefit plan (the "Benefit Plan"), including automatic investment and
payroll deduction plans), and to beneficially hold the total amount of such
Class I Shares fully paid for and outstanding simultaneously for at least one
full business day before the expiration of that period, should execute a Letter
of Intent ("LOI") on the form provided in the Shareholder Application in the
Prospectus. Payment for not less than 5% of the total intended amount must
accompany the executed LOI unless the investor is a Benefit Plan. Except for
purchases of Shares by a Benefit Plan, those Class I Shares purchased with the
first 5% of the intended amount stated in the LOI will be held as "Escrowed
Shares" for as long as the LOI remains unfulfilled. Although the Escrowed Shares
are registered in the investor's name, his full ownership of them is conditional
upon fulfillment of the LOI. No Escrowed Shares can be redeemed by the investor
for any purpose until the LOI is fulfilled or terminated. If the LOI is
terminated for any reason other than fulfillment, the Transfer Agent will redeem
that portion of the Escrowed Shares required and apply the proceeds to pay any
adjustment that may be appropriate to the sales commission on all Class I Shares
(including the Escrowed Shares) already purchased under the LOI and apply any
unused balance to the investor's account. The LOI is not a binding obligation to
purchase any amount of Shares, but its execution will result in the purchaser
paying a lower sales charge at the appropriate quantity purchase level. A
purchase
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not originally made pursuant to an LOI may be included under a subsequent LOI
executed within 90 days of such purchase. In this case, an adjustment will be
made at the end of 13 months from the effective date of the LOI at the net asset
value per Share then in effect, unless the investor makes an earlier written
request to the Principal Underwriter upon fulfilling the purchase of Shares
under the LOI. In addition, the aggregate value of any Shares, including Class
II Shares, purchased prior to the 90-day period referred to above may be applied
to purchases under a current LOI in fulfilling the total intended purchases
under the LOI. However, no adjustment of sales charges previously paid on
purchases prior to the 90-day period will be made.
If an LOI is executed on behalf of a benefit plan (such plans are
described under "How to Buy Shares of the Fund -- Net Asset Value Purchases
(Both Classes)" in the Prospectus), the level and any reduction in sales charge
for these employee benefit plans will be based on actual plan participation and
the projected investments in the Franklin Templeton Funds under the LOI. Benefit
Plans are not subject to the requirement to reserve 5% of the total intended
purchase, or to any penalty as a result of the early termination of a plan, nor
are Benefit Plans entitled to receive retroactive adjustments in price for
investments made before executing LOIs.
SPECIAL NET ASSET VALUE PURCHASES. As discussed in the Prospectus under
"How to Buy Shares of the Fund -- Description of Special Net Asset Value
Purchases," certain categories of investors may purchase Class I Shares of a
Fund at net asset value (without a front-end or contingent deferred sales
charge). Franklin Templeton Distributors, Inc. ("FTD") or one of its affiliates
may make payments, out of its own resources, to securities dealers who initiate
and are responsible for such purchases, as indicated below. FTD may make these
payments in the form of contingent advance payments, which may require
reimbursement from the securities dealers with respect to certain redemptions
made within 12 months of the calendar month following purchase, as well as other
conditions, all of which may be imposed by an agreement between FTD, or its
affiliates, and the securities dealer.
The following amounts will be paid by FTD or one of its affiliates, out
of its own resources, to securities dealers who initiate and are responsible for
(i) purchases of most equity and fixed-income Franklin Templeton Funds made at
net asset value by certain designated retirement plans (excluding IRA and IRA
rollovers): 1.00% on sales of $1 million but less than $2 millon, plus 0.80% on
sales of $2 million but less than $3 million, plus 0.50% on sales of $3 million
but less than $50 million, plus 0.25% on sales of $50 million but less than $100
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million, plus 0.15% on sales of $100 million or more; and (ii) purchases of most
fixed-income Franklin Templeton Funds made at net asset value by non-designated
retirement plans: 0.75% on sales of $1 million but less than $2 million, plus
0.60% on sales of $2 million but less than $3 million, plus 0.50% on sales of $3
million but less than $50 million, plus 0.25% on sales of $50 million but less
than $100 million, plus 0.15% on sales of $100 million or more. These payment
breakpoints are reset every 12 months for purposes of additional purchases. With
respect to purchases made at net asset value by certain trust companies and
trust departments of banks and certain retirement plans of organizations with
collective retirement plan assets of $10 million or more, FTD, or one of its
affiliates, out of its own resources, may pay up to 1% of the amount invested.
Under agreements with certain banks in Taiwan, Republic of China, the
Funds' Shares are available to such banks' discretionary trust funds at net
asset value. The banks may charge service fees to their customers who
participate in the discretionary trusts. Pursuant to agreements, a portion of
such service fees may be paid to FTD, or an affiliate of FTD to help defray
expenses of maintaining a service office in Taiwan, including expenses related
to local literature fulfillment and communication facilities.
REDEMPTIONS IN KIND. Redemption proceeds are normally paid in cash;
however, the Fund may pay the redemption price in whole or in part by a
distribution in kind of securities from the portfolio of the Fund, in lieu of
cash, in conformity with applicable rules of the SEC. In such circumstances, the
securities distributed would be valued at the price used to compute the Fund's
net asses value. If shares are redeemed in kind, the redeeming Shareholder might
incur brokerage costs in converting the assets into cash. A Fund is obligated to
redeem Shares solely in cash up to the lesser $250,000 or 1% of its net assets
during any 90-day period for any one Shareholder.
TAX STATUS
Each of the Funds intends normally to pay a dividend at least once
annually representing substantially all of its net investment income (which
includes, among other items, dividends and interest) and to distribute at least
annually any realized capital gains. By so doing and meeting certain
diversification of assets and other requirements of the Code, each Fund intends
to qualify annually as a regulated investment company under the Code. The status
of the Funds as regulated investment companies does not involve government
supervision of management or of their investment practices or policies. As a
regulated investment company, a Fund generally will be relieved of liability for
U.S.
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<PAGE>
Federal income tax on that portion of its net investment income and net realized
capital gains which it distributes to its Shareholders. Amounts not distributed
on a timely basis in accordance with a calendar year distribution requirement
also are subject to a nondeductible 4% excise tax. To prevent application of the
excise tax, each Fund intends to make distributions in accordance with the
calendar year distribution requirement.
Dividends of net investment income and net short-term capital gains are
taxable to Shareholders as ordinary income. Distributions of net investment
income may be eligible for the corporate dividends-received deduction to the
extent attributable to a Fund's qualifying dividend income. However, the
alternative minimum tax applicable to corporations may reduce the benefit of the
dividends-received deduction. Distributions of net capital gains (the excess of
net long-term capital gains over net short-term capital losses) designated by a
Fund as capital gain dividends are taxable to Shareholders as long-term capital
gains, regardless of the length of time the Fund's Shares have been held by a
Shareholder, and are not eligible for the dividends-received deduction.
Generally, dividends and distributions are taxable to Shareholders, whether
received in cash or reinvested in Shares of a Fund. Any distributions that are
not from a Fund's investment company taxable income or net capital gain may be
characterized as a return of capital to Shareholders or, in some cases, as
capital gain. Shareholders will be notified annually as to the Federal tax
status of dividends and distributions they receive and any tax withheld thereon.
Distributions by a Fund reduce the net asset value of the Fund Shares.
Should a distribution reduce the net asset value below a Shareholder's cost
basis, the distribution nevertheless would be taxable to the Shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implication of
buying Shares just prior to a distribution by a Fund. The price of Shares
purchased at that time includes the amount of the forthcoming distribution, but
the distribution will generally be taxable to them.
Certain of the debt securities acquired by the Funds may be treated as
debt securities that were originally issued at a discount. Original issue
discount can generally be defined as the difference between the price at which a
security was issued and its stated redemption price at maturity. Although no
cash income is actually received by the Funds, original issue discount on a
taxable debt security earned in a given year generally is treated for Federal
income tax purposes as interest and,
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therefore, such income would be subject to the distribution
requirements of the Code.
Some of the debt securities may be purchased by the Funds at a discount
which exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for Federal income tax purposes.
The gain realized on the disposition of any taxable debt security having market
discount will be treated as ordinary income to the extent it does not exceed the
accrued market discount on such debt security. Generally, market discount
accrues on a daily basis for each day the debt security is held by a Fund at a
constant rate over the time remaining to the debt security's maturity or, at the
election of a Fund, at a constant yield to maturity which takes into account the
semi-annual compounding of interest.
A Fund may invest in stocks of foreign companies that are classified
under the Code as passive foreign investment companies ("PFICs"). In general, a
foreign company is classified as a PFIC if at least one-half of its assets
constitute investment-type assets or 75% or more of its gross income is
investment-type income. Under the PFIC rules, an "excess distribution" received
with respect to PFIC stock is treated as having been realized ratably over the
period during which a Fund held the PFIC stock. A Fund itself will be subject to
tax on the portion, if any, of the excess distribution that is allocated to that
Fund's holding period in prior taxable years (and an interest factor will be
added to the tax, as if the tax had actually been payable in such prior taxable
years) even though the Fund distributes the corresponding income to
Shareholders. Excess distributions include any gain from the sale of PFIC stock
as well as certain distributions from a PFIC. All excess distributions are
taxable as ordinary income.
A Fund may be able to elect alternative tax treatment with respect to
PFIC stock. Under an election that currently may be available, a Fund generally
would be required to include in its gross income its share of the earnings of a
PFIC on a current basis, regardless of whether any distributions are received
from the PFIC. If this election is made, the special rules, discussed above,
relating to the taxation of excess distributions, would not apply. In addition,
another election may be available that would involve marking to market the
Funds' PFIC shares at the end of each taxable year (and on certain other dates
prescribed in the Code), with the result that unrealized gains are treated as
though they were realized. If this election were made, tax at the fund level
under the PFIC rules would generally be eliminated, but the Funds could, in
limited circumstances, incur nondeductible interest charges. Each Fund's
intention to qualify
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annually as a regulated investment company may limit its elections with respect
to PFIC shares.
Because the application of the PFIC rules may affect, among other
things, the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC stock, as well as subject a Fund
itself to tax on certain income from PFIC stock, the amount that must be
distributed to Share-holders, and which will be taxed to Shareholders as
ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not invest in PFIC stock.
Income received by a Fund from sources within foreign countries may be
subject to withholding and other income or similar taxes imposed by such
countries. If more than 50% of the value of a Fund's total assets at the close
of its taxable year consists of securities of foreign corporations, that Fund
will be eligible and intends to elect to "pass through" to the Fund's
Shareholders the amount of foreign taxes paid by that Fund. Pursuant to this
election, a Shareholder will be required to include in gross income (in addition
to taxable dividends actually received) his pro rata share of the foreign taxes
paid by a Fund, and will be entitled either to deduct (as an itemized deduction)
his pro rata share of foreign income and similar taxes in computing his taxable
income or to use it as a foreign tax credit against his U.S. Federal income tax
liability, subject to limitations. No deduction for foreign taxes may be claimed
by a Shareholder who does not itemize deductions, but such a Shareholder may be
eligible to claim the foreign tax credit (see below). Each Shareholder will be
notified within 60 days after the close of the Funds' taxable year whether the
foreign taxes paid by a Fund will "pass through" for that year.
Generally, a credit for foreign taxes is subject to the limitation that
it may not exceed the Shareholder's U.S. tax attributable to his foreign source
taxable income. For this purpose, if the pass-through election is made, the
source of a Fund's income flows through to its Shareholders. With respect to a
Fund, gains from the sale of securities will be treated as derived from U.S.
sources and certain currency fluctuation gains, including fluctuation gains from
foreign currency-denominated debt securities, receivables and payables, will be
treated as ordinary income derived from U.S. sources. The limitation on the
foreign tax credit is applied separately to foreign source passive income (as
defined for purposes of the foreign tax credit), including the foreign source
passive income passed through by a Fund. Shareholders may be unable to claim a
credit for the full amount of their proportionate share of the foreign taxes
paid by a Fund. Foreign taxes may not be deducted in
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computing alternative minimum taxable income and the foreign tax credit can be
used to offset only 90% of the alternative minimum tax (as computed under the
Code for purposes of this limitation) imposed on corporations and individuals.
If a Fund is not eligible to make the election to "pass through" to its
Shareholders its foreign taxes, the foreign income taxes it pays generally will
reduce investment company taxable income and the distributions by a Fund will be
treated as United States source income.
Certain options and futures contracts in which World Fund may invest
are "section 1256 contracts." Gains or losses on section 1256 contracts
generally are considered 60% long-term and 40% short-term capital gains or
losses ("60/40"); however, foreign currency gains or losses (as discussed below)
arising from certain section 1256 contracts may be treated as ordinary income or
loss. Also, section 1256 contracts held by World Fund at the end of each taxable
year (and on certain other dates as prescribed under the Code) are
"marked-to-market" with the result that unrealized gains or losses are treated
as though they were realized.
Generally, the hedging transactions undertaken by World Fund may result
in "straddles" for U.S. Federal income tax purposes. The straddle rules may
affect the character of gains (or losses) realized by World Fund. In addition,
losses realized by World Fund on positions that are part of the straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which the losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences to World Fund of hedging transactions are
not entirely clear. The hedging transactions may increase the amount of
short-term capital gain realized by World Fund which is taxed as ordinary income
when distributed to Shareholders.
World Fund may make one or more of the elections available under the
Code which are applicable to straddles. If World Fund makes any of the
elections, the amount, character, and timing of the recognition of gains or
losses from the affected straddle positions will be determined under rules that
vary according to the election(s) made. The rules applicable under certain of
the elections may operate to accelerate the recognition of gains or losses from
the affected straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to Shareholders and which will be taxed to Shareholders as ordinary
income or
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long-term capital gain may be increased or decreased as compared to a fund that
did not engage in such hedging transactions.
Requirements relating to the World Fund's tax status as a regulated
investment company may limit the extent to which World Fund will be able to
engage in transactions in options and futures contracts.
Under the Code, gains or losses attributable to fluctuations in foreign
currency exchange rates which occur between the time a Fund accrues income or
other receivables or accrues expenses or other liabilities denominated in a
foreign currency and the time a Fund actually collects such receivables or pays
such liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and on disposition of certain financial contracts and options, gains or losses
attributable to fluctuations in the value of foreign currency between the date
of acquisition of the security or contract and the date of disposition also are
treated as ordinary gain or loss. These gains and losses, referred to under the
Code as "section 988" gains and losses, may increase or decrease the amount of a
Fund's net investment income to be distributed to its Shareholders as ordinary
income. For example, fluctuations in exchange rates may increase the amount of
income that a Fund must distribute in order to qualify for treatment as a
regulated investment company and to prevent application of an excise tax on
undistributed income. Alternatively, fluctuations in exchange rates may decrease
or eliminate income available for distribution. If section 988 losses exceed
other net investment income during a taxable year, a Fund would not be able to
make ordinary dividend distributions, or distributions made before the losses
were realized would be recharacterized as return of capital to Shareholders for
Federal income tax purposes, rather than as an ordinary dividend, reducing each
Shareholder's basis in his Fund Shares, or as a capital gain.
Upon the sale or exchange of his Shares, a Shareholder will realize a
taxable gain or loss depending upon his basis in the Shares. Such gain or loss
will be treated as capital gain or loss if the Shares are capital assets in the
Shareholder's hands, and generally will be long-term if the Shareholder's
holding period for the Shares is more than one year and generally otherwise will
be short-term. Any loss realized on a sale or exchange will be disallowed to the
extent that the Shares disposed of are replaced (including replacement through
the reinvesting of dividends and capital gain distributions in a Fund) within a
period of 61 days beginning 30 days before and ending 30 days after the
disposition of the Shares. In such a case, the basis of the Shares acquired will
be adjusted to
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reflect the disallowed loss. Any loss realized by a Shareholder on the sale of a
Fund's Shares held by the Shareholder for six months or less will be treated for
Federal income tax purposes as a long-term capital loss to the extent of any
distributions of long-term capital gains received by the Shareholder with
respect to such Shares.
In some cases, Shareholders will not be permitted to take sales charges
into account for purposes of determining the amount of gain or loss realized on
the disposition of their Shares. This prohibition generally applies where (1)
the Shareholder incurs a sales charge in acquiring the stock of a regulated
investment company, (2) the stock is disposed of before the 91st day after the
date on which it was acquired, and (3) the Shareholder subsequently acquires
shares of the same or another regulated investment company and the otherwise
applicable sales charge is reduced or eliminated under a "reinvestment right"
received upon the initial purchase of shares of stock. In that case, the gain or
loss recognized will be determined by excluding from the tax basis of the Shares
exchanged all or a portion of the sales charge incurred in acquiring those
Shares. This exclusion applies to the extent that the otherwise applicable sales
charge with respect to the newly acquired Shares is reduced as a result of
having incurred a sales charge initially. Sales charges affected by this rule
are treated as if they were incurred with respect to the stock acquired under
the reinvestment right. This provision may be applied to successive acquisitions
of stock.
Each Fund generally will be required to withhold Federal income tax at
a rate of 31% ("backup withholding") from dividends paid, capital gain
distributions, and redemption proceeds to Shareholders if (1) the Shareholder
fails to furnish a Fund with the Shareholder's correct taxpayer identification
number or social security number and to make such certifications as a Fund may
require, (2) the IRS notifies the Shareholder or a Fund that the Shareholder has
failed to report properly certain interest and dividend income to the IRS and to
respond to notices to that effect, or (3) when required to do so, the
Shareholder fails to certify that he is not subject to backup withholding. Any
amounts withheld may be credited against the Shareholder's Federal income tax
liability.
Ordinary dividends and taxable capital gain distributions declared in
October, November, or December with a record date in such month and paid during
the following January will be treated as having been paid by a Fund and received
by Shareholders on December 31 of the calendar year in which declared, rather
than the calendar year in which the dividends are actually received.
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<PAGE>
Distributions also may be subject to state, local and foreign taxes.
U.S. tax rules applicable to foreign investors may differ significantly from
those outlined above. Shareholders are advised to consult their own tax advisers
for details with respect to the particular tax consequences to them of an
investment in either Fund.
PRINCIPAL UNDERWRITER
Franklin Templeton Distributors, Inc. ("FTD" or the
"Principal Underwriter"), P.O. Box 33030, St. Petersburg, Florida
33733-8030, toll free telephone (800) 237-0738, is the Principal
Underwriter of each Fund's Shares. FTD is a wholly owned
subsidiary of Franklin.
The Company, pursuant to Rule 12b-1 under the 1940 Act, has adopted a
Distribution Plan with respect to each class of Shares ("Plans") on behalf of
each Fund. Under the Plans adopted with respect to Class I Shares, a Fund may
reimburse the Principal Underwriter or others quarterly (subject to a limit of
0.25% per annum of each Fund's average daily net assets attributable to Class I
Shares) for costs and expenses incurred by FTD or others in connection with any
activity which is primarily intended to result in the sale of a Fund's Shares.
Under the Plans adopted with respect to Class II Shares, each Fund will pay FTD
or others quarterly (subject to a limit of 1.00% per annum of each Fund's
average daily assets attributable to Class II Shares of which up to 0.25% of
such net assets may be paid to dealers for personal service and/or maintenance
of Shareholder accounts) for costs and expenses incurred by FTD or others in
connection with any activity which is primarily intended to result in the sale
of the Fund's Shares. Payments to FTD or others could be for various types of
activities, including (1) payments to broker-dealers who provide certain
services of value to each Fund's Shareholders (sometimes referred to as a "trail
fee"); (2) reimbursement of expenses relating to selling and servicing efforts
or of organizing and conducting sales seminars; (3) payments to employees or
agents of the Principal Underwriter who engage in or support distribution of
Shares; (4) payments of the costs of preparing, printing and distributing
Prospectuses and reports to prospective investors and of printing and
advertising expenses; (5) payment of dealer commissions and wholesaler
compensation in connection with sales of a Fund's Shares and interest or
carrying charges in connection therewith; and (6) such other similar services as
the Company's Board of Directors determines to be reasonably calculated to
result in the sale of Shares. Under the Plan adopted with respect to Class I
Shares of a Fund, the costs and expenses not reimbursed in any one given quarter
(including costs and expenses not reimbursed because they exceed 0.25% of
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the Fund's average daily net assets attributable to Class I Shares) may be
reimbursed in subsequent quarters or years.
During the fiscal year ended August 31, 1995, FTD incurred in
connection with the distribution of shares costs and expenses of $10,215,632 for
Class I Shares of World Fund, $11,211 for Class II Shares of World Fund,
$15,404,475 for Class I Shares of Foreign Fund, and $355,895 for Class II Shares
of Foreign Fund. During the same period, the Company made reimbursements
pursuant to the Plans in the amount of $10,215,632 on behalf of Class I Shares
of World Fund $11,211 on behalf of Class II Shares of World Fund, $14,581,987 on
behalf of Class I Shares of Foreign Fund, and $90,617 on behalf of Class II
Shares of Foreign Fund. As indicated above, unreimbursed expenses, which amount
to $1,087,776 for Shares of Foreign Fund, may be reimbursed by the Company
during the fiscal year ending August 31, 1996 or in subsequent years. In the
event that a Plan is terminated, the Company will not be liable to FTD for any
unreimbursed expenses that had been carried forward from previous months or
years. During the fiscal year ended August 31, 1995, FTD spent, with respect to
Class I Shares of World Fund, the following amounts on: compensation to dealers,
$8,860,935; sales promotion, $287,494; printing, $183,388; advertising,
$817,078; and wholesale costs and expenses, $66,736; and with respect to Class
II Shares of World Fund, the following amounts on: compensation to dealers,
$818; sales promotion, $6; printing, $5; advertising, $32; and wholesale costs
and expenses, $10,349; and, with respect to Class I Shares of Foreign Fund, the
following amounts on: compensation to dealers, $12,429,081; sales promotion,
$290,597; printing, $734,122; advertising, $1,443,337; and wholesale costs and
expenses, $507,338; and with respect to Class II Shares of Foreign Fund, the
following amounts on: compensation to dealers, $25,609; sales promotion, $198;
printing, $919; advertising, $1,118; and wholesale costs and expenses, $328,050.
The Distribution Agreement provides that the Principal Underwriter will
use its best efforts to maintain a broad and continuous distribution of each
Fund's Shares among bona fide investors and may sign selling contracts with
responsible dealers, as well as sell to individual investors. The Shares are
sold only at the Offering Price in effect at the time of sale, and each Fund
receives not less than the full net asset value of the Shares sold. The discount
between the Offering Price and the net asset value may be retained by the
Principal Underwriter or it may reallow all or any part of such discount to
dealers. In the three fiscal years ended August 31, 1995, 1994, and 1993, FTD
(and, prior to June 1, 1993, Templeton Funds Distributor, Inc.) retained of such
discount $1,962,439, $1,931,397, and $1,208,991, respectively, or approximately
18.64%, 17.97%, and 19.87% of the gross sales commissions for those years with
respect to World
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Fund, and retained $6,510,032, $9,452,983, and $3,975,783, respectively, or
approximately 13.17%, 15.79%, and 15.81% of the gross sales commissions for
those years with respect to Foreign Fund.
The Distribution Agreement provides that the Company shall pay the
costs and expenses incident to registering and qualifying each Fund's Shares for
sale under the Securities Act of 1933 and under the applicable Blue Sky laws of
the jurisdictions in which the Principal Underwriter desires to distribute such
Shares, and for preparing, printing and distributing prospectuses and reports to
Shareholders. The Principal Underwriter pays the cost of printing additional
copies of prospectuses and reports to Shareholders used for selling purposes.
(The Company pays costs of preparation, set-up and initial supply of the Funds'
prospectuses for existing Shareholders.)
The Distribution Agreement is subject to renewal from year to year in
accordance with the provisions of the 1940 Act and terminates automatically in
the event of its assignment. The Distribution Agreement may be terminated
without penalty by either party upon 60 days' written notice to the other,
provided termination by the Company shall be approved by the Board of Directors
or a majority (as defined in the 1940 Act) of the Shareholders. The Principal
Underwriter is relieved of liability for any act or omission in the course of
its performance of the Distribution Agreement, in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations.
FTD is the Principal Underwriter of the Shares of the Fund throughout
the world, except for Hong Kong and other parts of Asia, and other countries or
territories as it might hereafter relinquish to another principal underwriter.
The Fund has entered into a non-exclusive underwriting agreement with Templeton
Franklin Investment Services (Asia) Limited ("Templeton Investment Services"),
whose office address is 2701 Shui On Centre, Hong Kong as principal underwriter
for sale of the Shares in Hong Kong and other parts of Asia. The terms of the
underwriting agreements with Templeton Investment Services are substantially
similar to those of the Distribution Agreement with FTD. Templeton Investment
Services is an indirect wholly owned subsidiary of Franklin.
FTD is the principal underwriter for the other Templeton Funds.
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<PAGE>
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, 1995 was 3.56%,
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13.39% and 12.91%, respectively. Foreign Fund's average annual total return for
the one-, five- and ten-year periods ended August 31, 1995, was (2.79)%, 8.99%
and 16.43%, respectively.
Performance information for each Fund may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index, Dow Jones
Industrial Average, or other unmanaged indices so that investors may compare
each Fund's results with those of a group of unmanaged securities widely
regarded by investors as representative of the securities market in general;
(ii) other groups of mutual funds tracked by Lipper Analytical Services, Inc., a
widely used independent research firm which ranks mutual funds by overall
performance, investment objectives and assets, or tracked by other services,
companies, publications, or persons who rank mutual funds on overall performance
or other criteria; and (iii) the Consumer Price Index (measure for inflation) to
assess the real rate of return from an investment in a Fund. Unmanaged indices
may assume the reinvestment of dividends but generally do not reflect deductions
for administrative and management costs and expenses.
Performance information for each Fund reflects only the performance of
a hypothetical investment in each Fund during the particular time period on
which the calculations are based. Performance information should be considered
in light of each Fund's investment objective and policies, characteristics and
quality of the portfolio and the market conditions during the given time period,
and should not be considered as a representation of what may be achieved in the
future.
From time to time, each Fund and the Investment Manager may also refer
to the following information:
(1) The Investment Manager's and its affiliates' market share of
international equities managed in mutual funds prepared or published by
Strategic Insight or a similar statistical organization.
(2) The performance of U.S. equity and debt markets relative to
foreign markets prepared or published by Morgan Stanley
Capital International or a similar financial organization.
(3) The capitalization of U.S. and foreign stock markets as
prepared or published by the International Finance
Corporation, Morgan Stanley Capital International or a similar
financial organization.
(4) The geographic and industry distribution of the Fund's
portfolio and the Fund's top ten holdings.
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<PAGE>
(5) The gross national product and populations, including age
characteristics, literacy rates, foreign investment improvements due to
a liberalization of securities laws and a reduction of foreign exchange
controls, and improving communication technology, of various countries
as published by various statistical organizations.
(6) To assist investors in understanding the different returns
and risk characteristics of various investments, the Fund
may show historical returns of various investments and
published indices (E.G., Ibbotson Associates, Inc. Charts
and Morgan Stanley EAFE - Index).
(7) The major industries located in various jurisdictions as
published by the Morgan Stanley Index.
(8) Rankings by DALBAR Surveys, Inc. with respect to mutual fund
shareholder services.
(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."
- - --------
* Sir John Templeton sold the Templeton organization to Franklin
Resources, Inc. in October, 1992 and resigned from the
Company's Board on April 16, 1995. He is no longer involved
with the investment management process.
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<PAGE>
o "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."
o "And now the last principle: Do not be fearful or
negative too often."
In addition, each Fund and the Investment Manager may also refer to the
number of Shareholders in the Fund or the aggregate number of shareholders of
the Franklin Templeton Funds or the dollar amount of fund and private account
assets under management in advertising materials.
FINANCIAL STATEMENTS
The financial statements contained in the Fund's Annual Reports to
Shareholders of Templeton World Fund and Templeton Foreign Fund dated August 31,
1995 are incorporated herein by
reference.
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Table of Contents
Page
Franklin Pacific Growth Fund 3
Franklin International Equity Fund 9
Schedule of Foreign
Tax Withholding 14
Statement of Investments 16
Financial Statements 27
Notes to Financial Statements 30
Report of Independent Accountants 36
To reduce the volume of mail shareholders receive and to reduce your fund's
expenses, only one copy of most fund reports, such as annual and semi-annual
reports, may be mailed to a household. Additional copies can be obtained,
without charge, by calling Franklin Templeton Fund Information at 1-800/DIAL BEN
(1-800/342-5236).
December 15, 1995
Dear Shareholder:
It's a pleasure to bring you the fifth annual report of the Franklin
International Trust, which covers the fiscal year ended October 31, 1995. The
Trust consists of the Franklin International Equity Fund and the Franklin
Pacific Growth Fund. Effective February 1, 1996, the Franklin Pacific Growth
Fund will change its name to the Templeton Pacific Growth Fund. Templeton
Investment Counsel, Inc., noted for its expertise in global investing,
co-manages both funds.
During the reporting period, fluctuations in international securities markets,
particularly in emerging market countries, served as a reminder that volatility
is a normal part of investing. However, we have always maintained a long-term
perspective when managing the funds, and we encourage shareholders to view their
investments in a similar manner. Although past performance cannot guarantee
future results, history has proven that, over the long term, stocks and bonds
have delivered impressive financial results. If you remain invested for the long
term, you need not be unduly concerned about short-term market fluctuations.
For specific information about the Franklin International Equity Fund and the
Franklin Pacific Growth Fund, including the effects of market conditions and
management strategies upon their performance during the past fiscal year, please
refer to the pages listed in the table of contents on the preceding page.
We thank you for your support, welcome your questions, and look forward to
serving your investment needs in the years to come.
Sincerely,
Rupert H. Johnson, Jr.
President
Franklin International Trust
FRANKLIN PACIFIC GROWTH FUND
Your Fund's Objective:
The Franklin Pacific Growth Fund seeks to provide long-term growth of capital by
investing in equity securities of which at least 65% trade on markets in the
Pacific Rim.
The fiscal year ended October 31, 1995 was a challenging time for investors in
Pacific Rim equity markets. Many stock markets in this region experienced
extreme volatility throughout the year due to a myriad of problems. Negative
effects from Mexico's December 1994 currency devaluation spilled over into other
emerging markets, including those in Southeast Asia, in what many referred to as
the "Tequila Effect." Japan continued to suffer from a deteriorating real estate
market and a weak banking system, while Hong Kong struggled with runaway
economic growth, high inflation levels, and uncertainty surrounding its 1997
reversion to China.
Within this difficult environment, your fund posted a one-year total return of
- - -5.54%, as shown in the Performance Summary on page 7. However, the fund
significantly outperformed its benchmark, the unmanaged Morgan Stanley Capital
International (MSCI) Pacific Basin Index, which delivered a total return of
- - -11.00% for the same period. Although short-term volatility can be
disconcerting, we have always maintained a long-term perspective when managing
the fund and encourage shareholders to view their investments in a similar
manner. As you can see from the Performance Summary, the fund has delivered a
cumulative total return of more than 56% since its inception on September 20,
1991.
At the end of the reporting period, Hong Kong was our largest geographic
exposure, representing 26.9% of total net assets. Pessimism regarding company
earnings and the events surrounding Hong Kong's upcoming reversion to China
reached a high point in the first quarter of 1995, and we took advantage of
resulting market declines by adding to several of the fund's positions. For
example, we increased our holdings of New World Development Co. Ltd., a Hong
Kong-based real estate company, and purchased shares of Cathay Pacific Airways
Ltd., whose stock price suffered from investor concerns that the airline's
monopolistic position would be in jeopardy when China assumes control of Hong
Kong.
Compared with our exposure to Hong Kong, the fund's weighting in Japan was
conservative, representing 20.3% of total net assets at the end of the fiscal
year. This contrasted sharply with the MSCI Pacific Basin Index's Japanese
weighting of 80.2%. We maintained this relatively low exposure to Japan due to
growing concerns surrounding its banking system, which was plagued by a mountain
of bad debts throughout the year.
GRAPHIC MATERIAL 1 OMMITTED - SEE APPENDIX AT END OF DOCUMENT
Many experts in the banking industry estimate these debts at $450 billion, but
we believe they far exceed this amount. Fortunately, your fund had no direct
investments in Japanese banks during the fiscal year. Taking advantage of a
rising yen, we sold portions of our positions in Nippon Telegraph & Telephone
Corp. and Mitsubishi Heavy Industrial Co. in March. In August, we trimmed our
holdings of Nintendo Co. following solid performance by this stock. Although
Japanese stock valuations are characteristically expensive, we intend to
continue our search for value there.
Over the course of the fiscal year, we decreased our Australian exposure, from
14.7% to 11.4% of total net assets. Taking advantage of rising commodities
prices, we sold the fund's largest Australian position, Western Mining Corp., as
metals prices appeared to reach their peak. A large position in BTR Nylex, Ltd.
was eliminated from the portfolio when the company was acquired by its
controlling U.K. parent corporation, BTR PLC.
Inflationary pressures continued to be a problem in the Philippines, as delayed
exports and unfavorable growing conditions caused prices for rice to soar by
50-60% during the year. These pressures do not alarm us, however, and we remain
optimistic about the long-term prospects for this country. Our exposure there
increased slightly, from 3.9% to 5.0% of total net assets, with the addition of
a position in Filinvest Land, Inc., a Philippine-based real estate company.
During the reporting period, we also initiated positions in India and Pakistan.
As India's economic growth slowed following rapid growth in 1994, we took
advantage of a sharp sell-off in this market and purchased shares of Great
Eastern Shipping Co. Ltd. at what we felt was a bargain price. Although Pakistan
has lagged other countries in the Pacific Rim due to its fiscal distress and
weak agricultural output, we found value in positions such as Fauji Fertilizer
Co. Ltd. and Pakistan Telecom Corp.
Looking forward, we are optimistic about the potential prospects for equity
markets in the Pacific Rim. Although these markets experienced volatility this
past fiscal year, we are confident that our value-oriented investment approach
could provide our shareholders with attractive results over the long term. There
are, of course, special risks involved with investing in a portfolio of
securities concentrated in a single geographic region, which also contains
developing markets. These risks include currency fluctuations, market
volatility, economic, social, and political uncertainty, and in some cases the
relatively small size and lesser liquidity of these markets. For further
information concerning these risks, please refer to the fund's prospectus.
We appreciate your participation in the Franklin Pacific Growth Fund and look
forward to serving your investment needs in the years to come.
Franklin Pacific Growth Fund
Top 10 Holdings on October 31, 1995
Based on Total Net Assets
Company % of Total
Industry, Country Net Assets
HSBC Holdings PLC 2.9%
Banking, Hong Kong
New World Development Co. Ltd. 2.4%
Real Estate, Hong Kong
Brambles Industries Ltd. 2.3%
Transportation, Australia
Cheung Kong Holdings Ltd. 2.2%
Multi-Industry, Hong Kong
Nintendo Co. Ltd. 2.2%
Recreation, Other Consumer Goods, Japan
Philippine Long Distance Telephone Co. 2.2%
Telecommunications, Philippines
Jardine Strategic Holdings Ltd. 2.1%
Multi-Industry, Hong Kong
Nisshinbo Industries Inc. 2.1%
Textiles & Apparel, Japan
Mitsubishi Heavy Industries Ltd. 2.0%
Industrial Components, Japan
Nippon Telegraph & Telephone Corp. 2.0%
Telecommunications, Japan
For a complete list of portfolio holdings, please see page 16 of this report.
Performance Summary
The Franklin Pacific Growth Fund provided a total return of -5.54% for the
one-year period ended October 31, 1995. Total return measures the change in
value of an investment, assum- ing reinvestment of dividends and capital gains,
and does not include the fund's maximum initial sales charge.
Of course, we maintain a long-term perspective when managing the fund, and we
encourage shareholders to view their investments in a similar manner. As you can
see from the table on page 8, the fund delivered a cumulative total return of
more than 56% since its inception on September 20, 1991.
The fund's share price, as measured by net asset value, decreased from $15.40 on
October 31, 1994 to $14.11 on October 31, 1995. During the reporting period,
shareholders received distributions totaling 15.6 cents ($0.156) per share in
dividend income and 27.1 cents ($0.271) per share in capital gains, of which
11.41 cents ($0.1141) represented long-term gains and 15.69 cents ($0.1569)
represented short-term gains. Of course, past performance is not predictive of
future results, and distributions will vary depending on income earned by the
fund and any profits realized from the sale of securities in the portfolio.
The graph on the following page compares the performance of the Franklin Pacific
Growth Fund with the performance of the unmanaged Morgan Stanley Capital
International (MSCI) Pacific Basin Index from the fund's inception on September
20, 1991. As you can see, the fund outperformed the index during the past fiscal
year.
GRAPHIC MATERIAL 2 OMMITTED - SEE APPENDIX AT END OF DOCUMENT
Of course, such unmanaged market indices have inherent performance differentials
in comparison with any fund. They don't pay management fees to cover salaries
of security analysts or portfolio managers, or pay commissions or market spreads
to buy and sell stocks. And, unlike unmanaged indices, mutual funds are never
100% invested because of the need to have cash on hand to redeem shares. In
addition, the performance shown for the fund includes the maximum initial sales
charge, all fund expenses and account fees. If operating expenses such as the
Franklin Pacific Growth Fund's had been applied to this index, its performance
would have been lower. Please remember that an index is simply a measure of
performance, and one cannot invest in an index directly. Past performance is not
predictive of future results.
*Includes all sales charges and represents the change in value of an investment
over the period shown. Total return assumes reinvestment of dividends and
capital gains. Past performance is not predictive of future results.
**Index is unmanaged and includes reinvested dividends.
Franklin Pacific Growth Fund
Periods ended October 31, 1995
Since
Inception
1-Year 3-Year (09/20/91)
Cumulative
Total Return1 -5.54% 41.85% 56.64%
Average Annual
Total Return2 -9.79% 10.65% 10.28%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the maximum 4.5% initial sales
charge.
2. Average annual total return represents the average annual change in value of
an investment over the specified periods and includes the maximum 4.5% initial
sales charge.
All total return calculations assume reinvestment of dividends and capital
gains. Past expense limitations increased the fund's total returns. Investment
return and principal value will fluctuate with market conditions, currencies and
the economic and political climates of countries where investments are made, so
that your shares, when redeemed, may be worth more or less than their initial
cost. Past performance is not predictive of future results.
FRANKLIN INTERNATIONAL EQUITY FUND
Your Fund's Objective:
The Franklin International Equity Fund seeks to provide long-term growth of
capital by investing in an internationally diversified portfolio of equity
securities, of which at least 65% trade on markets in countries other than the
United States.
The past fiscal year was marked by a high level of volatility in emerging
markets and unexpected advances in developed markets. Stock markets of most
developed countries posted double-digit returns despite the high degree of
uncertainty prevalent in many overseas markets at the beginning of 1995. Much of
this uncertainty was precipitated by the devaluation of the Mexican peso in
December 1994, which led to a decline of more than 70% (in U.S. dollar terms) in
the Mexican equity market. The ensuing negative impact on financial markets,
which some called the "Tequila Effect," was not limited to Latin America.
Investors in Asian securities soon discovered that their stocks were declining
in value due to professional money managers' generally poor opinions of most
emerging markets. With the exception of Japan, which suffered from a
deteriorating real estate market and a weakened banking system, most major
developed markets, particularly those in Sweden, the Netherlands, and the United
Kingdom, showed surprising strength.
Responding to these conditions, we reduced our holdings in certain developed
markets, such as the United Kingdom and France, and bought securities elsewhere,
which we felt were better bargains. At the end of the fiscal year, 82.3% of the
fund's total net assets were invested in developed countries, with the remaining
17.7% in developing countries.
With regard to individual investment sectors, cyclical stocks performed very
well throughout the reporting period because of economic growth worldwide. This
was especially true of the paper, chemicals and metals sectors, although the
financial services, technology, and commodities sectors also performed strongly.
Increasing economic activity and growing demand for commodities in emerging
markets led to rising prices for aluminum and paper, which gave a big boost to
the stock prices of companies operating in those industries. The fund's position
in Comalco Ltd., an Australian mining company, benefited from this trend. Stocks
in other sectors that performed well during the period included Pharmacia AB,
Hafslund Nycomed, and British Aerospace.
The fiscal year, however, was not without some disappointments. Every year, some
of our stock picks do not live up to our expectations. This is normally due to
some unanticipated events at these companies, a major change in the industry
that adversely impacts them, or less-than-perfect stock selection on our part.
Examples of stocks that did not perform as well as we had hoped include Celsius
Industrier AB, Electrolux AB, Oriental Press Group Ltd., and Peregrine
Investments Holdings Ltd. Although these stocks declined in price, we did not
sell them because we believed they had attractive potential long-term value.
Although we do make some mistakes in our stock selections, if we keep them to a
minimum, we should be able to achieve the type of returns investors have come to
expect.
GRAPHIC MATERIAL 3 OMMITTED - SEE APPENDIX AT END OF DOCUMENT
Looking forward, the world's financial markets should, hopefully, continue to be
volatile. We say "hopefully," because the more volatile the market, the more
share prices tend to fluctuate. The more share prices fluctuate, the less likely
the market will reflect the "true" value of a company, and the easier it becomes
for us to find potential bargain-priced stocks for your fund. Many investors are
frightened by volatility, but as managers, we welcome the opportunity it
provides us. While short-term volatility can be disconcerting, declines of as
much as 40% to 50% are not unusual in emerging markets. For example, the Hong
Kong stock market has increased 695% in the last 15 years, but has suffered six
declines of more than 20% during that time.* There are, of course, special risks
involved with foreign investing related to market, currency, economic,
political, and other factors. Developing markets involve similar but heightened
risks, in addition to risks associated with the relatively small size and lesser
liquidity of these markets, which are discussed in the fund's prospectus.
We thank you for your participation in the Franklin International Equity Fund
and welcome any comments or suggestions you may have.
*Source: Bloomberg. Based on quarterly percentage change over 15 years ended
September 30, 1995.
Franklin International Equity Fund
Top 10 Holdings on October 31, 1995
Based on Total Net Assets
Name % of Total
Industry, Country Net Assets
U.S. Treasury Note, 5.125%, 3/31/96 3.9%
Government Bond, United States
International Nederlanden Group 3.3%
Insurance, Netherlands
Ace Ltd. 2.9%
Insurance, Bermuda
Hafslund Nycomed SA, B 2.8%
Health & Personal Care, Norway
Volvo AB, B 2.3%
Automobiles, Sweden
Ecco SA 2.2%
Business & Public Services, France
Enso Gutzeit OY, R 2.1%
Forest Products & Paper, Finland
Telefonica de Espana SA 2.0%
Telecommunications, Spain
Iberdrola SA 2.0%
Utilities -- Electrical & Gas, Spain
DSM NV 1.7%
Chemicals, Netherlands
For a complete list of portfolio holdings, please see page 21 of this report.
Performance Summary
The Franklin International Equity Fund provided a total return of +1.75% for the
one-year period ended October 31, 1995. Total return measures the change in
value of an investment, assum ing reinvestment of dividends and capital gains,
and does not include the fund's maximum initial sales charge.
Of course, we maintain a long-term perspective when managing the fund, and we
encourage shareholders to view their investments in a similar manner. As you can
see from the table on page 13, the fund delivered a cumulative total return of
more than 51% since its inception on September 20, 1991.
The fund's share price, as measured by net asset value, decreased from $13.83 on
October 31, 1994 to $13.23 on October 31, 1995. During the reporting period,
shareholders received distributions totaling 19 cents ($0.19) per share in
dividend income and 58.8 cents ($0.588) per share in capital gains, of which 34
cents ($0.34) represented long-term gains and 24.8 cents ($0.248) represented
short-term gains. Of course, past performance is not predictive of future
results, and distributions will vary depending on income earned by the fund and
any profits realized from the sale of securities in the portfolio.
The graph on the following page compares the performance of the Franklin
International Equity Fund with the performance of the unmanaged Morgan Stanley
Capital International Europe, Australia, Far East (EAFE) Index since the fund's
inception on September 20, 1991. As you can see, the fund outperformed the index
toward the end of the fiscal year, as it has done for the majority of the time
since the fund's inception.
Of course, such unmanaged market indices have inherent performance differentials
in comparison with any fund. They don't pay management fees to cover salaries of
security analysts or portfolio managers, or pay commissions or market spreads to
buy and sell stocks. And, unlike unmanaged indices, mutual funds are never 100%
invested because of the need to have cash on hand to redeem shares. In addition,
the performance shown for the fund includes the maximum initial sales charge,
all fund expenses and account fees. If operating expenses such as the Franklin
International Equity Fund's had been applied to this index, its performance
would have been lower. Please remember that an index is simply a measure of
performance, and one cannot invest in an index directly. Past performance is not
predictive of future results.
GRAPHIC MATERIAL 4 OMMITTED - SEE APPENDIX AT END OF DOCUMENT
*Includes all sales charges and represents the change in value of an investment
over the period shown. Total return assumes reinvestment of dividends and
capital gains. Past performance is not predictive of future results.
**Index is unmanaged and includes reinvested dividends.
Franklin International Equity Fund
Periods ended October 31, 1995
Since
Inception
1-Year 3-Year (09/20/91)
Cumulative
Total Return1 1.75% 48.50% 51.57%
Average Annual
Total Return2 -2.83% 12.35% 9.40%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the maximum 4.5% initial sales
charge.
2. Average annual total return represents the average annual change in value of
an investment over the specified periods and includes the maximum 4.5% initial
sales charge.
All total return calculations assume reinvestment of dividends and capital
gains. Past expense reductions by the fund's manager increased the fund's total
returns. Investment return and principal value will fluctuate with market
conditions, currencies and the economic and political climates of countries
where investments are made, so that your shares, when redeemed, may be worth
more or less than their initial cost. Past performance is not predictive of
future results.
FRANKLIN INTERNATIONAL TRUST
Schedule of Foreign Tax Withholding (unaudited)
At October 31, 1995, the two Funds in the Franklin Institutional Trust had
invested more than 50% of their respective total assets in securities of foreign
corporations. In many cases, foreign taxes were withheld from dividends paid to
the funds on investments. Section 853 of the Internal Revenue Code (the Code)
permits the Funds to pass through to their shareholders a tax benefit on the
withholding of these foreign taxes.
The amounts of foreign tax withheld and foreign source income designated below
are estimates, and should be used for planning purposes only. The actual amount
of taxes withheld and foreign source income distributed during calendar year
1995 will be provided to shareholders with their Form 1099-DIV in January 1996.
Franklin Pacific Growth Fund
a. Shareholders receiving the December 1994 distributions of $0.2189 per share
comprising of $0.062 and $0.1569 per share distributions from net
investment income and short-term capital gain, respectively:1
Foreign Taxes Foreign Source
Withheld Income
Country Per Share Per Share
- - ---------------------------------------------------------
Australia $0.002290 $0.017029
Hong Kong -- 0.026538
Indonesia 0.000665 0.004544
Japan 0.001539 0.005319
Malaysia 0.001491 0.002944
New Zealand 0.000095 0.000328
Philippines 0.000339 0.000704
Portugal 0.000039 0.000097
Singapore 0.001295 0.002532
Thailand 0.000270 0.002411
--------- ----------
Total $0.008023 $0.062446
========= ==========
b. Shareholders receiving the June 1995 income dividend of $.094 per share:
Foreign Taxes Foreign Source
Withheld Income
Country Per Share Per Share
- - ---------------------------------------------------------
Australia $0.002059 $0.013394
Hong Kong -- 0.019935
Indonesia 0.000838 0.004116
Japan 0.001669 0.005254
Malaysia 0.002726 0.003075
New Zealand 0.000096 0.000301
Philippines 0.000071 0.000166
Singapore 0.001010 0.001802
Thailand 0.000326 0.002420
--------- ----------
Total $0.008795 $0.050463
========= ==========
1. These amounts were previously reported to shareholders on their 1994 Form
1099-DIV statements.
Under section 854(b)(2) of the Internal Revenue Code, the Pacific Growth Fund
hereby designates 1.85% of its ordinary income dividends paid by the Fund during
the fiscal year ended October 31, 1995, as income qualifying for the corporate
dividends received deduction.
Franklin International Equity Fund
a. Shareholders receiving the December 1994 distributions of $0.303 per share
comprising of $0.055 and $0.248 per share distribution from net investment
income and short-term capital gain, respectively:1
Foreign Taxes Foreign Source
Withheld Income
Country Per Share Per Share
- - ----------------------------------------------------------
Argentina $0.000021 $0.000646
Australia 0.000391 0.003247
Austria -- 0.000012
Belgium 0.000151 0.000464
Colombia -- 0.000496
Canada 0.000393 0.001540
Finland 0.000196 0.000768
France . -- 0.002423
Germany 0.000059 0.000396
Greece -- 0.000863
Hong Kong -- 0.006671
Italy 0.000361 0.001414
Japan 0.000094 0.000368
Mexico 0.000023 0.002257
Netherlands 0.000522 0.004526
New Zealand 0.000039 0.000153
Norway 0.000235 0.000921
Philippines 0.000002 0.000094
Portugal 0.000185 0.000543
Spain 0.001774 0.005237
Sweden 0.000663 0.002200
Switzerland 0.000160 0.000707
Turkey -- 0.000232
United Kingdom 0.002718 0.009625
--------- ----------
Total $0.007987 $0.045803
========= ==========
b. Shareholders receiving the June 1995 income dividend of $.135 per share:
Foreign Taxes Foreign Source
Withheld Income
Country Per Share Per Share
- - ----------------------------------------------------------
Argentina $-- $0.000668
Australia 0.000495 0.004707
Belgium . 0.000093 0.000482
Colombia -- 0.000653
Canada 0.000496 0.002081
Finland 0.000466 0.001956
France -- 0.004750
Germany -- 0.000079
Greece -- 0.003629
Hong Kong -- 0.011040
Italy 0.000439 0.001217
Japan 0.000030 0.000127
Mexico 0.000015 0.001468
Netherlands 0.001684 0.009534
New Zealand 0.000110 0.000463
Norway 0.000479 0.002007
Philippines 0.000001 0.000075
Portugal -- 0.000480
South Korea 0.000095 0.000385
Spain 0.002271 0.008112
Sweden 0.001978 0.007805
Switzerland 0.000944 0.002577
Turkey -- 0.000286
United Kingdom 0.003508 0.013717
--------- ----------
Total $0.013104 $0.078298
========= ==========
The Funds hereby designate the total foreign taxes paid and foreign source
income received, on a per share basis as detailed above, as payments qualifying
under Sec. 853 of the Code. Shareholders are advised to consult with their tax
advisors for information on the treatment of these amounts in their income tax
returns.
1. These amounts were previously reported to shareholders on their 1994 Form
1099-DIV statements.
<TABLE>
<CAPTION>
FRANKLIN INTERNATIONAL TRUST
Statement of Investments in Securities and Net Assets, October 31, 1995
Shares/ Value
Country* Warrants Franklin Pacific Growth Fund (Note 1)
Common Stocks & Warrants 92.1%
Australia 11.4%
<S> <C> <C> <C>
AU 210,635 Australian Gas & Light Company ...................................... $ 730,051
AU 110,000 Brambles Industries Ltd. ............................................ 1,169,740
AU 67,400 Capral Aluminium Ltd. ............................................... 154,025
AU 277,869 GIO Australia Holdings, Ltd. ........................................ 588,432
AU 872,017 Goodman Fielder Ltd. ................................................ 876,819
AU 170,000 Mayne Nickless Ltd., A .............................................. 769,213
AU 569,800 National Foods Ltd. ................................................. 638,045
AU 214,884 Pacific Dunlop Ltd. ................................................. 520,526
US 15,800 a,bQantas Airways Ltd., ADR, 144A ...................................... 276,500
-----------
5,723,351
-----------
China 1.3%
CH 226,000 Dongfang Electrical Machinery Co. Ltd., H ........................... 67,230
CH 600,000 Maanshan Iron & Steel Co. Ltd., H ................................... 109,420
CH 59,500 Shandong Huaneng Power .............................................. 476,000
-----------
652,650
-----------
Hong Kong 26.9%
HK 600,000 Cathay Pacific Airways Ltd. ......................................... 884,670
HK 200,000 Cheung Kong Holdings Ltd. ........................................... 1,127,824
HK 651,795 Dairy Farm International Holdings Ltd. .............................. 534,472
HK 700,000 Gold Peak Industries (Holdings) Ltd. ................................ 339,511
HK 508,000 Grand Hotel Holdings Ltd. ........................................... 185,612
HK 2,430,000 Great Wall Electronic International Ltd. ............................ 191,717
HK 34,600 aGreat Wall Electronics International Ltd., warrants ................. 103
HK 32,200 aHang Lung Development Co. Ltd., warrants ............................ 5,456
HK 1,411,872 Hon Kwok Land Investment Co. Ltd. ................................... 429,129
HK 38,400 aHong Kong & China Gas Co. Ltd., warrants ............................ 1,937
HK 5,502 Hong Kong Land Holdings Co. ......................................... 9,904
HK 500,000 Hong Kong Telecommunications Ltd. ................................... 873,029
HK 100,000 HSBC Holdings PLC ................................................... 1,455,049
HK 458,000 Hualing Holdings Ltd. ............................................... 71,084
HK 117,924 Jardine Matheson Holdings Ltd. ...................................... 719,336
HK 393,750 Jardine Strategic Holdings Ltd. ..................................... 1,059,187
HK 43,750 aJardine Strategic Holdings Ltd., warrants ........................... 11,594
HK 850,000 Lai Sun Development Co. Ltd. ........................................ 106,639
HK 100,000 LI & Fung Ltd. ...................................................... 71,136
HK 714,000 National Mutual Asia Ltd. ........................................... 549,465
HK 315,372 New World Development Co. Ltd. ...................................... 1,227,763
HK 100,000 Peregrine Investments Holdings Ltd. ................................. 127,398
Hong Kong (cont.)
HK 550,000 Shun Tak Holdings ................................................... $ 433,928
HK 213,400 Sing Tao Holdings Ltd. .............................................. 123,513
HK 798,000 South China Morning Post Ltd. ....................................... 464,452
HK 110,000 Sun Hung Kai Properties Ltd. ........................................ 878,526
HK 62,500 Swire Pacific Ltd., A ............................................... 468,849
HK 450,000 Wheelock & Co. Ltd. ................................................. 742,075
HK 397,000 Winsor Industrial Corp. Ltd. ........................................ 356,862
HK 842,000 Yaohan Hongkong Corp. Ltd. .......................................... 41,383
-----------
13,491,603
-----------
India .4%
IN 24,100 Great Eastern Shipping Co. Ltd., GDR ................................ 209,188
-----------
Indonesia 5.0%
ID 53,300 aAsia Pacific Resources International, A ............................. 386,425
ID 84,000 PT Bank Bali, foreign ............................................... 196,037
ID 200,000 PT Barito Pacific Timber, foreign ................................... 138,705
ID 252,900 PT Ever Shine Textile, foreign ...................................... 105,793
ID 111,500 PT Hadtex Indosyntec, foreign ....................................... 60,144
ID 203,876 PT Indorama Synthetics, foreign ..................................... 673,303
US 17,000 PT Indosat, ADR ..................................................... 563,125
ID 74,000 PT Inti Indorayon Utama, foreign .................................... 91,237
ID 106,020 PT Pabrik Kertas Tjiwi Kimia, foreign ............................... 196,074
ID 50,000 PT Panin Bank, foreign .............................................. 55,042
ID 70,000 PT Toko Gunung Agung, foreign ....................................... 52,400
-----------
2,518,285
-----------
Japan 20.3%
JP 149,000 Daicel Chemical Industries Ltd. ..................................... 782,561
JP 61,500 Daito Trust Construction Co. Ltd. ................................... 541,347
JP 200 East Japan Railway .................................................. 944,789
JP 90,200 Hitachi Ltd. ........................................................ 926,304
JP 54,000 aIino Kaiun Kaisha Ltd. .............................................. 266,184
JP 28,000 Matsushita Electric Industrial Co. Ltd. ............................. 397,085
JP 132,000 Mitsubishi Heavy Industries Ltd. .................................... 1,018,612
JP 15,000 Nintendo Co. Ltd. ................................................... 1,103,232
JP 121 Nippon Telegraph & Telephone Corp. .................................. 989,617
JP 120,000 Nisshinbo Industries Inc. ........................................... 1,065,676
JP 60,000 Nittetsu Mining Co. Ltd. ............................................ 519,341
JP 110,000 Rengo Co. Ltd. ...................................................... 763,851
JP 10,000 Tenma Corp. ......................................................... 213,213
Japan (cont.)
JP 16,000 Tokyo Style Co. Ltd. ................................................ $ 242,555
JP 78,000 Toyo Engineering Corp. .............................................. 427,209
-----------
10,201,576
Malaysia 4.2%
MY 50,000 Commerce Asset-Holding Bhd., foreign ................................ 247,934
MY 317,333 Malaysian International Shipping Corp. Bhd., foreign ................ 836,731
MY 120,000 Public Finance Bhd., foreign ........................................ 225,738
MY 327,600 Sime Darby Bhd., foreign ............................................ 818,678
-----------
2,129,081
-----------
New Zealand .5%
NZ 86,200 Fletcher Challenge Ltd. ............................................. 228,172
NZ 12,231 Fletcher Challenge Ltd. Forestry Division ........................... 16,874
-----------
245,046
-----------
Pakistan 2.5%
PK 322,100 Fauji Fertilizer Co. Ltd. ........................................... 517,758
PK 7,400 aPakistan Telecom Corp. PTC .......................................... 706,700
-----------
1,224,458
-----------
Philippines 5.0%
PH 2,500,000 aFilinvest Land Inc. ................................................. 672,818
PH 17,250 Philippine Long Distance Telephone Co. .............................. 961,649
US 2,080 Philippine Long Distance Telephone Co., ADR ......................... 116,740
PH 90,460 aPhilippine National Bank ............................................ 761,659
-----------
2,512,866
-----------
Singapore 4.8%
SG 127,200 City Developments Ltd., foreign ..................................... 787,686
SG 68,000 Development Bank of Singapore Ltd., foreign ......................... 779,618
SG 20,000 G.P. Batteries International Ltd. ................................... 48,800
SG 244,000 Parkway Holdings Ltd., foreign ...................................... 618,202
SG 27,200 Singapore Bus Service, Ltd. ......................................... 184,317
-----------
2,418,623
-----------
South Korea 1.6%
KR 31,500 aPacific Chemical Co. Ltd. ........................................... 819,251
-----------
Thailand 6.5%
TH 88,800 Bangkok Bank Public Co. Ltd., foreign ............................... 917,465
TH 78,500 Chareon Pokphand Feedmill Public Co. Ltd., foreign .................. 399,285
TH 203,833 Industrial Finance Corp. of Thailand, foreign ....................... 668,239
Thailand (cont.)
TH 120,000 MDX Public Co. Ltd., foreign ........................................ $ 218,160
TH 22,700 Oriental Hotel Public Co. Ltd., foreign ............................. 61,339
TH 37,140 Thai Farmers Bank Public Co. Ltd. ................................... 243,517
TH 90,860 Thai Farmers Bank Public Co. Ltd., foreign .......................... 750,999
-----------
3,259,004
-----------
United States 1.7%
US 35,000 American President Cos. ............................................. 848,750
-----------
Total Common Stocks & Warrants (Cost $48,907,591) ............. 46,253,732
-----------
Face
Amount
Convertible Bonds .2%
US $ 6,000 Dairy Farm International Holdings, cvt., 6.50%, 10/09/49 ............ 4,530
US 13,000 Jardine Strategic Holdings Ltd., cvt., 7.50%, 09/09/49 .............. 13,179
US 192,000 MDX Public Co. Ltd., cvt., 4.75%, 9/17/03 ........................... 82,560
-----------
Total Convertible Bonds (Cost $240,824) ....................... 100,269
-----------
Total Investments before Repurchase Agreement
(Cost $49,148,415)
c,dReceivables from Repurchase Agreements 4.7%
Joint Repurchase Agreement, 5.85%, 11/01/95 (Cost $2,369,000)
Lehman Securities Inc. (Maturity Value $2,369,385)
US 2,416,549 Collateral: U.S. Treasury Note, 7.875% , 11/15/99 .................. 2,369,000
-----------
Total Investments (Cost $51,517,415) 97.0% ............... 48,723,001
Other Assets and Liabilities, Net 3.0% ................... 1,523,883
-----------
Net Assets 100.0% ........................................ $50,246,884
===========
At October 31, 1995, the net unrealized depreciation based on the cost of
investments for income tax purposes of $51,701,136 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ....................... 4,021,699
Aggregate gross unrealized depreciation for all investments which
there was an excess of tax cost over value ....................... (6,816,113)
-----------
Net unrealized depreciation ....................................... $ (2,794,414)
===========
CURRENCY LEGEND:
AU - Australia
CH - China
HK - Hong Kong
IN - India
ID - Indonesia
JP - Japan
KR - South Korea
MY - Malaysia
NZ - New Zealand
PK - Pakistan
PH - Philippines
SG - Singapore
TH - Thailand
US - United States of America
*Securities traded in currency of country indicated.
aNon-income producing.
bSee Note 7 regarding Rule 144A securities.
cFace amount for repurchase agreements is for the underlying collateral.
dSee Note 1 (h) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN INTERNATIONAL TRUST
Statement of Investments in Securities and Net Assets, October 31, 1995
Shares/ Value
Country* Warrants Franklin International Equity Fund (Note 1)
Common Stocks & Warrants 84.5%
Argentina 1.0%
<S> <C> <C> <C>
AR 47,966 Ciadea SA ........................................................... $ 175,067
US 2,900 Transportadora de Gas del Sur SA, ADR B.............................. 29,725
AR 4,000 YPF Sociedad Anonima ................................................ 68,997
US 13,700 YPF Sociedad Anonima, ADR ........................................... 234,613
-----------
508,402
-----------
Australia 5.4%
AU 93,188 Australia & New Zealand Banking Group Ltd. .......................... 390,422
AU 126,000 aEmail Ltd............................................................ 316,735
AU 83,026 GIO Australia Holdings Ltd. ......................................... 175,821
AU 106,600 National Foods Ltd. ................................................. 119,367
AU 186,700 News International PLC .............................................. 841,190
AU 116,077 Pacific Dunlop Ltd. ................................................. 281,180
AU 241,300 Pioneer International Ltd. .......................................... 591,868
-----------
2,716,583
-----------
Belgium .4%
BE 400 Solvay, SA .......................................................... 202,488
-----------
Bermuda 2.9%
US 43,400 ACE, Ltd............................................................. 1,475,600
-----------
Canada 1.9%
CA 13,600 Bank of Montreal .................................................... 302,053
CA 14,000 Canadian Imperial Bank of Commerce .................................. 380,179
CA 1,900 Gendis Inc., A ...................................................... 18,262
CA 9,100 London Insurance Group Inc. ......................................... 181,728
CA 9,300 National Bank of Canada ............................................. 75,504
-----------
957,726
-----------
China .5%
CN 564,000 Maanshan Iron & Steel Co. Ltd., H ................................... 102,854
US 16,500 Shandong Huaneng Power, ADR ......................................... 132,000
CN 152,500 Shenzhen China Bicycles Co. (Holdings) Ltd., B ...................... 41,420
-----------
276,274
-----------
Colombia .3%
US 14,100 Banco Ganadero SA, ADR C ............................................ 139,238
-----------
Finland 2.8%
FI 9,000 Amer Group Ltd., A .................................................. 142,455
FI 133,200 Enso Gutzeit Oy, R .................................................. 1,044,755
Finland (cont.)
FI 15,000 Outokumpu Oy, A ..................................................... $ 238,485
FI 8,400 aOutokumpu Oy, warrants .............................................. 940
-----------
1,426,635
-----------
France 4.3%
FR 1,600 Alcatel Cable SA .................................................... 93,376
FR 7,243 Ecco SA ............................................................. 1,124,233
FR 3,600 aPechiney International SA ........................................... 82,121
FR 10,738 Societe Elf Aquitane SA ............................................. 732,211
FR 2,932 Total SA, B ......................................................... 181,438
-----------
2,213,379
-----------
Greece 1.9%
GR 11,500 bAlpha Credit Bank, 144A ............................................. 691,606
GR 6,850 Ergo Bank SA ........................................................ 295,310
-----------
986,916
-----------
Hong Kong 8.8%
HK 443,000 C.P. Pokphand Co. Ltd. .............................................. 177,619
HK 33,000 Cathay Pacific Airways Ltd. ......................................... 48,657
HK 53,000 Cheung Kong Holdings Ltd. ........................................... 298,873
HK 300,000 CNT Group Ltd. ...................................................... 17,655
HK 63,000 Consolidated Electric Power Asia Ltd. ............................... 127,520
HK 635,000 Dairy Farm International Holdings Ltd. .............................. 520,700
HK 88,000 Hang Lung Development Co. Ltd. ...................................... 146,255
HK 14,462 HSBC Holdings PLC ................................................... 215,141
HK 57,200 Jardine Matheson Holdings Ltd. ...................................... 348,920
HK 202,500 Jardine Strategic Holdings Ltd. ..................................... 544,725
HK 22,500 aJardine Strategic Holdings Ltd., warrants ........................... 5,963
HK 423,000 Oriental Press Group Limited ........................................ 173,704
HK 663,000 Peregrine Investments Holdings Ltd. ................................. 844,646
HK 1,045,000 Shun Tak Holdings ................................................... 824,463
HK 310,200 Sing Tao Holdings Ltd. .............................................. 179,539
-----------
4,474,380
-----------
India .1%
US 7,800 bGujarat Narmada Valley Fertilizers Co. Ltd., GDR, 144A .............. 53,625
-----------
Indonesia .1%
ID 22,500 PT Barito Pacific Timber, foreign ................................... 15,604
-----------
Italy 1.2%
IT 23,300 Banco di Sardegna SPA, di Risp ...................................... $ 163,812
IT 11,840 Cartiere Burgo SPA .................................................. 67,567
IT 13,280 aCartiere Burgo SPA, warrants ........................................ 200
IT 44,600 Sasib SPA, di Risp .................................................. 110,139
IT 35,700 Sirti SPA ........................................................... 216,479
IT 20,000 Unione Cementi Marchino Emiliane (Unicem), di Risp .................. 60,262
-----------
618,459
-----------
Luxembourg .4%
LU 2,200 Arbed SA ............................................................ 215,515
-----------
Mexico 1.6%
MX 56,300 Consorcio G Grupo Dina SA de CV ..................................... 33,930
US 3,200 Consorcio G Grupo Dina SA de CV, ADR ................................ 8,400
MX 20,000 Grupo Financiero Banamex Accival SA, B .............................. 34,198
MX 1,525 Grupo Financiero Banamex Accival SA, L .............................. 2,501
US 18,000 Telefonos de Mexico SA, L, ADR ...................................... 495,000
MX 109,200 Vitro, SA ........................................................... 239,368
-----------
813,397
-----------
Netherlands 10.3%
NL 8,600 ABN AMRO NV ......................................................... 361,262
NL 2,380 Akzo Nobel NV ....................................................... 270,979
NL 11,400 DSM NV .............................................................. 853,754
NL 28,231 International Nederlanden Group ..................................... 1,683,164
NL 11,900 Koninklijke Bijenkorf Beheer ........................................ 844,453
NL 2,940 NV Holdingsmij de Telegraaf ......................................... 422,847
NL 21,200 Philips Electronics NV .............................................. 819,363
-----------
5,255,822
-----------
New Zealand .7%
NZ 247,000 Fletcher Challenge Ltd. Forestry Division ........................... 340,764
-----------
Norway 3.3%
NO 1,100 aElkem, A/S .......................................................... 11,928
NO 7,400 Fokus Bank AS ....................................................... 39,229
NO 50,132 Hafslund Nycomed SA, B .............................................. 1,401,280
NO 17,000 Unitor AS ........................................................... 210,281
-----------
1,662,718
-----------
Peru .2%
PE 57,000 Telefonica de Peru, B ............................................... 101,786
-----------
Portugal .7%
PT 17,400 Banco Portugues de Investimento SA .................................. $ 268,008
US 15,000 bPortucel Industrial Empresa Product Celulose, ADR, 144A ............. 105,056
-----------
373,064
-----------
South Korea 1.8%
KR 4,190 Byucksan Development Co. Ltd. ....................................... 81,046
KR 3,540 Daegu Bank Co. Ltd. ................................................. 60,605
KR 2,280 Daehan Synthetic Fiber Co. Ltd. ..................................... 335,228
KR 4,230 Pohang Iron & Steel Co. Ltd. ........................................ 427,096
-----------
903,975
-----------
Spain 7.5%
ES 15,750 Banco Bilbao Vizcaya ................................................ 481,517
ES 2,500 Banco de Andalucia .................................................. 327,855
ES 1,450 Banco Popular Espanol ............................................... 230,445
ES 2,430 Bankinter SA ........................................................ 210,724
ES 60,600 Compania Sevillana de Electricidad .................................. 400,341
ES 6,000 Dragados y Construcciones SA ........................................ 78,685
ES 131,700 Iberdrola SA ........................................................ 993,107
ES 80,600 Telefonica de Espana SA ............................................. 1,017,368
ES 4,000 Unipapel SA ......................................................... 91,800
-----------
3,831,842
-----------
Sweden 10.1%
SE 1,300 Autoliv ............................................................. 74,610
SE 44,600 Celsius AB, B ....................................................... 843,151
SE 13,800 Electrolux AB, B .................................................... 590,370
SE 13,100 Esselte AB, B ....................................................... 192,399
SE 14,600 Pharmacia AB, B ..................................................... 510,232
SE 17,000 Stadshypotek AB, A .................................................. 308,576
SE 38,800 Stena Line AB, B .................................................... 197,549
SE 64,500 Stora Kopparbergs Bergslags AB, B ................................... 782,136
SE 27,650 Svenska Handelsbanken, A ............................................ 485,230
SE 52,400 Volvo AB, B ......................................................... 1,180,047
-----------
5,164,300
-----------
Switzerland 5.6%
CH 180 Baloise-Holding ..................................................... 369,223
CH 695 BBC Brown Boveri Ltd., br ........................................... 805,806
CH 740 Bucher Holding AG ................................................... 465,798
CH 600 Ciba-Geigy AG ....................................................... 519,236
Switzerland (cont.)
CH 200 Kuoni Reisen Holding AG, B .......................................... $ 318,690
CH 600 SMH, AG ............................................................. 373,977
-----------
2,852,730
-----------
Turkey .6%
TR 484,800 Tofas Turk Otomobil Fabrikasi AS, GDR ............................... 305,424
-----------
United Kingdom 10.1%
GB 587,100 Albert Fisher Group Plc. ............................................ 473,355
GB 91,700 Anglian Group Plc ................................................... 171,063
GB 101,400 Argyll Group Plc. ................................................... 516,177
GB 37,333 British Aerospace Plc. .............................................. 418,451
GB 469,200 aCordiant Plc. ....................................................... 637,913
GB 154,800 Govett & Co. Ltd. ................................................... 594,679
GB 198,900 Hillsdown Holdings Plc. ............................................. 528,262
GB 60,400 Kwik Save Group Plc. ................................................ 662,676
GB 179,075 Meggitt Plc. ........................................................ 249,128
GB 18,694 National Westminster Bank Plc. ...................................... 186,777
GB 569,000 Raine Plc. .......................................................... 197,897
GB 21,300 Thames Water Group Plc. ............................................. 177,458
GB 91,000 Wace Group Plc. ..................................................... 346,708
-----------
5,160,544
-----------
Preferred Stocks .1%
Netherlands
NL 216 ABN Amro NV, conv., pfd. (Cost $7,457)............................... 8,553
-----------
Total Common Stocks, Warrants and Preferred Stocks
(Cost $42,482,208)............................................ 43,055,743
-----------
Face
Amount
Government Securities 3.9%
US $2,000,000 U.S. Treasury Note, 5.125%, 3/31/96 (Cost $1,998,438) ............... 1,996,560
-----------
Convertible Bonds .6%
US 250,000 Amer Group Ltd., 6.25%, conv., 6/15/03 .............................. 223,750
US 90,000 Banco Nacional de Mexico SA, 7.00%, conv., 12/15/99 ................. 70,875
US 10,000 Jardine Strategic Holdings Ltd., 7.50%, 05/07/49 .................... 10,137
-----------
Total Convertible Bonds (Cost $379,300) ....................... 304,762
-----------
Total Investment before Repurchase Agreement
(Cost $44,859,946)............................................ 45,357,065
-----------
c,dReceivables from Repurchase Agreements 10.3%........................
Joint Repurchase Agreement, 5.85%, 11/01/95 (Cost $5,269,000)
Lehman Securities Inc. (Maturity Value $5,269,856)
US $5,376,943 Collateral: U.S. Treasury Notes, 8.875%, 11/15/98 .................. $ 5,269,000
-----------
Total Investments (Cost $50,128,946) 99.4% ............... 50,626,065
Other Assets and Liabilities, Net .6% .................... 321,357
-----------
Net Assets 100.0% $50,947,422
===========
At October 31, 1995, the net unrealized appreciation based on the cost
of investments for income tax purposes of $50,221,084 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ..................................................... $ 6,983,912
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ..................................................... (6,486,793)
-----------
Net unrealized appreciation ....................................... $ 497,119
===========
CURRENCY LEGEND:
AR - Argentina
AU - Australia
BE - Belgium
CA - Canada
CH - Switzerland
CN - China
ES - Spain
FI - Finland
FR - France
GB - United Kingdom
GR - Greece
HK - Hong Kong
ID - Indonesia
IT - Italy
LU - Luxembourg
MX - Mexico
NL - Netherlands
NZ - New Zealand
NO - Norway
PE - Peru
PT - Portugal
SE - Sweden
TR - Turkey
US - United States of America
*Securities traded in currency of country indicated.
aNon-income producing.
bSee Note 7 regarding Rule 144A securities.
cFace amount for repurchase agreements is for the underlying collateral.
dSee Note 1 (h) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN INTERNATIONAL TRUST
Financial Statements
Statements of Assets and Liabilities
October 31, 1995
Franklin Franklin
Pacific International
Growth Fund Equity Fund
--------- ---------
<S> <C> <C>
Assets:
Investments in securities:
At identified cost .............................................................. $49,148,415 $44,859,946
========= =========
At value ........................................................................ 46,354,001 45,357,065
Receivables from repurchase agreements, at value and cost ........................ 2,369,000 5,269,000
Cash ............................................................................. 41,198 88,563
Receivables:
Dividends and interest .......................................................... 200,240 109,674
Capital shares sold ............................................................. 251,475 141,269
Investments securities sold ..................................................... 1,353,058 250,366
Unamortized organization costs (Note 2) .......................................... 5,779 5,779
--------- ---------
Total assets ................................................................ 50,574,751 51,221,716
--------- ---------
Liabilities:
Payables:
Investment securities purchased ................................................. 68,246 57,944
Capital shares repurchased ...................................................... 54,665 42,462
Distribution fees ............................................................... 69,214 75,176
Management fees ................................................................. 43,943 44,287
Accrued expenses and other liabilities ........................................... 91,799 54,425
--------- ---------
Total liabilities ........................................................... 327,867 274,294
--------- ---------
Net assets, at value .............................................................. $50,246,884 $50,947,422
========= =========
Net assets consist of:
Undistributed net investment income............................................... $ 203,161 $ 432,957
Unrealized appreciation (depreciation) on investments and translation of assets and
liabilities denominated in foreign currencies .................................... (2,794,414) 497,119
Undistributed net realized gain from investments and foreign currency transactions 3,511,683
2,480,502
Capital shares ................................................................... 35,601 38,523
Additional paid-in capital ....................................................... 49,290,853 47,498,321
--------- ---------
Net assets, at value .............................................................. $50,246,884 $50,947,422
========= =========
Shares outstanding ................................................................ 3,560,082 3,852,263
========= =========
Net asset value per share ......................................................... $14.11 $13.23
========= =========
Representative computation of net asset value and offering price per share:
Net asset value and redemption price per share (Pacific Growth)
($50,246,884 / 3,560,082)......................................................... $14.11
=========
Maximum offering price (100/95.5 of $14.11)........................................ $14.77
=========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN INTERNATIONAL TRUST
Financial Statements (cont.)
Statements of Operations
for the year ended October 31, 1995
Franklin Franklin
Pacific International
Growth Fund Equity Fund
--------- ---------
<S> <C> <C>
Investment Income:
Dividends, net of foreign taxes withheld of $115,271 and $203,701, respectively .. $ 1,344,127 $ 1,463,217
Interest ......................................................................... 106,597 330,046
--------- ---------
Total income ................................................................ 1,450,724 1,793,263
--------- ---------
Expenses:
Management fees (Note 5) ......................................................... 526,350 517,232
Distribution fees (Note 5) ....................................................... 101,772 113,904
Shareholder servicing costs (Note 5) ............................................. 62,208 50,000
Registration fees ................................................................ 54,474 36,400
Custodian fees ................................................................... 60,518 47,000
Reports to shareholders .......................................................... 61,482 45,000
Professional fees ................................................................ 13,918 12,700
Amortization of organization cost (Note 2) ....................................... 6,489 6,489
Other ............................................................................ 15,697 9,287
--------- ---------
Total expenses .............................................................. 902,908 838,012
--------- ---------
Net investment income ...................................................... 547,816 955,251
--------- ---------
Realized and unrealized gain (loss) from investments and foreign currency:
Net realized gain from:
Investments ..................................................................... 3,513,636 2,480,501
Foreign currency transactions ................................................... 58,786 8,159
Net unrealized depreciation on:
Investments ..................................................................... (7,165,548) (3,033,315)
Translation of assets and liabilities denominated in foreign currency ........... (2,127) (9,297)
--------- ---------
Net realized and unrealized loss on investments and foreign currency .............. (3,595,253) (553,952)
--------- ---------
Net increase (decrease) in net assets resulting from operations ................... $(3,047,437) $ 401,299
========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN INTERNATIONAL TRUST
Financial Statements (cont.)
Statements of Changes in Net Assets
for the years ended October 31, 1995 and 1994
Franklin Pacific Franklin International
Growth Fund Equity Fund
--------------------- ---------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................. $ 547,816 $ 741,217 $ 955,251 $ 876,352
Net realized gain from investments and foreign
currency transactions ............................. 3,572,422 991,968 2,488,660 2,589,842
Net unrealized appreciation (depreciation) on
investments and translation of assets and liabilities
denominated in foreign currencies ................. (7,167,675) 486,055 (3,042,612) 904,404
--------- --------- --------- ---------
Net increase (decrease) in net assets resulting
from operations ................................... (3,047,437) 2,219,240 401,299 4,370,598
Distributions to shareholders from:
Net investment income.............................. (584,289) (590,947) (755,317) (717,638)
Net realized capital gains ........................ (1,040,435) (126,733) (2,401,292) --
Increase (decrease) in net assets from capital share
transactions (Note 3) ............................. (3,321,764) 34,120,244 (4,151,357) 34,984,050
--------- --------- --------- ---------
Net increase (decrease) in net assets ........ (7,993,925) 35,621,804 (6,906,667) 38,637,010
Net assets:
Beginning of period ............................... 58,240,809 22,619,005 57,854,089 19,217,079
--------- --------- --------- ---------
End of period ..................................... $50,246,884 $58,240,809 $50,947,422 $57,854,089
========= ========= ========= =========
Undistributed net investment income included in net assets:
Beginning of year ................................ $ 231,385 $ 81,099 $ 239,703 $ 80,945
========= ========= ========= =========
End of year ...................................... $ 203,161 $ 231,385 $ 432,957 $ 239,703
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
FRANKLIN INTERNATIONAL TRUST
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin International Trust (the Trust) is an open-end management investment
company (mutual fund) registered under the Investment Company Act of 1940, as
amended. The Trust currently has two separate diversified Funds (the Funds)
consisting of the Franklin Pacific Growth Fund (the Pacific Fund) and the
Franklin International Equity Fund (the International Fund). Each of the Funds
issues a separate series of shares and maintains a totally separate investment
portfolio.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
a. Securities Valuations:
Portfolio securities listed on a securities exchange or on the NASDAQ National
Market System for which market quotations are readily available are valued at
the last quoted sale price of the day or, if there is no such reported sale,
within the range of the most recent quoted bid and ask prices. Over the counter
portfolio securities for which market quotations are readily available are
valued within the range of the most recent bid and asked prices as obtained from
one or more dealers that make markets in the securities. Portfolio securities
which are traded both in the over-the-counter market and on a securities
exchange are valued according to the broadest and most representative market as
determined by Franklin Advisers, Inc. ("Manager"). Other securities for which
market quotations are readily available are valued at current market values,
obtained from pricing services, which are based on a variety of factors,
including recent trades, institutional size trading in similar types of
securities (considering yield, risk and maturity) and/or developments related to
specific securities. Other securities for which market quotations are not
available, if any, are valued in accordance with procedures established by the
Board of Trustees.
The value of a foreign security is determined 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 foreign securities and
foreign exchange rates may occur between the times at which they are determined
and the close of the exchange and will, therefore, not be reflected in the
computation of the Fund's net asset value, unless material. If events which
materially affect the value of these foreign securities occur during such
period, then these securities will be valued in accordance with procedures
established by the Board of Trustees.
b. Income Taxes:
The Trust intends to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make the
requisite distributions to its shareholders which will be sufficient to relieve
it from income and excise taxes. Therefore, no income tax provision is required.
Each Fund is treated as a separate entity in the determination of compliance
with the Internal Revenue Code.
c. Security Transactions:
Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification for both financial statement
and income tax purposes.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
d. Investment Income, Expenses and Distributions:
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income and estimated expenses are accrued daily. Bond
discount, if any, is amortized as required by the Internal Revenue Code.
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions.
e. Expense Allocation:
Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each Fund to the combined net assets. In all other
respects, expenses are charged to each Fund as incurred on a specific
identification basis.
f. Foreign Currency Translation:
The accounting records of the Trust are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies are translated into U.S.
dollars at the rate of exchange of such currencies against U.S. dollars on the
date of the valuation. Purchases and sales of securities, income and expenses
are translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income and expense amounts
recorded and collected or paid are recognized when reported by the custodian
bank.
The Trust does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency gains
or losses realized between the trade date and settlement dates on securities
transactions, the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Trust's books, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at the end of the period,
resulting from changes in exchange rates.
g. Forward Foreign Currency Contracts:
A forward currency contract, which is individually negotiated and privately
traded by currency traders and their customers, is a commitment to purchase or
sell a specific currency for an agreed upon price at a future date.
The Trust may enter into forward contracts with the objective of minimizing the
risk of the Trust from adverse changes in the relationship between currencies or
to enhance Fund value. The Trust may also enter into a forward contract in
relation to a security denominated in a foreign currency or when it anticipates
receipt in a foreign currency of dividends or interest payments in order to
"lock in" the U.S. dollar price of a security or the U.S. dollar equivalent of
such dividend or interest payments.
The Trust segregates sufficient cash, cash equivalents or readily marketable
debt securities as collateral for commitments created by open forward contracts.
The Trust could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign currency
changes unfavorably.
Any gain or loss realized from a forward currency contract is recorded as a
realized gain or loss from investments. At October 31, 1995, the Trust had no
outstanding foreign currency forward contracts.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
h. Repurchase Agreements:
The Trust may enter into a Joint Repurchase Agreements whereby its uninvested
cash balances are deposited into a joint cash account to be used to invest in
one or more repurchase agreements with government securities dealers recognized
by the Federal Reserve Board and/or member banks of the Federal Reserve System.
The value and face amount of the Joint Repurchase Agreement has been allocated
to the Funds based on their pro rata interest.
In a repurchase agreement, the Trust purchases a U.S. Government security from a
dealer or bank subject to an agreement to resell it at a mutually agreed upon
price and date. Such a transaction is accounted for as a loan by the Trust to
the seller, collaterized by the underlying security. The transaction requires
the initial collaterization of the seller's obligation by U.S. government
securities with market value, including accrued interest, of at least 102% of
the dollar amount invested by the Trust, with the value of the underlying
security marked to market daily to maintain coverage of at least 100%. The
collateral is delivered to the Trust's custodian and held until resold to the
dealer or bank. At October 31, 1995, all outstanding joint repurchase agreements
held by the Trust had been entered into on that date.
2. UNAMORTIZED ORGANIZATION COSTS
The organization costs of each Fund are amortized on a straight-line basis over
a period of five years from September 20, 1991 (the effective day of the
registration under the Securities Act of 1933). In the event Franklin Resources,
Inc. (which was the sole shareholder prior to September 20, 1991) redeems its
shares within the five year period, the pro-rata share of the then unamortized
deferred organization costs will be deducted from the redemption price paid to
Franklin Resources, Inc.
New investors purchasing shares of the Funds subsequent to that date bear such
costs during the amortization period only as such charges are accrued daily
against investment income.
<TABLE>
<CAPTION>
3. TRUST SHARES
At October 31, 1995, there were an unlimited number of $.01 par value shares of
beneficial interest authorized. Transactions in each of the Fund's shares for
the years ended October 31, 1995 and 1994 were as follows:
Franklin Pacific Franklin International
Growth Fund Equity Fund
------------------- -------------------
Shares Amount Shares Amount
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Year ended October 31, 1995
Shares sold ................................................ 555,600 $ 7,787,181 536,079 $ 6,892,374
Shares issued in reinvestment of distributions ............. 102,552 1,423,427 221,229 2,728,090
Shares redeemed ............................................ (670,145) (9,387,914) (625,269) (8,024,312)
Changes from exercise of exchange privilege:
Shares sold ............................................... 3,461,542 48,778,021 1,197,116 15,441,515
Shares redeemed ........................................... (3,671,174) (51,922,479) (1,658,944) (21,189,024)
-------- ---------- -------- ----------
Net decrease ............................................... (221,625)$ (3,321,764) (329,789)$ (4,151,357)
======== ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
3. TRUST SHARES (cont.)
Franklin Pacific Franklin International
Growth Fund Equity Fund
------------------- -------------------
Shares Amount Shares Amount
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Year Ended October 31, 1994
Shares sold ................................................ 1,264,909 $ 19,532,648 918,242 $ 12,289,792
Shares issued in reinvestment of distributions ............. 40,119 608,594 46,611 599,058
Shares redeemed ............................................ (359,599) (5,536,957) (335,945) (4,490,047)
Changes from exercise of exchange privilege:
Shares sold ............................................... 6,124,921 93,795,170 6,103,434 81,761,759
Shares redeemed ........................................... (4,855,164) (74,279,211) (4,115,714) (55,176,512)
-------- ---------- -------- ----------
Net increase ............................................... 2,215,186 $ 34,120,244 2,616,628 $ 34,984,050
======== ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
4. PURCHASES AND SALES OF SECURITIES
Aggregate purchases and sales of securities (excluding purchases and sales of
short-term securities) for the year ended October 31, 1995 were as follows:
Franklin Franklin
Pacific International
Growth Fund Equity Fund
--------- ---------
<S> <C> <C>
Purchases ............................................................................ $18,155,976 $ 4,000,234
========= =========
Sales ................................................................................ $22,592,750 $12,330,630
========= =========
</TABLE>
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Franklin Advisers, Inc. ("Manager"), under the terms of a management agreement,
provides investment advice, office space and facilities to each Fund and
receives fees computed monthly on the average daily net assets of each Fund at
an annualized rate of 1% of the first $100 million of net assets; 9/10 of 1% of
net assets in excess of $100 million up to and including $250 million; 8/10 of
1% of net assets in excess of $250 million up to and including $500 million; and
3/4 of 1% of net assets in excess of $500 million. Under a subadvisory
agreement, Templeton Investment Counsel, Inc. ("TICI" or the "Subadviser"), an
indirect subsidiary of Templeton Worldwide, Inc., which is a direct,
wholly-owned subsidiary of Franklin Resources, Inc. receives from the Manager a
fee equal to an annual rate of 1/2 of 1% of the value of each Fund's net assets
up to and including $100 million; 2/5 of 1% of net assets in excess of $100
million up to and including $250 million; 3/10 of 1% of net assets in excess of
$250 million up to and including $500 million; and 1/4 of 1% of net assets in
excess of $500 million. The terms of these agreements provide that aggregate
annual expenses of the Funds be limited to the extent necessary to comply with
the limitations set forth in the laws, regulations, and administrative
interpretations of the states in which the Funds' shares are registered. For the
year ended October 31, 1995, the Funds' expenses did not exceed these
limitations.
<TABLE>
<CAPTION>
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
In its capacity as underwriter for the shares of the Trust, Franklin Templeton
Distributors, Inc. receives commissions on sales of the Trust's shares.
Commissions received by Franklin Templeton Distributors, Inc. and the amounts
which were subsequently paid to other dealers for the year ended October 31,
1995 were as follows:
Franklin Franklin
Pacific International
Growth Fund Equity Fund
-------- --------
<S> <C> <C>
Total commissions received ............................................................. $255,959 $222,274
======== ========
Paid to other dealers .................................................................. $227,217 $197,147
======== ========
</TABLE>
Commissions are deducted from the gross proceeds received from the sale of the
shares of the Trust, and as such are not expenses of the Funds.
Under the terms of a distribution agreement pursuant to Rule 12b-1 of the
Investment Company Act of 1940, the Funds will reimburse Franklin Templeton
Distributors, Inc., in an amount up to 0.25% per annum of the Funds' average
daily net assets for cost incurred in the promotion, offering, and marketing of
the Funds' shares. Cost incurred by the Pacific Fund and International Fund
under the agreement aggregated $101,772 and $113,904, respectively, for the year
ended October 31, 1995.
Pursuant to a shareholder service agreement with Franklin Templeton Investor
Services, Inc., the Funds pay costs on a per shareholder account basis. Such
costs incurred for the year ended October 31, 1995 aggregated $112,208.
Certain officers and trustees of the Trust are also officers and/or directors of
Franklin Templeton Distributors, Inc., Franklin Advisers, Inc., Templeton
Worldwide, Inc., Templeton Investment Counsel, Inc., and Franklin Templeton
Investor Services, Inc., all wholly-owned subsidiaries of Franklin Resources,
Inc.
<TABLE>
<CAPTION>
6. RULE 144A SECURITIES
Rule 144A provided a non-exclusive safe harbor exemption from registration
requirements of the Securities Act of 1933 for specified resales of restricted
securities to qualified institutional investors. The Funds value these
securities as disclosed in Note 1. See the accompanying Statement of Investments
and Net Assets for specific information on such securities.
At October 31, 1995, 144A securities were held as follows:
Franklin Franklin
Pacific International
Growth Fund Equity Fund
-------- --------
<S> <C> <C>
Value .................................................................................. $276,500 $850,287
======== ========
Ratio of value to net assets ........................................................... .54% 1.67%
======== ========
</TABLE>
7. PROPOSED REORGANIZATION
The Board of Directors has approved an Agreement and Plan of Reorganization,
subject to shareholder approval, providing for the acquisition of all or
substantially all of the assets of the International Fund by Templeton Foreign
Fund ("Foreign Fund"), in exchange for shares of Foreign Fund and the assumption
by Foreign Fund of certain identified liabilities of the International Fund. The
shares if Foreign Fund thereby received would be distributed to shareholders of
the International Fund and the International Fund would be liquidated and
dissolved.
<TABLE>
<CAPTION>
8. FINANCIAL HIGHLIGHTS
Select data for each share of beneficial interest outstanding throughout each
period, by Fund, are as follows:
Per Share Operating Performance Ratios/Supplemental Data
------------------------------------------------------ --------------------------
Net Ratio
Realized & Total Distri- Distri- of Net
Net Asset Net Unrealized From butions butions Net Asset Net Assets Ratio of Investment
Year Value at Invest- Gain (Loss) Invest- From Net From Total Value at End Expenses Income Portfolio
Ended Beginning ment on ment Investment Capital Distri- at End Total of Year to Average to Average Turnover
Oct.31 of Year Income Securities Operations Income Gains butions of Year Return++ (in 000's) Net Assets Net Assets Rate
- - ------------------------------------------------------------------------------------------------------------------------------------
Franklin Pacific Growth Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1991+ $10.01$ .06 $ -- $ .060 $ -- $ -- $ -- $10.07 .60% $ 1,165 --%** 5.01%* --%
1992 10.07 .14 .836 .976 (.146) -- (.146) 10.90 9.77 5,724 .29** 1.80 62.96
1993 10.90 .19 3.825 4.015 (.193) (.282) (.475) 14.44 38.46 22,619 .50** 2.03 47.52
1994 14.44 .21 1.008 1.218 (.198) (.060) (.258) 15.40 8.46 58,241 1.22** 1.54 9.16
1995 15.40 .15 (1.013) (.863) (.156) (.271) (.427) 14.11 (5.54) 50,247 1.72 1.04 36.21
Franklin International Equity Fund
1991+ 10.01 .06 -- .060 -- -- -- 10.07 .60 1,286 --** 4.92* --
1992 10.07 .19 (.038) .152 (.202) -- (.202) 10.02 1.46 6,944 .29** 2.36 48.78
1993 10.02 .42 2.253 2.673 (.413) -- (.413) 12.28 27.40 19,217 .50** 4.22 52.99
1994 12.28 .23 1.540 1.770 (.220) -- (.220) 13.83 14.56 57,854 1.22** 1.99 21.80
1995 13.83 .25 (.077) .173 (.190) (.588) (.778) 13.23 1.75 50,947 1.63 1.86 9.12
*Annualized
+For the period September 20, 1991 (effective date of registration) to October 31, 1991.
++Total return measures the changes in value of an investment over the periods
indicated. It does not include the maximum initial sales charge and assumes
reinvestment of dividends and capital gains, if any, at net asset value and is
not annualized.
**During the periods indicated below, Franklin Advisers, Inc., the investment
manager, agreed to waive in advance a portion of its management fees. Had such
action not been taken, ratios of expenses to average net assets would have been
as follows:
</TABLE>
Ratio of expenses to
average net assets
-------------------
Franklin Pacific Growth Fund
1991 .................................. 2.50%*
1992 .................................. 2.50
1993 .................................. 2.31
1994 .................................. 1.72
Ratio of expenses to
average net assets
-------------------
Franklin International Equity Fund
1991 .................................. 2.50%*
1992 .................................. 2.50
1993 .................................. 2.27
1994 .................................. 1.76
FRANKLIN INTERNATIONAL TRUST
Report of Independent Accountants
To the Shareholders and Board of Trustees
of Franklin International Trust:
We have audited the accompanying statements of assets and liabilities of the
funds comprising the Franklin International Trust, including each Fund's
statement of investments in securities and net assets as of October 31, 1995,
and the related statements of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for the periods indicated thereon. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
funds comprising the Franklin International Trust as of October 31, 1995, the
results of their operations for the year then ended, the changes in their net
assets for each of the two years in the period then ended, and the financial
highlights for the periods indicated thereon, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
November 30, 1995,
except as to the information
presented in Note 7 for which
the date is December 15, 1995.
Franklin International Trust
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING
(PURSUANT TO ITEM 304 (a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
This chart shows in pie chart format the fund's securities breakdown by
region as a percentage of the fund's total net assets.
Franklin Pacific Growth Fund
Regional Breakdown on 10/31/95
Hong Kong 26.9%
Japan 20.3%
Australia 11.4%
Thailand 6.5%
Indonesia 5.0%
Philippines 5.0%
Singapore 4.8%
Malaysia 4.2%
Pakistan 2.5%
United States 1.7%
Other Countries 3.8%
Short-Term Obligations & Other Net Assets 7.9%
GRAPHIC MATERIAL (2)
The following line graph hypothetically compares the performance of Franklin
Pacific Growth Fund to that of the MSCI Pacific Basin Index, based on a
$10,000 investment from 9/20/91 to 10/31/95.
Period Ending Fund Index
9/20/91 $9552 $10000
9/30/91 $9571 $10250
10/31/91 $9609 $10688
11/30/91 $9552 $10002
12/31/91 $9899 $10311
1/31/92 $9947 $9913
2/29/92 $10149 $9220
3/31/92 $9947 $8345
4/30/92 $10101 $7964
5/31/92 $10592 $8587
6/30/92 $10964 $7914
7/31/92 $10296 $7806
8/31/92 $10025 $8877
9/30/92 $10064 $8675
10/31/92 $10548 $8371
11/30/92 $10451 $8530
12/31/92 $10260 $8434
1/31/93 $10430 $8420
2/28/93 $10861 $8830
3/31/93 $10861 $9899
4/30/93 $11612 $11478
5/31/93 $12172 $11814
6/30/93 $11914 $11622
7/31/93 $12167 $12311
8/31/93 $12895 $12677
9/30/93 $13037 $12205
10/31/93 $14604 $12478
11/30/93 $14534 $10719
12/31/93 $16512 $11468
1/31/94 $16685 $12797
2/28/94 $16154 $13129
3/31/94 $14889 $12406
4/30/94 $15103 $12945
5/31/94 $15807 $13255
6/30/94 $15316 $13690
7/31/94 $15727 $13398
8/31/94 $16427 $13633
9/30/94 $15738 $13294
10/31/94 $15840 $13632
11/30/94 $14657 $12874
12/31/94 $14748 $12962
1/31/95 $13473 $12146
2/28/95 $14084 $11847
3/31/95 $14484 $12759
4/30/95 $14663 $13304
5/31/95 $15221 $12774
6/30/95 $14941 $12235
7/31/95 $15546 $13119
8/31/95 $15355 $12627
9/30/95 $15588 $12746
10/31/95 $14973 $12128
GRAPHIC MATERIAL (3)
This chart shows in pie chart format the fund's securities breakdown by
region as a percentage of the fund's total net assets.
Franklin International Equity Fund
Regional Breakdown on 10/31/95
European Stocks 58.6%
Asian Stocks 11.9%
Australian & New Zealand Stocks 6.1%
North American Stocks 4.8%
Latin American Stocks 3.2%
Fixed-Income Securities 4.5%
Short-Term Obligations & Other Net Assets 10.9%
GRAPHIC MATERIAL (4)
The following line graph hypothetically compares the performance of Franklin
International Equity Fund to that of the MSCI EAFE Index, based on a $10,000
investment from 9/20/91 to 10/31/95.
Period Ending Fund Index
9/20/91 $9552 $10000
9/30/91 $9571 $10268
10/31/91 $9609 $10416
11/30/91 $9523 $9933
12/31/91 $9904 $10449
1/31/92 $10019 $10229
2/29/92 $10115 $9865
3/31/92 $9721 $9217
4/30/92 $9942 $9263
5/31/92 $10471 $9886
6/30/92 $10274 $9420
7/31/92 $10041 $9182
8/31/92 $10099 $9761
9/30/92 $9934 $9571
10/31/92 $9749 $9072
11/30/92 $9905 $9160
12/31/92 $9992 $9210
1/31/93 $9845 $9212
2/28/93 $10021 $9493.
3/31/93 $10256 $10323
4/30/93 $10637 $11306
5/31/93 $10969 $11548
6/30/93 $10620 $11370
7/31/93 $10802 $11771
8/31/93 $11489 $12408
9/30/93 $11449 $12132
10/31/93 $12420 $12509
11/30/93 $12066 $11418
12/31/93 $13291 $12245
1/31/94 $14287 $13283
2/28/94 $14053 $13249
3/31/94 $13555 $12681
4/30/94 $13657 $13222
5/31/94 $13708 $13149
6/30/94 $13322 $13338
7/31/94 $13878 $13469
8/31/94 $14300 $13791
9/30/94 $13971 $13359
10/31/94 $14228 $13807
11/30/94 $13518 $13147
12/31/94 $13276 $13232
1/31/95 $12951 $12727
2/28/95 $13157 $12694
3/31/95 $13113 $13489
4/30/95 $13720 $14000
5/31/95 $13991 $13836
6/30/95 $14345 $13597
7/31/95 $15024 $14448
8/31/95 $14586 $13900
9/30/95 $14947 $14176
10/31/95 $14477 $13798
<PAGE>
Templeton
Foreign Fund
- - ------------------
[PHOTO OF
MARK HOLOWESKO
APPEARS HERE]
- - ------------------
Mark Holowesko
Director of Global
Equity Research.
- - ------------------
Mark G. Holowesko is the president and portfolio manager of Templeton Foreign
Fund, as well as several other Templeton funds. He joined the Templeton
organization in 1985 in Nassau, Bahamas, and serves as director of equity
research worldwide, as well as an officer and director of Templeton Worldwide,
Inc. Mr. Holowesko received a B.A. in Economics from Holy Cross College and an
M.B.A. from Babson College. He is a Chartered Financial Analyst, Chartered
Investment Counselor, and a founding member and director of the International
Society of Financial Analysts.
- - --------------------------------------------------------------------------------
Your Fund's Objective:
The Templeton Foreign Fund seeks long-term capital growth through a flexible
policy of investing in stocks and debt obligations of companies and governments
outside the United States.
- - --------------------------------------------------------------------------------
October 16, 1995
Dear Shareholder:
We are pleased to bring you the 13th annual report of the Templeton Foreign
Fund, which covers the period ended August 31, 1995.
The past fiscal year was marked by extreme volatility in emerging markets and
unexpected advances in developed markets. Stock markets of most developed
countries posted double-digit returns despite the high degree of uncertainty
prevalent in many overseas markets at the beginning of 1995. Much of this
uncertainty
1
<PAGE>
was precipitated by the devaluation of the Mexican peso in December 1994, which
led to a decline of more than 70% (in U.S. dollar terms) in the Mexican equity
market. The ensuing negative impact on financial markets, which was coyly coined
"the Tequila Effect," was not limited to Latin America. Investors in Asian
securities soon discovered that their stocks were declining in value due to
professional money managers' generally poor opinions of most emerging markets.
However, most major developed markets, particularly those in the United States,
the United Kingdom, and Germany, showed surprising strength. One exception was
Japan, which suffered from a deteriorating real estate market and the resulting
impact on its banks.
Cyclical stocks performed very well throughout the reporting period because of
economic growth worldwide. This was especially true of the paper, chemicals and
metals sectors. Other strong performers included financial services and
technology stocks. Although we lacked exposure to the technology sector, our
holdings in these other strong areas helped the performance of the Fund.
- - --------------------------------------------------------------------------------
Templeton Foreign Fund
Geographic Distribution on 8/31/95
Based on Total Net Assets
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
European Stocks 42.5%
Australian &
New Zealand Stocks 7.3%
Latin American Stocks 7.7%
Asian Stocks 12.1%
Other Stocks 3.1%
Fixed-Income Securities 8.9%
Short-Term Obligations &
Other Net Assets 18.4%
</TABLE>
Responding to various economic and financial conditions worldwide, we reduced
our holdings in certain developed markets, particularly the United Kingdom and
the Netherlands, and bought securities in emerging markets, which we felt were
better bargains. The extraordinary potential of emerging markets is often
overshadowed by the sheer size of financial markets in developed countries.
Although developed countries constitute only a small portion of the world's
population, they consume a majority of goods and services
2
<PAGE>
- - --------------------------------------------------------------------------------
TEMPLETON FOREIGN FUND
Top 10 Holdings on 8/31/95
Based on Total Net Assets
<TABLE>
<CAPTION>
% of Total
Name, Industry, Country Net Assets
- - --------------------------------------------------------------------------------
<S> <C>
HSBC Holdings PLC; Banking, Hong Kong 1.6%
- - --------------------------------------------------------------------------------
Telefonos de Mexico SA;
Telecommunications, Mexico 1.6%
- - --------------------------------------------------------------------------------
Telebras-Telecommunicacoes Brasileiras SA;
Telecommunications, Brazil 1.6%
- - --------------------------------------------------------------------------------
U.S Treasury Note, 6.375%, 1/15/00;
Government Bond, United States 1.5%
- - --------------------------------------------------------------------------------
U.S Treasury Note, 6.375%, 7/15/99;
Government Bond, United States 1.5%
- - --------------------------------------------------------------------------------
U.S Treasury Note, 6.0%, 10/15/99;
Government Bond, United States 1.5%
- - --------------------------------------------------------------------------------
Volvo AB, B; Automobiles, Sweden 1.4%
- - --------------------------------------------------------------------------------
Societe Elf Acquitaine SA; Energy Sources,
France 1.3%
- - --------------------------------------------------------------------------------
Iberdrola SA; Utilities - Electrical & Gas,
Spain 1.1%
- - --------------------------------------------------------------------------------
Asea AB, A; Electrical & Electronics, Sweden 1.1%
- - --------------------------------------------------------------------------------
</TABLE>
For a complete list of portfolio holdings, please see page 14 of this report.
worldwide. Consider also, that Asia's total Gross National Product (GNP) is
amazingly close to the GNP of the U.S. alone, yet Asia has 3.1 billion people,
compared with only 260 million in the U.S. As the world's developing markets
evolve, these countries' per-capita wealth should increase, which will affect
consumption patterns and raise standards of living. We already see this
happening in Asia, where GNP has been increasing significantly faster than in
the U.S.
Looking forward, the world's financial markets should, hopefully, continue to be
volatile. I say "hopefully," because the more volatile the market, the more
share prices tend to fluctuate. The more share prices fluctuate, the less likely
the market will reflect the "true" value of a company, and the easier it becomes
for us to find potential bargain-priced stocks for your Fund. Many investors are
frightened by volatility, but we welcome the opportunity it provides us. While
short-term volatility can be disconcerting, declines of as much as 40% to 50%
are not unusual in emerging markets. For example, the Hong Kong market has
increased 763% in the last 15 years, but has suffered six declines of more than
20% during that time.* There are, of course, special risks involved with foreign
investing related to market, currency, economic, political, and other factors.
Developing markets involve similar but heightened risks, in addition to risks
*Source: Bloomberg. Based on quarterly percentage change over 15 years ended
June 30, 1995.
3
<PAGE>
associated with the relatively small size and lesser liquidity of these markets.
These risks are discussed in the Fund's prospectus.
In closing, we would like to mention that although Sir John Templeton has not
been involved in investment management of the Templeton Funds since October
1992, we were saddened by his recent decision to step down as Chairman and
Director of the U.S.-registered Templeton funds. The Fund's Board of Directors
have elected John Wm. Galbraith, former vice chairman of Templeton, Galbraith &
Hansberger, Ltd. to succeed him. The investment manager will continue to use the
investment philosophies and principles established by Sir John.
We thank you for your participation in the Templeton Foreign Fund and welcome
any comments or suggestions you may have.
Sincerely,
/s/ Mark Holowesko
Mark Holowesko, CFA
President
Templeton Foreign Fund
4
<PAGE>
Q & A
THE FOLLOWING IS AN INTERVIEW
WITH MARK HOLOWESKO, PORTFOLIO
MANAGER OF TEMPLETON
FOREIGN FUND:
Did the Fund's portfolio change dramatically over the course of the year? If so,
what are some of the stocks you bought and sold?
Our portfolios generally do not change dramatically from one year to the next,
which reflects our "value" style of investing. We concentrate on a company's
prospects over a full business cycle, traditionally a three to five year period,
and we tend to hold its shares for about that long. This gives us a relatively
low portfolio turnover rate, typically about 20% per year.
This year, we concentrated on capturing some of the value we discovered in
emerging markets, particularly Latin America, after a series of major price
declines. For example, we purchased shares of Telefonos de Mexico SA (Telmex),
Telecomunicacoes Brasileiras SA (Telebras), and YPF Sociedad Anonima. We also
added to several economically sensitive European stocks, such as Volvo AB and
Asea AB.
5
<PAGE>
What were your best performing stocks and sectors?
The commodity sectors, most notably aluminum and paper, performed well and
provided significant gains for the Fund. Increasing economic activity and
growing demand for commodities in emerging markets led to rising prices for
aluminum and paper, which gave a big boost to the stock prices of companies
operating in those industries. The Fund's positions in stocks such as Alcan
Aluminum Ltd. and Comalco Ltd. benefited from this trend. Other strong
performers included BMW and Singapore Airlines Ltd.
Were there any disappointments?
In other words, were there any stocks that did not
perform up to your expectations?
Yes, there were. Every year, about one-third of our stock picks do not live up
to our expectations. This is normally due to some unanticipated event at the
company, a major change in the industry that adversely impacts the company, or
less-than-perfect stock selection on our part. If we can continue to keep our
mistakes to roughly one-third of our selections, we should be able to achieve
the type of returns investors have come to expect. Examples of stocks that did
not perform as well as we had hoped include Celsius Industrier AB, Electrolux
AB, Oriental Press Group Ltd., and Peregrine Investments Holdings Ltd. Although
these stocks declined in price, we did not sell them because we continued to
believe they represented excellent potential long-term value.
How should investors deal with market declines?
First, investors should be aware that just as bull markets, or prolonged share
price increases, are a normal part of stock market activity, so are bear
markets, or prolonged stock price declines. Second, investors should not only
expect market declines and use them to their advantage, but they should
concentrate on those stocks that have already declined in price even if the
overall market has not. Our investments in several utility and real estate
stocks, which had already experienced 25% price declines from their recent
Q & A
6
<PAGE>
peaks, reflect this strategy. To a certain extent, by purchasing shares of
companies whose prices have already declined, but whose business practices are
solid, you may be able to protect yourself during market declines.
Emerging markets appear to be recovering after a poor showing in 1994. What is
your outlook for these markets in the near future?
As I mentioned earlier, it is difficult for us to predict how specific markets
will perform. I believe, however, that the risk of investing in these markets
may have declined because so many of them have already experienced major price
corrections. We are also excited about the rising standards of living in many of
these countries and the impact this should have on consumption. Today, about 15%
of the world's population live in countries belonging to the Organisation of
Economic Cooperation and Development, but they consume 75% of most goods and
services worldwide. As the remaining 85% of the world's population grows
economically, consumption patterns of certain goods and services will be
significantly affected. We are already beginning to see this happen, and we have
invested assets of the Fund in seeking to benefit from this trend.
Many investors are concerned about China's assuming control of Hong Kong in
1997. What are your thoughts on this matter?
Investors in the Hong Kong market should take some comfort from several
observations. First, the entire world seems to know about China's gaining
control of Hong Kong in 1997, and one has to believe that the uncertainty of the
event has already been discounted in Hong Kong share prices. Second, there is an
agreement in place that details how Hong Kong will be run after China assumes
control, and most of the provisions of that agreement appear sensible. Finally,
Hong Kong's importance to China as a source of capital and "know-how" should not
be underestimated. Hong Kong contributes the majority of China's
Q & A
7
<PAGE>
foreign investment capital, and the Chinese government is one of the largest
investors in Hong Kong's real estate and stock markets.
Does the overall market look expensive now, or are you finding a number of
bargain stocks?
On August 31, our bargain list contained roughly 140 names. During the 10 years
I have been with Templeton, this list has fluctuated between 80 and 200 names.
Today, we are finding a "normal" number of good ideas, which is in contrast to
the Fund's above-normal cash level. This cash position is a result of our
selling shares of relatively large companies and buying lower-priced shares of
companies that are a bit smaller in size.
Q & A
8
<PAGE>
PERFORMANCE SUMMARY
Templeton Foreign Fund Class I shares provided a total return of 3.14% for the
one-year period ended August 31, 1995. Total return measures the change in value
of an investment, assuming reinvestment of dividends and capital gains
distributions, and does not include the current maximum 5.75% initial sales
charge.
We have always maintained a long-term perspective when managing the Fund, and we
encourage shareholders to view their investments in a similar manner. As you can
see from the chart on page 10, the Fund's Class I shares delivered a cumulative
total return of more than 385% for the 10-year period ended August 31, 1995.
As measured by net asset value, the price of the Fund's Class I shares decreased
from $10.01 on August 31, 1994 to $9.62 on August 31, 1995, while the price of
the Fund's Class II shares increased from $9.16 on May 1, 1995 (the inception
date for these shares) to $9.59 on August 31, 1995. Please note that Class I
share prices reflect performance for an entire year, whereas Class II prices
reflect performance for the four-month period these shares have been in
existence.
During the reporting period, Class I shareholders received distributions
totalling 15.5 cents ($0.155) per share in dividend income and 51.5 cents per
share in capital gains, of which 34 cents ($0.34) represented long-term gains
and 17.5 cents ($0.175) represented short-term gains. Class II shareholders did
not receive distributions because these shares were not in existence when
distributions were paid. Of course, past performance is not predictive of future
results, and distributions will vary depending on income earned by the Fund, as
well as any profits realized from the sale of securities in the portfolio.
The graph on the following page shows how a $10,000 investment in the Fund, over
the past ten years, has outperformed the unmanaged Morgan Stanley Capital
International Europe, Australia, Far East (EAFE) Index. It also shows how an
investment in the Fund over the same period has kept your purchasing power well-
ahead of inflation, as measured by the Consumer Price Index (CPI). Class II
shares are not represented as they have not been available for a sufficient
period of time. Please remember that the Fund's performance differs from that of
the index because the index does not contain cash (the Fund generally carries a
certain percentage of cash at any given time) and includes no sales charges or
management expenses. Of course, one cannot invest directly in an index.
9
<PAGE>
- - --------------------------------------------------------------------------------
TEMPLETON FOREIGN FUND - CLASS I
Total Return Index Comparison
$10,000 Investment (8/31/85 - 8/31/95)
[Graph appears here showing comparison between Templeton Foreign Fund, MSCI EAFE
Index and the CPI]
<TABLE>
<CAPTION>
8/85 9/95
<S> <C> <C>
Templeton Foreign Fund/1/ $10,000 $45,750
MSCI Eafe Index/2/ $10,000 $42,840
CPI/3/ $10,000 $14,184
</TABLE>
/1/ Includes all sales charges and represents the change in value of an
investment over the period shown. Total return assumes reinvestment
of dividends and capital gains. Past performance is not predictive
of future results.
/2/ Index is unmanaged and includes reinvested dividends.
/3/ Source: U.S. Bureau of Labor Statistics.
- - --------------------------------------------------------------------------------
TEMPLETON FOREIGN FUND
Periods ended August 31, 1995
<TABLE>
<CAPTION>
Since Since
Inception Inception
One-Year Five-Year Ten-Year (10/05/82) (05/01/95)
<S> <C> <C> <C> <C> <C>
Average Annual
Total Return/1/
Class I Shares -2.79% 8.99% 16.42% 16.77% --
Aggregate
Total Return/2/
Class II Shares -- -- -- -- 2.80%
Cumulative
Total Return/3/
Class I Shares 3.14% 63.16% 385.40% 684.60% --
Class II Shares -- -- -- -- 4.81%
</TABLE>
1. Average annual total return represents the average annual change in value of
an investment over the specified periods. The figures have been restated to
reflect the current maximum 5.75% initial sales charge for Class I Shares.
See note below.
2. Aggregate total return represents the change in value of an investment over
the period indicated and reflects the deduction of the maximum 1.00% initial
sales charge and 1.00% contingent deferred sales charge (CDSC) for Class II
Shares, applicable to shares redeemed within the first 18 months of investment.
Since Class II shares have existed for less than one year, average annual total
returns are not provided. See note below.
3. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the maximum 5.75% initial sales
charge for Class I Shares, or the maximum 1.00% initial sales charge and 1.00%
CDSC for Class II Shares, applicable to shares redeemed within the first 18
months of investment. See note below.
Note: Prior to July 1, 1992, Class I shares were offered at a higher initial
sales charge. Thus, actual total returns to purchasers of shares during that
period would have been different than noted above. Class II shares, which the
Fund began offering on May 1, 1995, are subject to different fees and expenses,
which will affect their performance. Please see the prospectus for more details
regarding Class I and Class II shares.
All total return calculations reflect the deduction of a proportional share of
Fund expenses on an annual basis and assume that all dividends and capital gains
distributions were reinvested when paid. Investment return and principal value
will fluctuate with market conditions, currencies and the economic and political
climates of countries where investments are made, so that your shares, when
redeemed, may be worth more or less than their initial cost. Past performance is
not predictive of future results.
- - --------------------------------------------------------------------------------
10
<PAGE>
Templeton Foreign Fund--
Class I
If you had invested $10,000 in the Templeton Foreign Fund at its inception, it
would be worth over $73,000 today. The chart below illustrates the cumulative
total return of an assumed $10,000 investment in the Fund on October 5, 1982,
with income dividends and capital gains distributions reinvested through
August 31, 1995.*
[Mountain Chart appears here showing an initial Investment of $10,000 made on
10/05/82 (Initial Net Asset Value of $9,425) would be valued at $73,931 on
08/31/95]
*The amount of capital gains distributions accepted in shares was $24,416. The
total amount of dividends reinvested was $15,522. The performance information
shown represents past performance and is not an indication of future results.
For standardized performance figures, please refer to the Performance Summary on
page 10. Class II shares, which the Fund began offering on May 1, 1995, are
subject to different fees and expenses, which will affect their performance.
Please see the prospectus for more details regarding Class I and Class II
shares.
11
<PAGE>
TEMPLETON FOREIGN FUND
Financial Highlights
- - --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE+ (For a share outstanding throughout the year)
<TABLE>
<CAPTION>
CLASS I
----------------------------------------------------------
YEAR ENDED AUGUST 31
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of year $ 10.01 $ 8.74 $ 7.92 $ 7.91 $ 8.19
---------- ---------- ---------- ---------- ----------
Income from investment
operations:
Net investment income .23 .14 .14 .20 .25
Net realized and
unrealized gain .05 1.39 1.21 .43 .03
---------- ---------- ---------- ---------- ----------
Total from investment
operations .28 1.53 1.35 .63 .28
---------- ---------- ---------- ---------- ----------
Distributions:
Dividends from net in-
vestment income (.16) (.13) (.19) (.23) (.26)
Distributions from net
realized gains (.51) (.13) (.34) (.39) (.30)
---------- ---------- ---------- ---------- ----------
Total distributions (.67) (.26) (.53) (.62) (.56)
---------- ---------- ---------- ---------- ----------
Change in net asset
value (.39) 1.27 .82 .01 (.28)
---------- ---------- ---------- ---------- ----------
Net asset value, end of
year $ 9.62 $ 10.01 $ 8.74 $ 7.92 $ 7.91
========== ========== ========== ========== ==========
TOTAL RETURN* 3.14% 17.94% 18.65% 8.52% 4.17%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(000) $6,941,238 $5,014,438 $2,667,771 $1,672,161 $1,211,525
Ratio of expenses to av-
erage net assets 1.15% 1.14% 1.12% .94% .80%
Ratio of net investment
income to average net
assets 2.81% 1.84% 2.11% 2.92% 3.59%
Portfolio turnover rate 21.78% 36.75% 21.29% 22.00% 19.24%
</TABLE>
*TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS.
+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.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
TEMPLETON FOREIGN FUND
Financial Highlights (cont.)
- - --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE (For a share outstanding throughout the period)
<TABLE>
<CAPTION>
CLASS II
---------------
FOR THE PERIOD
MAY 1, 1995+
THROUGH
AUGUST 31, 1995
---------------
<S> <C>
Net asset value, beginning of period $ 9.16
-------
Income from investment operations:
Net investment income .03
Net realized and unrealized gain .40
-------
Total from investment operations .43
-------
Net asset value, end of period $ 9.59
=======
TOTAL RETURN* 4.81%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $63,428
Ratio of expenses to average net assets 1.90%**
Ratio of net investment income to average net assets 1.86%**
</TABLE>
*TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS OR THE DEFERRED CONTINGENT
SALES CHARGE. NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR.
**ANNUALIZED.
+COMMENCEMENT OF OFFERING OF SALES.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
TEMPLETON FOREIGN FUND
Investment Portfolio, August 31, 1995
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- - -------------------------------------------------------------------------------
COMMON STOCKS: 70.4%
- - -------------------------------------------------------------------------------
Aerospace & Military Technical Systems:
1.1%
British Aerospace PLC U.K. 5,805,000 $ 59,447,927
Celsius Industrier AB, B Swe. 1,042,500 14,919,780
--------------
74,367,707
- - -------------------------------------------------------------------------------
Appliances & Household Durables: 1.7%
Chofu Seisaku Co. Ltd. Jpn. 133,000 3,264,638
Electrolux AB, B Swe. 900,000 39,257,443
Email Ltd. Aus. 6,091,100 16,253,189
Fisher & Paykel Ltd. N.Z. 3,673,800 11,235,520
Luks Industrial Co. Ltd. H.K. 24,400,000 3,246,609
*Luks Industrial Co. Ltd.,
wts. H.K. 1,480,000 22,178
Sony Corp. Jpn. 800,000 43,692,150
--------------
116,971,727
- - -------------------------------------------------------------------------------
Automobiles: 4.3%
Bayerische Motorenwerke AG
(BMW) Ger. 93,375 51,839,663
Ciadea SA Arg. 3,555,518 14,585,645
Consorcio G Grupo Dina SA de
CV Mex. 4,521,700 3,466,036
Consorcio G Grupo Dina SA de
CV, ADR Mex. 839,300 2,832,638
Peugeot SA Fr. 358,100 47,312,086
Regie Nationale des Usines
Renault SA Fr. 719,400 20,348,883
Tofas Turk Otomobil Fabrikasi
AS, GDR Tur. 19,400,000 15,520,000
Volkswagen AG Ger. 160,000 48,937,330
Volvo AB, B Swe. 5,005,300 99,395,834
--------------
304,238,115
- - -------------------------------------------------------------------------------
Banking: 11.5%
ABN AMRO Holding NV Neth. 1,335,676 51,381,520
*ABN AMRO Holding NV, trading
cpn. Neth. 1,335,676 1,339,329
Argentaria Corporacion
Bancaria de Espana SA Sp. 1,188,800 45,402,264
Australia & New Zealand
Banking Group Ltd. Aus. 17,483,755 70,964,798
Banco Bilbao Vizcaya Sp. 1,700,000 51,439,164
Banco Central Hispano Sp. 929,000 19,369,598
Banco Popular Espanol Sp. 270,125 41,567,633
Banco Portugues de
Investimento SA Port. 789,630 11,654,100
Banco Santander SA Sp. 400,000 16,361,027
Bank of Ireland Irl. 2,176,000 12,560,079
Bank Slaski SA W Katowicach Pol. 230,460 13,054,582
Bankinter SA Sp. 220,000 19,119,758
Barclays PLC U.K. 3,761,000 42,017,130
C.S. Holding, br. Swtz. 452,750 37,104,496
Canadian Imperial Bank of
Commerce Can. 700,000 17,203,500
Daegu Bank Co. Ltd. Kor. 161,870 2,593,856
</TABLE>
14
<PAGE>
TEMPLETON FOREIGN FUND
Investment Portfolio, August 31, 1995 (cont.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- - -------------------------------------------------------------------------------
Banking (cont.)
Ergo Bank SA Gr. 129,440 $ 5,950,445
Grupo Financiero Banamex
Accival SA, L Mex. 150,000 299,283
*Grupo Financiero Serfin SA,
B Mex. 2,793,900 2,386,503
HSBC Holdings PLC H.K. 8,426,712 113,212,511
National Australia Bank Ltd. Aus. 8,343,988 71,623,291
National Bank of Canada Can. 2,784,000 23,066,096
National Westminster Bank PLC U.K. 5,338,888 48,751,483
Philippine National Bank Phil. 30,204 320,451
Shinhan Bank Co. Ltd. Kor. 116,860 2,693,281
*Shinhan Bank Co. Ltd., new Kor. 907 20,317
Standard Chartered PLC U.K. 4,775,300 32,009,211
Svenska Handelsbanken, A Swe. 1,250,000 19,515,736
Westpac Banking Corp. Aus. 9,470,950 35,594,103
--------------
808,575,545
- - -------------------------------------------------------------------------------
Broadcasting & Publishing: 1.5%
Marieberg Tidnings AB, A Swe. 101,300 2,080,994
News Corp. Ltd. Aus. 3,072,100 15,840,685
News International PLC Aus. 3,640,000 18,468,843
NV Holdingsmij de Telegraaf Neth. 120,000 15,387,420
Oriental Press Group Limited H.K. 30,397,000 12,271,105
Sing Tao Holdings Ltd. H.K. 16,702,500 9,925,268
South China Morning Post
Holdings Ltd. H.K. 48,159,000 26,596,011
--------------
100,570,326
- - -------------------------------------------------------------------------------
Building Materials & Components: 0.6%
Anglian Group PLC U.K. 4,000,000 9,589,126
*Corcemar Corp. Arg. 838,732 4,195,968
Keumkang Co. Ltd. Kor. 100,000 7,659,079
Pioneer International Ltd. Aus. 7,351,928 19,120,174
--------------
40,564,347
- - -------------------------------------------------------------------------------
Business & Public Services: 0.1%
Kardex AG, br. Swtz. 150 43,881
- - -------------------------------------------------------------------------------
Chemicals: 3.1%
Akzo Nobel NV Neth. 423,413 49,919,248
Bayer AG Ger. 137,700 35,578,753
DSM NV Neth. 770,000 63,687,025
European Vinyls Corp. EVC
International NV Neth. 553,517 23,513,120
Kemira OY, 144a Fin. 3,000,000 23,686,639
Rhone-Poulenc SA, A Fr. 1,018,400 20,878,567
--------------
217,263,352
- - -------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
TEMPLETON FOREIGN FUND
Investment Portfolio, August 31, 1995 (cont.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- - ------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- - ------------------------------------------------------------------------------
Construction & Housing: 0.2%
Hollandsche Beton Groep NV Neth. 75,300 $ 12,767,366
Raine PLC U.K. 5,300,000 2,384,868
--------------
15,152,234
- - ------------------------------------------------------------------------------
Electrical & Electronics: 3.2%
Alcatel Alsthom SA Fr. 700,000 70,160,148
Asea AB, A Swe. 838,161 74,612,376
BBC Brown Boveri Ltd. Swtz. 7,350 1,512,760
BBC Brown Boveri Ltd., br. Swtz. 9,181 9,684,262
G.P. Batteries International
Ltd. Sing. 2,464,698 6,654,685
Gold Peak Industries Holdings
Ltd. H.K. 20,756,000 9,585,674
Great Wall Electronic
International Ltd. H.K. 34,540,800 2,811,097
Hitachi Ltd. Jpn. 365,000 3,994,375
Philips Electronics NV Neth. 1,001,000 44,894,439
--------------
223,909,816
- - ------------------------------------------------------------------------------
Electronic Components & Instruments: 0.1%
BICC U.K. 1,000,000 5,011,792
- - ------------------------------------------------------------------------------
Energy Equipment & Services: 0.3%
Koninklijke Pakhoed NV Neth. 802,048 24,078,500
- - ------------------------------------------------------------------------------
Energy Sources: 4.8%
Norsk Hydro AS Nor. 602,000 25,415,485
Repsol SA Sp. 1,611,000 50,544,451
Saga Petroleum AS, A Nor. 1,577,640 19,907,905
Saga Petroleum AS, B Nor. 826,380 10,041,695
Shell Transport & Trading Co.
PLC U.K. 2,586,700 34,371,678
Societe Elf Aquitane SA Fr. 1,286,000 94,123,345
Total SA, B Fr. 924,760 54,293,667
Transportadora de Gas del Sur
SA, B, ADR Arg. 391,100 4,057,663
YPF Sociedad Anonima Arg. 1,475,000 26,269,448
YPF Sociedad Anonima, ADR Arg. 1,028,900 18,134,363
--------------
337,159,700
- - ------------------------------------------------------------------------------
Financial Services: 0.7%
Axa SA Fr. 308,100 17,057,503
Baer Holding AG Swtz. 15,000 15,685,298
Govett & Co. Ltd. U.K. 212,300 958,591
Peregrine Investments Holdings
Ltd. H.K. 12,000,000 17,129,570
--------------
50,830,962
- - ------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
TEMPLETON FOREIGN FUND
Investment Portfolio, August 31, 1995 (cont.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- - -------------------------------------------------------------------------------
Food & Household Products: 2.8%
Albert Fisher Group PLC U.K. 28,700,255 $ 24,047,508
Burns Philp & Co. Ltd. Aus. 237,900 506,052
C.P. Pokphand Co. Ltd. H.K. 10,757,000 4,238,322
Cafe de Coral Holdings Ltd. H.K. 25,377,100 6,032,020
Embotelladora Andina SA, ADR Chil. 805,550 27,892,169
Goodman Fielder Ltd. Aus. 15,301,069 13,916,231
Grupo Embotellador de Mexico
SA, B Mex. 189,900 1,195,386
*Grupo Embotellador de Mexico
SA de CV, GDR Mex. 1,683,500 20,622,875
Hillsdown Holdings PLC U.K. 17,046,153 50,518,483
Lam Soon Foods Inc. H.K. 8,000,000 1,291,823
National Foods Ltd. Aus. 8,509,100 8,314,602
Vitro SA Mex. 8,183,320 24,647,769
Vitro SA, ADR Mex. 1,463,840 13,540,520
--------------
196,763,760
- - -------------------------------------------------------------------------------
Forest Products & Paper: 3.0%
Assidomaen AB Swe. 500,000 10,476,869
Carter Holt Harvey Ltd. N.Z. 3,470,600 7,904,100
Cartiere Burgo SPA Itl. 2,031,750 13,793,205
Enso-Gutzeit OY Fin. 285,000 2,441,809
Enso Gutzeit OY, R Fin. 3,618,200 31,329,619
Fletcher Challenge Ltd., N.Z. N.Z. 16,289,001 44,304,777
Fletcher Forestry, Aus. N.Z. 324,619 402,599
Fletcher Forestry, N.Z. N.Z. 8,796,050 10,874,796
Metsa Serla OY, B Fin. 402,300 15,858,974
Primex Forest Products Ltd. Can. 300,000 1,787,377
PT Barito Pacific Timber, fgn. Indo. 18,872,000 20,399,912
PT Pabrik Kertas Tjiwi Kimia,
fgn. Indo. 2,214,500 4,885,286
Repola OY Fin. 1,243,000 23,763,589
Stora Kopparbergs Bergslags AB,
B Swe. 1,500,000 18,694,021
Unipapel SA Sp. 167,900 4,411,023
--------------
211,327,956
- - -------------------------------------------------------------------------------
Health & Personal Care: 1.4%
Ciba-Geigy AG Swtz. 90,000 63,712,187
Hafslund Nycomed SA, B Nor. 1,346,700 31,889,453
Pacific Chemical Co. Ltd. Kor. 42,290 1,039,201
Swank International
Manufacturing Co. Ltd. H.K. 8,802,000 909,650
--------------
97,550,491
- - -------------------------------------------------------------------------------
Insurance: 3.1%
Ace Ltd. Bmu. 1,682,000 51,721,500
Aegon NV Neth. 734,197 24,674,016
</TABLE>
17
<PAGE>
TEMPLETON FOREIGN FUND
Investment Portfolio, August 31, 1995 (cont.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- - -------------------------------------------------------------------------------
Insurance (cont.)
Baloise-Holding Swtz. 26,611 $ 53,224,208
C.E. Heath International
Holdings Aus. 4,000,000 5,261,536
International Nederlanden Group Neth. 653,500 36,298,936
*International Nederlanden
Group, trading cpn. Neth. 653,500 762,516
London Insurance Group Inc. Can. 300,000 5,892,757
National Mutual Asia Ltd. H.K. 17,154,000 12,298,760
Vital Forsikring AS, A Nor. 600,000 9,908,085
*Zurich Reinsurance Centre
Holdings, Inc. U.S. 643,000 18,968,500
--------------
219,010,814
- - -------------------------------------------------------------------------------
Leisure & Tourism: 0.3%
Grand Hotel Holdings Ltd. H.K. 9,111,000 3,118,996
Kuoni Reisen Holding AG, B Swtz. 11,974 18,185,335
--------------
21,304,331
- - -------------------------------------------------------------------------------
Machinery & Engineering: 0.1%
*Saurer AG Swtz. 20,000 6,473,298
*Tampella AB OY Fin. 1,140,599 3,430,725
--------------
9,904,023
- - -------------------------------------------------------------------------------
Merchandising: 1.5%
Argyll Group PLC U.K. 6,603,978 36,069,393
Cifra SA, B Mex. 15,000,000 19,123,506
Koninklijke Bijenkorf Beheer NV
(KBB) Neth. 150,000 10,072,926
Kwik Save Group PLC U.K. 1,559,100 17,490,524
Sears Canada Inc. Can. 2,000,000 11,729,659
Tesco PLC U.K. 2,407,700 12,197,648
Yaohan Hongkong Corp. Ltd. H.K. 10,000,000 697,584
--------------
107,381,240
- - -------------------------------------------------------------------------------
Metals & Mining: 5.2%
Alcan Aluminum Ltd. Can. 2,209,410 72,193,531
Alcan Australia Ltd. Aus. 2,558,050 6,441,223
*ARBED SA Lux. 237,473 32,130,273
*Asturiana del Zinc SA Sp. 875,000 9,278,823
Bohler Uddeholm AG, 144a Aust. 97,000 6,999,370
Comalco Ltd. Aus. 359,800 1,833,603
De Beers Consolidated Mines
Ltd. S.AF. 578,800 14,841,026
Elkem AS Nor. 1,524,000 18,518,772
Goldfields Ltd. Aus. 204,398 510,069
*Inmet Mining Corp. Can. 852,000 6,741,761
Maanshan Iron & Steel Co. Ltd.,
H Chn. 66,776,000 11,127,896
Outokumpu OY, A Fin. 3,002,134 55,958,018
</TABLE>
18
<PAGE>
TEMPLETON FOREIGN FUND
Investment Portfolio, August 31, 1995 (cont.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- - -------------------------------------------------------------------------------
Metals & Mining (cont.)
*Outokumpu OY, wts. Fin. 822,300 $ 215,480
Pechiney SA Fr. 700,000 16,791,292
Pechiney SA, invt. ctf. Fr. 427,700 27,703,137
Pohang Iron & Steel Co. Ltd. Kor. 184,978 17,552,814
Renison Goldfields Consolidated
Ltd. Aus. 3,632,800 15,154,757
SIG (Schweizerische Industrie
Gesellschaft) Holdings AG Swtz. 1,939 4,200,000
Trelleborg AB, B Swe. 1,500,000 16,331,589
*Union Miniere NPV Bel. 500,000 32,707,340
--------------
367,230,774
- - -------------------------------------------------------------------------------
Multi-Industry: 4.6%
Amer Group Ltd., A Fin. 800,500 13,644,005
BTR Nylex Ltd. Aus. 19,500,000 51,739,689
Cheung Kong Holdings Ltd. H.K. 9,500,000 47,125,694
CNT Group Ltd. H.K. 17,100,000 1,005,103
Dairy Farm International
Holdings Ltd. H.K. 50,087,000 46,580,910
DESC Sociedad de Formento
Industrial SA, B Mex. 3,305,000 13,483,347
Fotex First Hungarian-American
Photo-Service Co. Hun. 1,886,615 2,375,514
Jardine Matheson Holdings Ltd. H.K. 4,470,954 32,190,869
Jardine Strategic Holdings Ltd. H.K. 9,452,849 29,681,946
Pacific Dunlop Ltd. Aus. 24,464,075 57,739,490
Swire Pacific Ltd., A H.K. 2,437,500 18,263,144
Swire Pacific Ltd., B H.K. 7,334,000 8,716,290
--------------
322,546,001
- - -------------------------------------------------------------------------------
Real Estate: 1.1%
Bail-Investissement Fr. 114,380 19,212,677
Hang Lung Development Co. Ltd. H.K. 23,441,000 36,337,941
*Hang Lung Development Co.
Ltd., wts. H.K. 856,700 132,805
Hon Kwok Land Investment Co.
Ltd. H.K. 19,000,000 5,215,734
Ryoden Development Ltd. H.K. 20,000,000 4,857,254
Tai Cheung Holdings Ltd. H.K. 14,199,613 12,290,067
*Tasman Properties Ltd. N.Z. 20,000,000 299,321
--------------
78,345,799
- - -------------------------------------------------------------------------------
Recreation, Other Consumer Goods: 0.2%
+Shenzhen China Bicycles Co.
(Holdings) Ltd., B Chn. 17,824,500 6,217,046
Yue Yuen Industrial (Holdings)
Ltd. H.K. 24,964,000 6,385,315
--------------
12,602,361
- - -------------------------------------------------------------------------------
Telecommunications: 4.3%
Alcatel Cable SA Fr. 63,857 3,997,031
Compania de Telecomunicaciones
de Chile SA, ADR Chil. 168,200 12,278,600
</TABLE>
19
<PAGE>
TEMPLETON FOREIGN FUND
Investment Portfolio, August 31, 1995 (cont.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- - -------------------------------------------------------------------------------
Telecommunications (cont.)
STET (Sta Finanziaria
Telefonica Torino) SPA Itl. 4,989,500 $ 15,252,156
STET (Sta Finanziaria
Telefonica Torino) SPA, di Risp Itl. 2,686,500 6,580,365
Telecom Argentina Stet France
SA, ADR Arg. 582,400 25,334,400
Telecom Italia Mobile, di risp Itl. 7,806,100 7,835,525
Telecom Italia Spa, di Risp Itl. 7,806,100 10,016,597
Telefonica de Argentina SA, B,
ADR Arg. 1,600,000 39,600,000
Telefonica de Espana SA Sp. 5,161,700 69,964,041
Telefonos de Mexico SA, L Mex. 13,623,481 22,231,784
Telefonos de Mexico SA, L, ADR Mex. 2,700,200 88,431,550
--------------
301,522,049
- - -------------------------------------------------------------------------------
Textiles & Apparel: 0.6%
Daehan Synthetic Fiber Co. Ltd. Kor. 18,140 2,322,633
Fountain Set Holdings Ltd. H.K. 5,657,000 979,251
PT Indorama Synthetics, fgn. Indo. 6,000,000 19,986,764
Tae Kwang Industrial Co. Ltd. Kor. 3,010 1,938,670
Winsor Industrial Corp. Ltd. H.K. 11,935,000 13,105,219
--------------
38,332,537
- - -------------------------------------------------------------------------------
Transportation: 4.8%
Anangel-American Shipholdings
Ltd., ADR Gr. 21,300 322,163
*Bremer Vulkan Verbund AG Ger. 600,000 33,188,011
British Airways PLC U.K. 4,252,000 28,105,636
Cathay Pacific Airways Ltd. H.K. 40,060,000 60,289,239
Great Eastern Shipping Co.
Ltd., GDR Ind. 77,700 630,147
IMC Holdings Ltd. H.K. 11,982,000 8,544,198
Koninklijke Nedlloyd NV Neth. 900,000 31,285,324
Malaysian International
Shipping Corp. Bhd., fgn. Mal. 5,569,000 15,980,851
Mayne Nickless Ltd., A Aus. 4,000,000 19,182,057
Peninsular & Oriental Steam
Navigation Co. U.K. 1,680,000 14,467,478
*Qantas Airways Ltd., ADR, 144a Aus. 481,700 7,887,838
+Shanghai Hai Xing Shipping
Co., H Chn. 73,850,000 8,109,094
Shun Tak Holdings H.K. 45,666,000 38,345,046
Singapore Airlines Ltd., fgn. Sing. 2,095,000 17,691,766
Stena Line AB, B free Swe. 2,000,000 9,997,535
Swissair Schweizerische
Luftverkehr AG Swtz. 48,940 30,868,003
Transport Development Group PLC U.K. 1,000,000 3,398,088
Transportacion Maritima
Mexicana SA de CV, L, ADR Mex. 608,800 5,250,900
--------------
333,543,374
- - -------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
TEMPLETON FOREIGN FUND
Investment Portfolio, August 31, 1995 (cont.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- - -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- - -------------------------------------------------------------------------------
Utilities--Electrical & Gas: 4.1%
British Gas PLC U.K. 6,500,000 $ 27,937,252
Cia Energetica de Minas Gerais,
ADR Braz. 7,000 157,726
Compania Sevillana de
Electricidad Sp. 6,397,428 40,551,389
Electrabel SA Bel. 150,000 31,846,184
Electricidad de Caracas Venz. 12,254,270 9,444,080
Endesa-Empresa Nacional de
Electricidad SA Sp. 17,000 882,395
Evn Energie-Versorgung
Niederoesterreich AG Aus. 150,000 19,599,012
Iberdrola SA Sp. 10,267,215 78,833,743
Shandong Huaneng Power Chn. 3,000,000 25,125,000
Thames Water Group PLC U.K. 1,700,000 14,270,420
VEBA AG Ger. 1,000,000 38,215,259
--------------
286,862,460
- - -------------------------------------------------------------------------------
Wholesale & International Trade: 0.1%
Sime Darby Hongkong Ltd. H.K. 3,860,000 4,687,250
--------------
TOTAL COMMON STOCKS (cost $4,427,311,303) 4,927,653,224
- - -------------------------------------------------------------------------------
PREFERRED STOCKS: 2.3%
- - -------------------------------------------------------------------------------
Ballast Nedam NV, ctf., conv.,
pfd. Neth. 140,000 6,295,959
Bayerische Motorenwerke AG
(BMW), pfd. Ger. 10,000 3,923,706
Cemig-Cia Energetica de Minas
Gerais, pfd. Braz. 393,000,000 8,855,172
+Krones AG Herman Kronseder
Maschinen Fabrik, pfd. Ger. 30,000 13,038,147
Petrobras-Petroleo Brasileiro
SA, pfd. Braz. 67,858,000 6,444,634
Telebras-Telecomunicacoes
Brasileiras SA, pfd. Braz. 572,200,000 24,731,571
Telebras-Telecomunicacoes
Brasileiras SA, pfd., ADR Braz. 1,950,000 84,825,000
Telesp-Telecomunicacoes de Sao
Paulo SA, pfd. Braz. 71,477,000 11,744,075
--------------
TOTAL PREFERRED STOCKS (cost $135,166,912) 159,858,264
- - -------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
TEMPLETON FOREIGN FUND
Investment Portfolio, August 31, 1995 (cont.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
INDUSTRY ISSUE COUNTRY LOCAL CURRENCY** VALUE
<C> <S> <C> <C> <C>
- - -------------------------------------------------------------------------------
BONDS: 8.9%
- - -------------------------------------------------------------------------------
ARBED SA, 2.50%, conv.,
7/15/03 Ger. 4,500,000 $ 2,666,894
British Airways, DEB,
9.75%, 6/15/05 U.K. 1,450,000 4,261,722
C.S. Holding Finance BV,
4.875%, conv., 11/19/02 U.S. 2,720,000 3,420,400
Government of Australia:
7.00%, 8/15/98 Aus. 60,600,000 44,419,320
6.25%, 3/15/99 Aus. 61,700,000 43,747,587
7.00%, 4/15/00 Aus. 61,700,000 43,947,934
Jardine Strategic Holdings
Ltd., 7.50%, conv. U.S. 9,050,000 9,728,750
Softe SA, 4.25%, conv.,
7/30/98, 144a Itl. 2,280,000,000 1,582,091
U.S. Treasury Notes:
6.00%, 6/30/96 U.S. 45,500,000 45,606,470
7.25%, 8/31/96 U.S. 44,500,000 45,125,670
7.25%, 11/15/96 U.S. 45,000,000 45,766,350
6.375%, 6/30/97 U.S. 25,800,000 26,058,000
6.375%, 7/15/99 U.S. 102,500,000 103,749,475
6.00%, 10/15/99 U.S. 103,000,000 102,854,770
6.375%, 1/15/00 U.S. 103,000,000 104,303,980
--------------
TOTAL BONDS (cost $619,434,847) 627,239,413
- - -------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 17.8% (cost
$1,248,748,598)
- - -------------------------------------------------------------------------------
U.S. Treasury Bills, 5.25%
to 5.41% with
maturities to 11/02/95 U.S. 1,254,464,000 1,248,956,767
- - -------------------------------------------------------------------------------
TOTAL INVESTMENTS: 99.4% (cost
$6,430,661,660) 6,963,707,668
OTHER ASSETS, LESS LIABILITIES: 0.6% 40,958,073
--------------
TOTAL NET ASSETS: 100.0% $7,004,665,741
==============
</TABLE>
*NON-INCOME PRODUCING.
**CURRENCY OF COUNTRIES INDICATED.
+SEE NOTE 5.
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
TEMPLETON FOREIGN FUND
Financial Statements
- - --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1995
<TABLE>
<S> <C>
Assets:
Investments in securities, at value
(identified cost $6,430,661,660) $6,963,707,668
Cash 258,654
Receivables:
Investment securities sold 66,715,254
Capital shares sold 39,959,170
Dividends and interest 24,876,775
--------------
Total assets 7,095,517,521
--------------
Liabilities:
Payables:
Investment securities purchased 73,407,334
Capital shares redeemed 8,887,190
Accrued expenses and other 8,557,256
--------------
Total liabilities 90,851,780
--------------
Net assets, at value $7,004,665,741
==============
Net assets consist of:
Undistributed net investment income $ 139,048,660
Net unrealized appreciation 533,046,008
Accumulated net realized gain 186,948,350
Net capital paid in on shares of capital stock 6,145,622,723
--------------
Net assets, at value $7,004,665,741
==============
Class I:
Net asset value per share
($6,941,238,158 / 721,254,797 shares outstanding) $ 9.62
==============
Maximum offering price ($9.62 / 94.25%) $ 10.21
==============
Class II:
Net asset value per share
($63,427,583 / 6,612,262
shares outstanding) $ 9.59
==============
Maximum offering price ($9.59 / 99.00%) $ 9.69
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF OPERATIONS
for the year ended August 31, 1995
<TABLE>
<S> <C> <C>
Investment income:
(net of $17,672,389
foreign taxes withheld)
Dividends $ 132,137,764
Interest 98,438,826
-------------
Total income $230,576,590
Expenses:
Management fees (Note 3) 36,110,792
Administrative fees
(Note 3) 4,672,920
Distribution fees (Note 3)
Class I 14,581,987
Class II 90,617
Transfer agent fees (Note 3) 5,675,000
Custodian fees 2,953,484
Reports to shareholders 1,748,324
Audit fees 52,000
Legal fees (Note 3) 16,400
Registration and filing fees 763,000
Directors' fees and expenses 73,500
Other 146,923
-------------
Total expenses 66,884,947
------------
Net investment income 163,691,643
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 228,410,217
Foreign currency transactions (9,184,434)
-------------
219,225,783
Net unrealized depreciation on investments (131,760,311)
-------------
Net realized and unrealized gain 87,465,472
------------
Net increase in net assets resulting from
operations $251,157,115
============
</TABLE>
23
<PAGE>
TEMPLETON FOREIGN FUND
Financial Statements (cont.)
- - --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended August 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 163,691,643 $ 69,788,022
Net realized gain on investment and for-
eign currency transactions 219,225,783 253,139,732
Net unrealized appreciation (depreciation) (131,760,311) 277,918,869
-------------- --------------
Net increase in net assets resulting from
operations 251,157,115 600,846,623
Distributions to shareholders:
From net investment income
Class I (84,334,594) (42,656,339)
From net realized gain
Class I (275,006,347) (45,810,480)
Capital share transactions (Note 2)
Class I 2,035,091,105 1,834,286,777
Class II 63,320,854 --
-------------- --------------
Net increase in net assets 1,990,228,133 2,346,666,581
Net assets:
Beginning of year 5,014,437,608 2,667,771,027
-------------- --------------
End of year $7,004,665,741 $5,014,437,608
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
TEMPLETON FOREIGN FUND
Notes to Financial Statements
- - --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Templeton Foreign Fund (the Fund) is a series of Templeton Funds, Inc. (the
Company) which is an open-end, diversified management investment company regis-
tered under the Investment Company Act of 1940. The following summarizes the
Fund's significant accounting policies.
a. Securities Valuations:
Securities listed or traded on a recognized national or foreign stock exchange
or NASDAQ are valued at the last reported sales prices on the principal ex-
change on which the securities are traded. Over-the-counter securities and
listed securities for which no sale is reported are valued at the mean between
the last current bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
and approved in good faith by the Board of Directors.
b. Foreign Currency Transactions:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of portfolio securities and income items denominated in foreign curren-
cies are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it customar-
ily enters into a foreign exchange contract to minimize foreign exchange risk
between the trade date and the settlement date of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of for-
eign currencies, currency gains or losses realized between the trade and set-
tlement dates on securities transactions, the differences between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities resulting
from changes in the exchange rates.
c. Income Taxes:
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all its
taxable income to its shareholders. Therefore, no provision has been made for
income taxes.
d. Security Transactions, Investment Income, Distributions and Expenses:
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Certain dividend income on foreign securi-
ties is recorded as soon as information is available to the Fund. Interest in-
come and estimated expenses are accrued daily. Distributions to shareholders,
which are determined in accordance with income tax regulations, are recorded on
the ex-dividend date.
25
<PAGE>
TEMPLETON FOREIGN FUND
Notes to Financial Statements (cont.)
- - --------------------------------------------------------------------------------
2. TRANSACTIONS IN SHARES OF CAPITAL STOCK
Effective May 1, 1995, the Fund offered two classes of shares: Class I shares
and Class II shares. Shares of each class are identical except for their ini-
tial sales load, a contingent deferred sales charge on Class II shares, distri-
bution fees, and voting rights on matters affecting a single class. All Fund
shares outstanding before May 1, 1995 were designated as Class I shares. At Au-
gust 31, 1995, there were 2.7 billion shares of capital stock authorized ($1.00
par value) of which 1.5 billion shares have been classified as Fund shares. Ef-
fective February 25, 1994 the shares of the Fund were split on a three shares
for one share basis. All previously reported per share data for the Fund have
been restated to give effect to the split. Transactions in the Fund's shares
were as follows:
<TABLE>
<CAPTION>
CLASS I
---------------------------------------------------------
YEAR ENDED YEAR ENDED
AUGUST 31, 1995 AUGUST 31, 1994
---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------ -------------- ----------- --------------
<S> <C> <C> <C> <C>
Shares sold 294,214,786 $2,724,124,163 181,116,016 $2,483,185,483
Shares issued on
reinvestment
of distributions 32,535,343 299,952,040 2,689,001 71,781,448
Shares issued on 3-for-1
split -- -- 266,109,385 --
Shares redeemed (106,358,799) (988,985,098) (50,785,053) (720,680,154)
------------ -------------- ----------- --------------
Net increase 220,391,330 $2,035,091,105 399,129,349 $1,834,286,777
============ ============== =========== ==============
<CAPTION>
CLASS II
----------------------------
FOR THE PERIOD
MAY 1, 1995
THROUGH
AUGUST 31, 1995
----------------------------
SHARES AMOUNT
------------ --------------
<S> <C> <C> <C> <C>
Shares sold 6,634,457 $ 63,535,244
Shares redeemed (22,195) (214,390)
------------ --------------
Net increase 6,612,262 $ 63,320,854
============ ==============
</TABLE>
26
<PAGE>
TEMPLETON FOREIGN FUND
Notes to Financial Statements (cont.)
- - --------------------------------------------------------------------------------
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Fund are also directors or officers of Templeton,
Galbraith & Hansberger Ltd. (TGH), Templeton Global Investors, Inc. (TGII),
Franklin Templeton Distributors, Inc. (FTD), and Franklin Templeton Investor
Services, Inc. (FTIS), the Fund's investment manager, administrative manager,
principal underwriter, and transfer agent, respectively. The Fund pays monthly
an investment management fee to TGH equal, on an annual basis, to 0.75% of the
average daily net assets of the Fund up to $200 million, reduced to 0.675% of
such average daily net assets in excess of $200 million, and further reduced to
0.60% of such net assets in excess of $1.3 billion. The Fund pays TGII monthly
its allocated share of an administrative fee of 0.15% per annum on the first
$200 million of the Company's aggregate average daily net assets, 0.135% of the
next $500 million, 0.10% of the next $500 million, and 0.075% per annum of such
average net assets in excess of $1.2 billion. For the year ended August 31,
1995, FTD received net commissions of $6,510,032 from the sale of the Fund's
shares and FTIS received fees of $5,675,000.
Under the distribution plans for Class I and Class II shares, the Fund reim-
burses FTD quarterly for FTD's costs and expenses in connection with any activ-
ity that is primarily intended to result in a sale of Fund shares, subject to a
maximum of 0.25% and 1.00% per annum of the average daily net assets of Class I
and Class II shares, respectively. Under the Class I distribution plan, costs
and expenses exceeding the maximum may be reimbursed in subsequent periods. At
August 31, 1995, unreimbursed expenses amounted to $1,260,716. Class II shares
redeemed within 18 months are subject to a contingent deferred sales charge.
Contingent deferred sales charges of $27,331 were paid to FTD for the year
ended August 31, 1995.
An officer of the Company is a partner of Dechert Price & Rhoads, legal counsel
for the Fund, which firm received fees of $16,400 for the year ended August 31,
1995.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the
year ended August 31, 1995 aggregated $3,037,829,609 and $983,398,285, respec-
tively. The cost of securities for federal income tax purposes is the same as
that shown in the investment portfolio. Realized gains and losses are reported
on an identified cost basis.
At August 31, 1995, the aggregate gross unrealized appreciation and deprecia-
tion of portfolio securities, based on cost for federal income tax purposes,
was as follows:
<TABLE>
<CAPTION>
Unrealized appreciation $ 776,467,301
<S> <C>
Unrealized depreciation (243,421,293)
-------------
Net unrealized appreciation $ 533,046,008
=============
</TABLE>
5. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
The Investment Act of 1940 defines "affiliated companies" as investments in
portfolio companies in which the Fund owns 5% or more of the outstanding voting
securities. Investments in "affiliated companies" at August 31, 1995 amounted
to $27,364,287. For the year ended August 31, 1995, dividend income from affil-
iated companies was $423,388.
27
<PAGE>
TEMPLETON FOREIGN FUND
Independent Auditor's Report
- - --------------------------------------------------------------------------------
The Board of Directors and Shareholders
Templeton Foreign Fund
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio, of Templeton Foreign Fund series of Templeton Funds,
Inc. as of August 31, 1995, and the related statement of operations for the
year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for the periods
indicated in the accompanying financial statements. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and fi-
nancial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of Au-
gust 31, 1995, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Tem-
pleton Foreign Fund series of Templeton Funds, Inc. as of August 31, 1995, the
results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally accepted ac-
counting principles.
/s/ McGladrey & Pullen, LLP
New York, New York
September 29, 1995
28
<PAGE>
Notes
-----
<PAGE>
Notes
-----
<PAGE>
Notes
-----
<PAGE>
- - --------------------------
TEMPLETON FOREIGN FUND
Auditors
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017-2416
PRINCIPAL UNDERWRITER:
Franklin Templeton
Distributors, Inc.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Account Services
1-800-354-9191
Sales Information
1-800-292-9293
This report must be preceded or accompanied by a current prospectus of the
Templeton Foreign Fund, which contains more complete information including
charges and expenses. Like any investment in securities, the value of the
Fund's portfolio will be subject to the risk of loss from market, currency,
economic, political, and other factors, as well as investment decisions by the
investment manager which will not always be profitable or wise. The Fund and
its investors are not protected from such losses by the investment manager.
Therefore, investors who cannot accept this risk should not invest in shares of
the Fund.
To ensure the highest quality of service, telephone calls to or from our
service departments may be monitored, recorded, and accessed. These calls can
be determined by the presence of a regular beeping tone.
- - --------------------------
[RECYCLING LOGO APPEARS HERE] TL104 A95 10/95
TEMPLETON
FOREIGN
FUND
Annual Report
August 31, 1995
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
<PAGE> FORM N-14
PART C. OTHER INFORMATION
Item 15. INDEMNIFICATION
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Item 16. EXHIBITS (Incorporated by reference to the filings
as noted)
(1) Copies of the charter as now in effect:
(i) Amended and Restated Articles of
Incorporation dated January 26, 1989.
Filing: Post-Effective Amendment No. 27 to
Registration Statement of Registrant on Form
N-1A
File No. 2-60067
Filing Dated: December 29, 1995
(ii) Articles Supplementary dated October 24, 1990
Filing: Post-Effective Amendment No. 27 to
Registration Statement of Registrant on Form
N-1A
File No. 2-60067
Filing Dated: December 29, 1995
<PAGE>
(iii) Articles Supplementary dated October 16, 1993
Filing: Post-Effective Amendment No. 27 to
Registration Statement of Registrant on Form
N-1A
File No. 2-60067
Filing Dated: December 29, 1995
(iv) Articles Supplementary dated February 22,
1994
Filing: Post-Effective Amendment No. 27 to
Registration Statement of Registrant on Form
N-1A
File No. 2-60067
Filing Dated: December 29, 1995
(v) Articles Supplementary dated January 6, 1995
Filing: Post-Effective Amendment No. 26 to
Registration Statement of Registrant on Form
N-1A
File No. 2-60067
Filing Dated: April 28, 1995
(vi) Articles Supplementary dated April 13, 1995
Filing: Post-Effective Amendment No. 26 to
Registration Statement of Registrant on Form
N-1A
File No. 2-60067
Filing Dated: April 28, 1995
(vii) Articles Supplementary dated April 17, 1995
Filing: Post-Effective Amendment No. 26 to
Registration Statement of Registrant on Form
N-1A
File No. 2-60067
Filing Dated: April 28, 1995
(viii) Articles Supplementary dated October 26, 1995
Filing: Post-Effective Amendment No. 27 to
Registration Statement of Registrant on Form
N-1A
File No. 2-60067
Filing Dated: December 29, 1995
(2) Copies of the existing By-Laws or instruments
corresponding thereto;
(i) Amended and Restated By-laws dated March 1,
1991
Filing: Post-Effective Amendment No. 27 to
Registration Statement of Registrant on Form
N-1A
File No. 2-60067
Filing Dated: December 29, 1995
<PAGE>
(3) Copies of any voting trust agreement with respect
to more than five percent of any class of equity
securities of the Registrant;
Not Applicable
(4) Copies of the Agreement and Plan of Reorganization
are included in this Registration Statement as
Exhibit A to the Prospectus/Proxy Statement.
(5) Specimens or copies of each security issued by the
Registrant, including copies of all constituent
instruments, defining the rights of the holders of
such securities, and copies of each security being
registered;
(i) Specimen Security Certificate
Filing: Post-Effective Amendment No. 9 to
Registration Statement of Registrant on Form
N-1A
File No. 2-60067
Filing Date: December 20, 1982
(6) Copies of all investment advisory contracts
relating to the management of the assets of the
Registrant;
(i) Amended and Restated Management Agreement
between Registrant and Templeton, Galbraith &
Hansberger Ltd. dated December 6, 1994
Filing: Post-Effective Amendment No. 26 to
Registration Statement of Registrant on Form
N-1A
File No. 2-60067
Filing Date: April 28, 1995
(7) Copies of each underwriting or distribution contract
between the Registrant and a principal underwriter,
and specimens or copies of all agreements between
principal underwriters and dealers;
(i) Distribution Agreement between Registrant and
Franklin/Templeton Distributors, Inc. dated
May 1, 1995
Filing: Post-Effective Amendment No. 27 to
Registration Statement of Registrant on Form
N-1A
File No. 2-60067
Filing Date: December 29, 1995
(ii) Form of Dealer Agreement between Registrant
and Franklin/Templeton Distributors, Inc.
<PAGE>
Filing: Post-Effective Amendment No. 27 to
Registration Statement of Registrant on Form
N-1A
File No. 2-60067
Filing Date: December 29, 1995
(8) Copies of all bonus, profit sharing, pension or other
similar contracts or arrangements wholly or partly
for the benefit of directors or officers of the
Registrant in their capacity as such; any such plan
that is not set forth in a formal document, furnish a
reasonably detailed description thereof;
Not Applicable
(9) Copies of all custodian agreements and depository
contracts under Section 17(f) of the 1940 Act, with
respect to securities and similar investments of the
Registrant, including the schedule of remuneration;
(i) Custody Agreement between Registrant and The
Chase Manhattan Bank, N.A. dated June 1, 1984
as amended and restated February 11, 1986.
Filing: Post-Effective Amendment No. 27 to
Registration Statement of Registrant on Form
N-1A
File No. 2-60067
Filing Date: December 29, 1995
(10) Copies of any plan entered into by Registrant
pursuant to Rule 12b-1 under the 1940 Act and any
agreements with any person relating to implementation
of the plan:
Distribution Plan--Templeton Foreign Fund Class I
Shares
Filing: Post-Effective Amendment No. 26 to
Registration Statement of Registrant on Form N-1A
File No.: 2-60067
Filing Date: April 28, 1995
(11) An opinion and consent of counsel as to the
legality of the securities being registered.
Previously filed on October 30, 1995 in connection
with Registrant's Rule 24f-2 Notice for the fiscal
year ended August 31, 1995 and incorporated by
reference herein.
(12) An opinion, and consent to its use, of counsel,
supporting the tax matters and consequences to
shareholders discussed in the prospectus is
<PAGE>
included as Exhibit (12) to the Registration
Statement.
To be filed by post-effective amendment (see Item
17(3)).
(13) Copies of all material contracts of the Registrant
not made in the ordinary course of business which are
to be performed in whole or in part on or after the
date of filing the registration statement:
Inapplicable
(14) Copies of any other opinions, appraisals or rulings,
and consents to their use relied on in preparing the
registration statement and required by Section 7 of
the 1933 Act are included as Exhibit (14) to the
Registration Statement:
(a) Consent of McGladrey & Pullen, independent
auditors of the Registrant;
(b) Consent of Coopers & Lybrand, L.L.P.,
independent auditors of Franklin Templeton
International Trust.
(15) All financial statements omitted pursuant to Item
14(a)(1):
Inapplicable
(16) Manually signed copies of any power of attorney
pursuant to which the name of any person has been
signed to the Registration Statement, filed as
Exhibit (16) to the Registration Statement.
(17) Any additional exhibits which the Registrant may
wish to file:
(i) Amended declaration pursuant to Rule 24f-2
File No. 2-60067
Item 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any
public reoffering of the securities registered
through the use of a prospectus which is a part of
this Registration Statement by any person or party
who is deemed to be an underwriter within the meaning
of Rule 145(c) of the Securities Act, the reoffering
prospectus will contain the information called for by
the applicable registration form for reofferings by
persons who may be deemed
<PAGE>
underwriters, in addition to the information
called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every
prospectus that is filed under paragraph (1) above
will be filed as a part of an amendment to the
registration statement and will not be used until the
amendment is effective, and that, in determining any
liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new Registration
Statement for the securities offered therein, and the
offering of the securities at that time shall be
deemed to be the initial bona fide offering for them.
(3) The undersigned Registrant agrees that it will file
with the Commission a Post-Effective Amendment to
this Registration Statement including the Opinion of
Stradley, Ronon, Stevens & Young, LLP, relating to
federal tax matters, within a reasonable time after
the tax opinion that will be delivered in connection
with the Proposed Transaction has been received by
the undersigned Registrant.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement
has been signed on behalf of the Registrant, in the City of St. Petersburg, and
the State of Florida, on the 12th day of January, 1996.
Templeton Funds, Inc.
By:
Mark G. Holowesko*
President
* By /s/Thomas M. Mistele
Thomas M. Mistele
(Attorney-in-Fact)
As required by the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE: TITLE DATE
<S> <C> <C>
President January 12, 1996
Mark G. Holowesko* (Chief Executive
Officer)
Director January 12, 1996
Charles B. Johnson*
Director January 12, 1996
Hasso-G von Diergardt-Naglo*
Director January 12, 1996
Betty P. Krahmer*
Director January 12, 1996
F. Bruce Clarke*
Director January 12, 1996
Fred R. Millsaps*
Director January 12, 1996
John Wm. Galbraith*
<PAGE>
Director January 12, 1996
Rupert H. Johnson, Jr.*
Director January 12, 1996
Harris J. Ashton*
Director January 12, 1996
S. Joseph Fortunato*
Director January 12, 1996
Andrew H. Hines, Jr.*
Director January 12, 1996
Gordon S. Macklin*
Director January 12, 1996
Nicholas F. Brady*
Treasurer January 12, 1996
James R. Baio* (Chief Financial
and Accounting Officer)
*By /S/THOMAS M. MISTELE
Thomas M. Mistele
(Attorney-in-Fact Pursuant to Powers of Attorney filed with
Post-effective Amendment No. 21 to Registration Statement on
August 19, 1992, Post-Effective Amendment No. 23 to the
Registration Statement on November 2, 1993, Post-Effective
Amendment No. 24 to the Registration Statement on December 23,
1993, Post-Effective Amendment No. 25 to the Registration
Statement on December 30, 1994 and Post-Effective Amendment No.
27 to the Registration Statement on December 29, 1995)
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DOCUMENT
(14)(a) Consent of McGladrey & Pullen
(14)(b) Consent of Coopers & Lybrand,
L.L.P.
(17) Copy of Registrant's
Declaration
pursuant to Rule
24f-2 under the
Investment Company
Act of 1940, as amended.
</TABLE>
MCGLADREY & PULLEN, LLP
Certified Public Accountants and Consultants
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated September 29, 1995 on
the financial statements of Templeton Foreign Fund, referred to therein, which
appears in the 1995 Annual Report to Shareholders and which is included in the
Registration Statement of Templeton Funds, Inc. on Form N-14 as filed with the
Securities and Exchange Commission.
/s/ MCGLADREY & PULLEN, LLP
McGladrey & Pullen, LLP
New York, New York
January 12, 1996
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement of
Templeton Funds, Inc. on Form N-14 (File No. 2-60067) of our report dated
November 30, 1995, except as to the information presented in Note 7 for which
the date is December 15, 1995, on our audit of the financial statements and
financial highlights of Franklin International Trust, which report is included
in Franklin International Trust's Annual Report to Shareholders for the year
ended October 31, 1995, which is incorporated by reference in the Registration
Statement.
/s/COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 12, 1995
RULE 24F-2 NOTICE FOR TEMPLETON FUNDS, INC.
FILE NO. 2-60067
I. This Notice is filed on behalf of Templeton Funds, Inc.
(the "Company") for the fiscal year ended August 31,
1995.
II. None.
III. None.
IV. The Company sold 26,740,660 shares of the Templeton World Fund
series of its common stock and 300,849,243 shares of the
Templeton Foreign Fund series of its common stock during the
fiscal year.
V. The Company sold an aggregate of 327,589,903 shares
during the fiscal year ended August 31, 1995 in
reliance upon its registration of an indefinite amount
of shares pursuant to Rule 24f-2 for an actual
aggregate sales price of $3,198,576,180. During that
period, the Company redeemed an aggregate of
134,240,983 shares for an aggregate amount of
$1,417,344,262. Because this Notice is being filed
within 60 days of the end of the Company's fiscal year,
the Company's filing fee of $614,217.90 is based upon
the net sales amount of $1,781,231,918.1
An opinion of counsel stating that the shares sold during the fiscal
year ended August 31, 1995 were legally issued, fully paid and non-assessable
accompanies this Notice.
/s/ JAMES R. BAIO
Templeton Funds, Inc.
James R. Baio, Treasurer*
October 24, 1995
- - --------
1 $3,198,576,180 - $1,417,344,262 = $1,781,231,918
$1,781,231,918 X (1/29 X 1%) = $614,217.90
<PAGE>
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
October 25, 1995
Templeton Funds, Inc.
700 Central Avenue
St. Petersburg, Florida 33701
Dear Sirs:
As counsel for Templeton Funds, Inc. (the "Company")
during the fiscal year ended August 31, 1995, we are familiar with
the registration of the Company under the Investment Company Act of
1940 (File No. 811-2781) and with the registration statement
relating to its shares of common stock (the "Shares") under the
Securities Act of 1933 (File No. 2-60067). We have also examined
such other corporate records, agreements, documents and instruments
as we deemed appropriate.
Based upon the foregoing, it is our opinion that the
327,589,903 Shares (representing 26,740,660 Shares of Templeton
World Fund and 300,849,243 Shares of Templeton Foreign Fund) sold
at the public offering price and delivered by the Company against
receipt of the net asset value of the Shares during the Company's
fiscal year ended August 31, 1995 were duly and validly authorized,
legally and validly issued, fully paid, and non-assessable.
We consent to the filing of this opinion in connection
with the Notice pursuant to Rule 24f-2 under the Investment Company
Act of 1940 for the fiscal year ended August 31, 1995 to be filed
on behalf of the Company with the Securities and Exchange
Commission.
Sincerely,
/s/DECHERT PRICE & RHOADS
Dechert Price & Rhoads
