Registration No. 2-60067
As filed with the Securities and Exchange Commission on December 31, 1996
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 29 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 30 X
(Check appropriate box or boxes)
TEMPLETON FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
700 CENTRAL AVENUE, P.O. BOX 33030, ST. PETERSBURG, FLORIDA 33733-8030
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (813) 823-8712
John K. Carter
700 Central Avenue
P.O. Box 33030
ST. PETERSBURG, FLORIDA 33733-8030
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b) of Rule 485
X on JANUARY 1, 1997 pursuant to paragraph (b) of Rule 485
60 days after filing pursuant to paragraph (a)(1) of Rule 485
on pursuant to paragraph (a)(1) of Rule 485
75 days after filing pursuant to paragraph (a)(2) of Rule 485
on pursuant to paragraph (a)(2) of Rule 485
this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
- --------------------------------------------------------------------------
The Registrant has registered an indefinite number of shares of beneficial
interest under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940, and filed its Rule 24f-2 Notice for the fiscal
year ended August 31, 1996 on October 30, 1996.
PAGE
TEMPLETON FUNDS, INC.
CROSS-REFERENCE SHEET
FORM N-1A
PART A
<TABLE>
<CAPTION>
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
<S> <C> <C>
1 Cover page Cover Page
2 Synopsis Expense Summary
3 Condensed Financial "Financial Highlights";
Information "How Do the Funds
Measure Performance?"
4 General Description "How Is the Fund Organized?";
of Registrant "How Do the Funds Invest Their Assets?";
"What Are the Funds' Potential Risks?"
5 Management of the Fund "Who Manages the Funds?"
5A Management's Discussion Contained in Registrant's Annual
of Fund Performance Report to Shareholders
6 Capital Stock and Other "How Are the Funds Organized?"; "Services
Securities to Help You Manage Your Account"; "What
Distributions Might I Received From the
Funds?"; "How Taxation Affects You and the
Funds?"
7 Purchase of Securities "How Do I Buy Shares?"; "May I Exchange
Being Offered Shares for Shares of Another Fund?";
"Transaction Procedures and Special
Requirements"; "Services to Help You Manage
Your Account"; "Who Manages the Funds?" "Useful
Terms and Definitions"
8 Redemption or Repurchase "May I Exchange Shares for Shares of Another
Fund?"; "How Do I Sell Shares?"; "Transaction
Procedures and Special Requirements"; "Services
to Help You Manage Your Account"
9 Pending Legal Procedures Not Applicable
</TABLE>
PAGE
TEMPLETON FUNDS, INC.
CROSS-REFERENCE SHEET
FORM N-1A
PART B
<TABLE>
<CAPTION>
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
<S> <C> <C>
10 Cover Page Cover Page
11 Table of Contents Table of Contents
12 General Information and Not Applicable
History
13 Investment Objectives and "How Do the Funds Invest Their Assets?";
Policies "Investment Restrictions"; "What Are the
Funds' Potential Risks?"
14 Management of the "Officers and Directors"; "Investment
Registrant Advisory and Other Services"
15 Control Persons and "Officers and Directors"; "Investment
Principal Holders of Advisory and Other Services"; "Miscellaneous
Securities Information?"
16 Investment Advisory and "Investment Advisory and Other Services";
Other Services "The Funds' Underwriter"
17 Brokerage Allocation and "How Do the Funds Buy Securities
Other Practices For Their Portfolio?"
18 Capital Stock and Other "Miscellaneous Information"; See Prospectus
Securities "How Is The Fund Organized?"
19 Purchase, Redemption and "How Do I Buy, Sell and Exchange Shares?";
Pricing of Securities "How Are Fund Shares Valued?";
Being Offered "Financial Statements"
20 Tax Status "Additional Information on Distributions
and Taxes"
21 Underwriters "The Funds' Underwriter"
22 Calculation of Performance "How Do the Funds Measure Performance?"
Data
23 Financial Statements Financial Statements
</TABLE>
PAGE
PART A
PROSPECTUS
TEMPLETON FOREIGN FUND
PAGE
PROSPECTUS
& APPLICATION
[LOGO]
TEMPLETON
FOREIGN
FUND
--------------------------------------------------
JANUARY 1, 1997
INVESTMENT STRATEGY
GLOBAL GROWTH
[LOGO]
- --------------------------------------------------------------------------------
This prospectus describes the Advisor Class shares of Templeton Foreign
Fund (the "Fund"). It contains information you should know before
investing in the Fund. Please keep it for future reference.
The Fund's SAI for the Advisor Class, dated January 1, 1997, as may be
amended from time to time, includes more information about the Fund's
procedures and policies. It has been filed with the SEC and is
incorporated by reference into this prospectus. For a free copy or a
larger print version of this prospectus, call 1-800/DIAL BEN or write
the Fund at the address shown.
Advisor Class shares are only available for purchase by certain persons,
including, among others, certain broker-dealers and qualified registered
investment advisors, participants in Franklin Templeton's 401(k) and
Franklin Templeton's Profit Sharing Plans; Franklin Templeton Fund
Allocator Series; and directors, trustees, officers and full time
employees (and their family members) of Franklin Templeton Group and the
Franklin Templeton Group of Funds. See "About Your Account."
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY OF THE U.S. GOVERNMENT. SHARES OF THE FUND INVOLVE INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PAGE
TEMPLETON FOREIGN
FUND
----------------------------------------------------------
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 Distributors.
----------------------------------------------------------
WHEN reading this prospectus, you will see
certain terms beginning with capital letters.
This means the term is explained
in our glossary section.
PAGE
<TABLE>
<S> <C>
TABLE OF CONTENTS
ABOUT THE FUND
Expense Summary ........................ 2
How Does the Fund Invest Its
Assets? ................................ 3
What Are the Fund's Potential
Risks? ................................. 3
Who Manages the
Fund? .................................. 7
How Does the Fund Measure
Performance? ........................... 8
How Is the Fund
Organized? ............................ 9
How Taxation Affects You and the
Fund .................................. 10
ABOUT YOUR ACCOUNT
How Do I Buy
Shares? ............................... 11
May I Exchange Shares for Shares of
Another Fund? ......................... 12
TEMPLETON How Do I Sell
FOREIGN Shares? .............................. 14
FUND What Distributions Might I Receive
- ------------------------ From the Fund? ........................ 16
January 1, 1997 Transaction Procedures and Special
Requirements .......................... 17
Services to Help You Manage Your
700 Central Avenue Account .............................. 21
St. Petersburg, Florida GLOSSARY
33701 Useful Terms and
1-800/DIAL BEN Definitions .......................... 24
</TABLE>
PAGE
ABOUT THE FUND
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in the
Advisor Class shares of the Fund. Because Advisor Class shares were not offered
to the public prior to January 1, 1997, the table is based on the historical
expenses of the Class I shares of the Fund for the fiscal year ended August 31,
1996*. Your actual expenses may vary.
<TABLE>
<CAPTION>
Advisor
Class
<S> <C> <C>
A. Shareholder Transaction Expenses**
Maximum Sales Charge Imposed on Purchases NONE
Exchange Fee (per transaction) $5.00***
B. Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.61%
Rule 12b-1 Fees NONE
Other Expenses (audit, legal, business
management, transfer agent and custodian) 0.26%
----------
Total Fund Operating Expenses 0.87%
----------
C. Example
</TABLE>
Assume the annual return for Advisor Class shares is 5% and its operating
expenses are as described above. For each $1,000 investment, you would pay
the following projected expenses if you sold your shares after the number of
years shown.
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
------------------------------------------------------
<S> <C> <C> <C>
$9 $28 $48 $107
</TABLE>
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
The Fund pays its operating expenses. The effects of these expenses are
reflected in the Net Asset Value or dividends paid on Advisor Class shares
and are not directly charged to your account.
*Unlike Advisor Class shares, the Class I shares of the Fund have a front-end
sales charge and Rule 12b-1 fees.
**If your transaction is processed through your Securities Dealer you may be
charged a fee by your Securities Dealer for this service.
***$5.00 fee is only for Market Timers. We process all other exchanges without
a fee.
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2
PAGE
HOW DOES THE FUND INVEST ITS ASSETS?
The Fund's Investment Objective
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 U.S. Any income realized will be
incidental. The objective is a fundamental policy of the Fund and may not be
changed without shareholder approval. Of course, there is no assurance that the
Fund's 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), rated or unrated, such as convertible bonds and bonds selling at a
discount. Whenever, in the judgment of TGAL, market or economic conditions
warrant, the Fund may, for temporary defensive purposes, invest without limit in
U.S. government securities, bank time deposits in the currency of any major
nation and commercial paper meeting the quality ratings set forth under "How
Does the Fund Invest Its Assets?" 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%.
WHAT ARE THE FUND'S POTENTIAL RISKS?
You 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
Templeton Foreign Fund -
3
PAGE
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 stock markets and currency
valuations, and these may occur 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 TGAL 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 U.S. Foreign companies are not generally subject to uniform
accounting or financial reporting standards, and auditing practices and
requirements may not be comparable to those applicable to U.S. 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 U.S.
Foreign securities markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to
- Templeton Foreign Fund
4
PAGE
keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result either in losses to the Fund due to subsequent declines in value of the
portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser.
In many foreign countries, there is less government supervision and regulation
of business and industry practices, stock exchanges, brokers and listed
companies than in the U.S. 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 U.S. The Fund may invest in Eastern European
countries, which involves special risks that are described under "What Are the
Fund's Potential Risks?" in the SAI.
Prior governmental approval of non-domestic 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
Templeton Foreign Fund -
5
PAGE
obligated to disclose material information in the U.S. 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.
As a non-fundamental policy, the Fund will limit its investments in Russian
securities to 5% of its total assets. Russian securities involve additional
significant risks, including political and social uncertainty (for example,
regional conflicts and risk of war), currency exchange rate volatility,
pervasiveness of corruption and crime in the Russian economic system, delays in
settling portfolio transactions and risk of loss arising out of Russia's system
of share registration and custody. For more information on these risks and
other risks associated with Russian securities, please see "What Are the Fund's
Potential Risks?" in the SAI.
The Fund is authorized to invest in medium quality or high-risk, lower quality
debt securities that are rated between BBB and CCC by S&P and between Baa and
Caa by Moody's or, if unrated, are of equivalent investment quality as
determined by TGAL. As an operating policy, which may be changed by the Board
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 "How Does the Fund Invest Its Assets? - 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 known 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
TGAL 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 TGAL, the issuer may resume interest payments in the near future.
The Fund will not invest more than 10% of its total assets in defaulted debt
securities, which may be illiquid.
The Fund usually effects currency exchange transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign exchange market. However, some
price spread on currency exchange (to cover service charges) will be incurred
- Templeton Foreign Fund
6
PAGE
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.
WHO MANAGES THE FUND?
The Board. The Board oversees the management of the Fund and elects its
officers. The officers are responsible for the Fund's day-to-day operations. The
Board also monitors the Fund to ensure no material conflicts exist among the
classes of shares. While none is expected, the Board will act appropriately to
resolve any material conflict that may arise.
Investment Manager. TGAL manages the Fund's assets and makes the Fund's
investment decisions. TGAL also performs similar services for other funds. It is
wholly owned by Resources, a publicly owned company engaged in the financial
services industry through its subsidiaries. Charles B. Johnson and Rupert H.
Johnson, Jr. are the principal shareholders of Resources. Together, TGAL and its
affiliates manage over $172 billion in assets. The Templeton organization has
been investing globally since 1940. TGAL and its affiliates have offices in
Argentina, Australia, Bahamas, Canada, France, Germany, Hong Kong, India,
Italy, Luxembourg, Poland, Russia, Scotland, Singapore, South Africa, U.S., and
Vietnam. Please see "Investment Management and Other Services" and
"Miscellaneous Information" in the SAI for information on securities
transactions and a summary of the Fund's Code of Ethics.
Portfolio Management. The lead portfolio manager of the Fund since 1996 is Mark
G. Holowesko. Mr. Holowesko is president of TGAL. He holds a BA in economics
from Holy Cross College and an MBA from Babson College. He is a Chartered
Financial Analyst, Chartered Investment Counselor, and a director and founding
member of the International Society of Financial Analysts. Prior to joining the
Templeton organization, Mr. Holowesko worked with RoyWest Trust Corporation
(Bahamas) Limited as an investment analyst. His duties at RoyWest included
managing trust and individual accounts, as well as equity market research
worldwide. Mr. Holowesko is responsible for coordinating equity research
worldwide for TGAL and managing several mutual funds.
Jeffrey A. Everett and Richard Sean Farrington exercise secondary portfolio
management responsibilities for the Fund. Mr. Everett is an executive vice
president of TGAL. He holds a BS in finance from Pennsylvania State University
and is also a Chartered Financial Analyst. Prior to joining the Templeton
organization in 1989, Mr. Everett was an investment officer at First
Pennsylvania Investment Research, a division of First Pennsylvania Corporation,
where he analyzed equity and convertible securities. He also coordinated
research for
Templeton Foreign Fund -
7
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Centre Square Investment Group, the pension management subsidiary of First
Pennsylvania Corporation. Mr. Everett is responsible for managing several
offshore accounts at Templeton, as well as several Templeton funds. Mr.
Everett's current global research responsibilities encompass industry coverage
for broadcasting, advertising, publishing and real estate, and country
responsibilities for Italy and Australia. Mr. Farrington is a vice president of
TGAL. He holds a BA in economics from Harvard University. Mr. Farrington is a
Chartered Financial Analyst and is currently the president of the Bahamas
Society of Financial Analysts. He joined the Templeton organization in 1991 and
is currently a research analyst and portfolio manager. Mr. Farrington's current
research responsibilities include global industry coverage of electrical
equipment industries, as well as non-U.S. electric utilities. He is also
responsible for country coverage of Hong Kong, China and Taiwan.
Management Fees. For the fiscal year ended August 31, 1996, the Fund paid 0.61%
of its average daily net assets in management fees.
Portfolio Transactions. TGAL tries to obtain the best execution on all
transactions. If TGAL believes more than one broker or dealer can provide the
best execution, consistent with internal policies it may consider research and
related services and the sale of Fund shares, as well as shares of other funds
in the Franklin Templeton Group of Funds, when selecting a broker or dealer.
Please see "How Does the Fund Buy Securities For Its Portfolio?" in the SAI for
more information.
Administrative Services. FT Services (and, prior to October 1, 1996, Templeton
Global Investors, Inc.) provides certain administrative services and facilities
for the Fund. During the fiscal year ended August 31, 1996, administration fees
totaling 0.08% of the average daily net assets of the Fund were paid to
Templeton Global Investors, Inc. Please see "Investment Management and Other
Services" in the SAI for more information.
HOW DOES THE FUND MEASURE PERFORMANCE?
From time to time, each class of the Fund advertises its performance. The more
commonly used measure of performance is total return. Performance figures are
usually calculated using the maximum sales charge, if applicable. Certain
performance figures may not include any applicable sales charge, or Rule 12b-1
fees.
Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested.
- Templeton Foreign Fund
8
PAGE
The Fund's investment results of each class will vary. Performance figures are
always based on past performance and do not guarantee future results. For a
more detailed description of how the Fund calculates its performance figures,
please see "How Does the Fund Measure Performance?" in the SAI.
HOW IS THE FUND ORGANIZED?
The Fund is a diversified series of Templeton Funds, Inc. (the "Company"), an
open-end management investment company, commonly called a mutual fund. It was
organized as a Maryland corporation on August 15, 1977, and is registered with
the SEC under the 1940 Act.
The Fund began offering two classes of shares on May 1, 1995: Templeton Foreign
Fund - Class I and Templeton Foreign Fund - Class II. All shares purchased
before that time are considered Class I shares. The Fund began offering a third
class of shares on January 1, 1997: Templeton Foreign Fund - Advisor Class.
Class I, Class II and Advisor Class shares differ as to sales charges, expenses
and services. Different fees and expenses will affect performance. Additional
classes and series of shares may be offered in the future. A further
description of Class I and Class II is set forth below.
Each class 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. 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 classes of the Company for matters
that affect the Company as a whole.
The Fund has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the Board.
The Company does not intend to hold annual shareholder meetings. It may hold a
special meeting of a series, however, for matters requiring shareholder approval
under the 1940 Act. The Company will call a special meeting of shareholders for
the purpose of considering the removal of a Board member if requested in
writing to do so by shareholders holding at least 10% of the outstanding shares.
The 1940 Act requires that we help you communicate with other shareholders in
connection with removing members of the Board.
Class I and Class II. Class I and Class II shares of the Fund are described in a
separate prospectus relating only to those classes. You may buy Class I and
Class II shares through your investment representative or directly by contacting
Templeton Foreign Fund -
9
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the Company. If you would like a prospectus relating to the Fund's Class I and
Class II shares, contact your investment representative or Distributors.
Class I and Class II shares of the Fund have sales charges and Rule 12b-1
charges that may affect performance. Class I shares have a front-end sales
charge of 5.75% (6.10% of the net amount invested) which is reduced on certain
transactions of $50,000 or more. Class I shares are subject to Rule 12b-1 fees
up to a maximum of 0.35% per year of Class I's average daily net assets. Class
II shares have a front-end sales charge of 1.00% (1.01% of the net amount
invested), and are subject to Rule 12b-1 fees up to a maximum of 1.00% per year
of Class II's average daily net assets. Shares of Class I may be subject to,
and shares of Class II are generally subject to, a Contingent Deferred Sales
Charge upon redemption.
HOW TAXATION AFFECTS YOU AND THE FUND
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For more information on tax matters
relating to the Fund and its shareholders, see "Additional Information on
Distributions and Taxes" in the SAI.
The Fund intends to elect to be treated and to qualify each year as a regulated
investment company under Subchapter M of the Code. 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 you 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.
- Templeton Foreign Fund
10
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ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
Opening Your Account
Advisor Class shares are offered only to investors satisfying one of the
following criteria:
(a) Broker-dealers, qualified registered investment advisors or certified
financial planners, who have entered into a supplemental agreement with
Distributors for clients participating in comprehensive fee programs;
(b) Qualified registered investment advisors or registered certified financial
planners who have clients invested in Mutual Series on October 31, 1996;
(c) Qualified registered investment advisors or registered certified financial
planners who did not have clients invested in Mutual Series on October 31,
1996 may buy through a broker-dealer or service agent who has entered into
an agreement with Distributors;
(d) Effective on or about February 1, 1997, participants in Franklin Templeton's
401(k) and Franklin Templeton's Profit Sharing Plans;
(e) Directors, trustees, officers and full-time employees (and members of their
immediate family) of Franklin Templeton Group and Franklin Templeton Group
of Funds who invest $100 or more;
(f) Accounts managed by the Franklin Templeton Group; and
(g) Class I shareholders of the Fund who qualify under one of the above
categories, may have their existing Class I shares invested into the Fund's
Advisor Class by sending written instructions indicating that they wish to
do so, by June 30, 1997. Instructions should be addressed to Investor
Services. Generally, for federal income tax purposes, there will be no
recognition of gain or loss associated with such a transaction. You may wish
to consult with your tax advisor to determine whether there are any state
income tax consequences to such a transaction.
(h) Each series of Franklin Templeton Fund Allocator Series that invests $1,000
or more.
The minimum for subsequent investments in Advisor Class shares is $25 for most
purchases of Advisor Class shares of the Fund and for purchases by directors,
trustees, officers and full-time employees (and members of their
Templeton Foreign Fund -
11
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immediate family) of Franklin Templeton Group and Franklin Templeton Funds; and
$1,000 for each series of Franklin Templeton Fund Allocator Series.
Purchase Price of Fund Shares
Advisor Class shares are purchased at Net Asset Value without a sales charge.
Securities Dealers may receive compensation up to 0.25% of the amount invested
from Distributors or an affiliated company.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund and its rules and
requirements for exchanges. For example, some Franklin Templeton Funds do not
accept exchanges and others may have different investment minimums. Some
Franklin Templeton Funds do not offer Advisor Class shares.
<TABLE>
<CAPTION>
METHOD STEPS TO FOLLOW
- -------------------------------------------------------------------
<S> <C>
BY MAIL 1. Send us written instructions signed by
all account owners
2. Include any outstanding share
certificates for the shares you're exchanging
- -------------------------------------------------------------------
BY PHONE Call Shareholder Services
(If you do not want the ability to exchange
by phone to apply to your account, please
let us know.)
- -------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- -------------------------------------------------------------------
</TABLE>
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
How We Process Your Exchange
If you are exchanging your Advisor Class shares of the Fund you may:
- - exchange into any of our money funds except Franklin Templeton Money Fund II.
- Templeton Foreign Fund
12
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- - exchange into the other Advisor Class shares of the Franklin Templeton Funds
(excluding Templeton Developing Markets Trust and Templeton Growth Fund,
Inc., except as described below), Mutual Series Class Z shares and Templeton
Institutional Funds, Inc., if you meet the investment requirements of the fund
to be acquired.
- - exchange into the Advisor Class shares of Templeton Developing Markets Trust
and Templeton Growth Fund, Inc. only if you fall into one of the following
categories: (i) you are a broker-dealer or a qualified registered investment
advisor who has entered into a special agreement with Distributors for your
clients who are participating in comprehensive fee programs; (ii) you are a
qualified registered investment advisor or registered certified financial
planner who has clients invested in Mutual Series on October 31, 1996; (iii)
you are a qualified registered investment advisor or registered certified
financial planner who did not have clients invested in Mutual Series on
October 31, 1996 and are buying through a broker-dealer or service agent who
has entered into an agreement with Distributors; (iv) you are a director,
trustee, officer or full-time employee (or a family member) of the Franklin
Templeton Group or the Franklin Templeton Funds; (v) you are a participant in
Franklin Templeton's 401(k) Plan or Franklin Templeton's Profit Sharing Plan;
(vi) the exchanging shareholder is an account managed by the Franklin
Templeton Group; or (vii) the exchanging shareholder is a series of the
Franklin Templeton Fund Allocator Series.
- - if the fund you are exchanging into does not offer Advisor Class shares, you
may exchange into the Class I shares of the fund at Net Asset Value.
Please be aware that the following restrictions may apply to exchanges:
- - The accounts must be identically registered. You may exchange shares from a
Fund account requiring two or more signatures into an identically registered
money fund account requiring only one signature for all transactions. Please
notify us in writing if you do not want this option to be available on your
account(s). Additional procedures may apply. Please see "Transaction
Procedures and Special Requirements."
- - Trust Company IRA or 403(b) retirement plan accounts may exchange shares as
described above. Restrictions may apply to other types of retirement plans.
Please contact our Retirement Plans Department for information on exchanges
within these plans.
- - The fund you are exchanging into must be eligible for sale in your state.
Templeton Foreign Fund -
13
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- - We may modify or discontinue our exchange policy upon 60 days' written notice.
- - Your exchange may be restricted or refused if you: (i) request an exchange out
of the Fund within two weeks of an earlier exchange request, (ii) exchange
shares out of the Fund more than twice in a calendar quarter, or (iii)
exchange shares equal to at least $5 million, or more than 1/4 of 1% of the
Fund's net assets. Shares under common ownership or control are combined for
these limits. If you exchange shares as described in this paragraph, you will
be considered a Market Timer. Each exchange by a Market Timer, if accepted,
will be charged $5.00. Some of our funds do not allow investments by Market
Timers.
Because excessive trading can hurt Fund performance and shareholders, we may
refuse any exchange purchase if (i) we believe the Fund would be harmed or
unable to invest effectively, or (ii) the Fund receives or anticipates
simultaneous orders that may significantly affect the Fund.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
<TABLE>
<CAPTION>
METHOD STEPS TO FOLLOW
- -----------------------------------------------------------------------
<S> <C>
BY MAIL 1. Send us written instructions signed by all
account owners.
2. Include any outstanding share certificates
for the shares you are selling.
3. Provide a signature guarantee if required.
4. Corporate, partnership and trust accounts
may need to send additional documents. Accounts
under court jurisdiction may have additional
requirements.
- -----------------------------------------------------------------------
</TABLE>
- Templeton Foreign Fund
14
PAGE
<TABLE>
<CAPTION>
METHOD STEPS TO FOLLOW
- -----------------------------------------------------------------------
<S> <C>
BY PHONE Call Shareholder Services
(Only available if you have a completed and sent to us the telephone
redemption agreement included with this prospectus)
Telephone requests will be accepted:
- If the request is $50,000 or less.
Institutional accounts may exceed $50,000 by
completing a separate agreement. Call
Institutional Services to receive a
copy.
- If there are no share certificates issued for
the shares you want to sell or you have already
returned them to the Fund.
- Unless you are selling shares in a Trust
Company retirement plan account.
- Unless the address on your account was
changed by phone within the last 30 days.
Beginning on or about May 1, 1997, you will
automatically be able to redeem shares by
telephone without completing a telephone
redemption agreement. Please notify us if you
do not want this option to be available on your
account. If you later decide you would like
this option, send us written instructions signed
by all account owners.
- -----------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative.
- -----------------------------------------------------------------------
</TABLE>
We will send your redemption check within seven days after we receive your
request in proper form. If you sell your shares by phone, the check may only be
made payable to all registered owners on the account and sent to the address of
record. We are not able to receive or pay out cash in the form of currency.
If you sell shares you just purchased with a check or draft, we may delay
sending you the proceeds for up to 15 days or more to allow the check or draft
to clear. A certified or cashier's check may clear in less time.
Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
Templeton Foreign Fund -
15
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Trust Company Retirement Plan Accounts
To comply with IRS regulations, you need to complete additional forms before
selling shares in a Trust Company retirement plan account. Tax penalties
generally apply to any distribution from these plans to a participant under age
59 1/2, unless the distribution meets an exception stated in the Code. To obtain
the necessary forms, please call our Retirement Plans Department.
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
Dividends and capital gains are calculated and distributed the same way for each
class of the Fund. The amount of any income dividends per share will differ,
however, generally due to the difference in the applicable Rule 12b-1 fees of
any class. Advisor Class shares are not subject to Rule 12b-1 fees.
The Fund intends to pay a dividend at least annually representing substantially
all of its net investment income and any net realized capital gains.
Dividend payments are not guaranteed, are subject to the Board's discretion and
may vary with each payment. THE FUND DOES NOT PAY "INTEREST" OR GUARANTEE ANY
FIXED RATE OF RETURN ON AN INVESTMENT IN ITS SHARES.
If you buy shares shortly before the record date, please keep in mind that any
distribution will lower the value of the Fund's shares by the amount of the
distribution.
Distribution Options
You may receive your distributions from the Fund in any of these ways:
1. Buy additional shares of the Fund - You may buy additional shares of the same
class of the Fund by reinvesting capital gain distributions, dividend
distributions, or both. This is a convenient way to accumulate additional
shares and maintain or increase your earnings base.
2. Buy shares of other Franklin Templeton Funds - You may direct your
distributions to buy Advisor Class shares or Class I shares of another Franklin
Templeton Fund. Many shareholders find this a convenient way to diversify their
investments.
3. Receive distributions in cash - You may receive capital gains distributions,
dividend distributions, or both in cash. If you have the money sent to another
person or to a checking account, you may need a signature guarantee.
TO SELECT ONE OF THESE OPTIONS, PLEASE COMPLETE THE SHAREHOLDER APPLICATION
INCLUDED WITH THIS PROSPECTUS OR TELL YOUR INVESTMENT REPRESENTATIVE WHICH
- Templeton Foreign Fund
16
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OPTION YOU PREFER. IF YOU DO NOT SELECT AN OPTION, WE WILL AUTOMATICALLY
REINVEST DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS IN THE ADVISOR CLASS SHARES OF
THE FUND. For Trust Company retirement plans, special forms are required to
receive distributions in cash. You may change your distribution option at any
time by notifying us by mail or phone. Please allow at least seven days prior to
the record date for us to process the new option.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
How and When Shares Are Priced
The Fund is open for business each day the NYSE is open. We determine the Net
Asset Value per share as of the scheduled close of the NYSE, generally 4:00
p.m. Eastern time. You can find the prior day's closing Net Asset Value and
Offering Price of the Fund in many newspapers.
The Net Asset Value of all outstanding shares of each class is calculated on a
pro rata basis. It is based on each class' proportionate participation in the
Fund, determined by the value of the shares of each class. To calculate Net
Asset Value per share of each class, the assets of each class are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares of the class outstanding. The Fund's assets are
valued as described under "How Are Fund Shares Valued?" in the SAI.
The Price We Use When You Buy or Sell Shares
You buy shares of Advisor Class at the Net Asset Value per share. We calculate
it to two decimal places using standard rounding criteria. You also sell shares
at Net Asset Value.
We will use the Net Asset Value next calculated after we receive your
transaction request in proper form. If you buy or sell shares through your
Securities Dealer, however, we will use the Net Asset Value next calculated
after your Securities Dealer receives your request, which is promptly
transmitted to the Fund. Your redemption proceeds will not earn interest
between the time we receive the order from your dealer and the time we receive
any required documents.
Proper Form
An order to buy shares is in proper form when we receive your signed
shareholder application and check. Written requests to sell or exchange shares
are in proper form when we receive written instructions signed by all registered
owners, with a signature guarantee if necessary. We must also receive any
outstanding share certificates for those shares.
Templeton Foreign Fund -
17
PAGE
Written Instructions
Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:
- - Your name,
- - The Fund's name,
- - A description of the request,
- - For exchanges, the name of the fund you're exchanging into,
- - Your account number,
- - The dollar amount or number of shares, and
- - A telephone number where we may reach you during the day, or in the evening
if preferred.
Signature Guarantees
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered owners,
3) The proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature and may be
obtained from certain banks, brokers or other eligible guarantors. YOU SHOULD
VERIFY THAT THE INSTITUTION IS AN ELIGIBLE GUARANTOR PRIOR TO SIGNING. A
NOTARIZED SIGNATURE IS NOT SUFFICIENT.
Share Certificates
We will credit your shares to your Fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate
is lost,
- Templeton Foreign Fund
18
PAGE
stolen or destroyed, you may have to pay an insurance premium of up to 2% of
the value of the certificate to replace it.
Any outstanding share certificates must be returned to the Fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form. In this case, you should send the certificate and assignment
form in separate envelopes.
Telephone Transactions
You may initiate many transactions by phone. Please refer to the sections of
this prospectus that discuss the transaction you would like to make or call
Shareholder Services.
When you call, we will request personal or other identifying information to
confirm that instructions are genuine. We will also record calls. We will not be
liable for following instructions communicated by telephone if we reasonably
believe they are genuine. For your protection, we may delay a transaction or not
implement one if we are not reasonably satisfied that the instructions are
genuine. If this occurs, we will not be liable for any loss.
Trust Company Retirement Plan Accounts. You may not sell shares or change
distribution options on Trust Company retirement plans by phone.
To obtain any required forms or more information about distribution or transfer
procedures, please call our Retirement Plans Department.
Account Registrations and Required Documents
When you open an account, you need to tell us how you want your shares
registered. How you register your account will affect your ownership rights and
ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
Joint Ownership. If you open an account with two or more owners, we register
the account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or
more owners, all owners must sign instructions to process transactions and
changes to the account. Even if the law in your state says otherwise, you will
not
Templeton Foreign Fund -
19
PAGE
be able to change owners on the account unless all owners agree in writing. If
you would like another person or owner to sign for you, please send us a
current power of attorney.
Gifts and Transfers to Minors. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this form
of registration, a minor may not be named as an account owner.
Trusts. If you register your account as a trust, you should have a valid written
trust document to avoid future disputes or possible court action over who owns
the account.
Required Documents. For corporate, partnership and trust accounts, please send
us the following documents when you open your account. This will help avoid
delays in processing your transactions while we verify who may sign on the
account.
<TABLE>
<CAPTION>
TYPE OF ACCOUNT DOCUMENTS REQUIRED
- -----------------------------------------------------------------------
<S> <C>
CORPORATION Corporate Resolution
- -----------------------------------------------------------------------
PARTNERSHIP 1. The pages from the partnership agreement that
identify the general partners, or
2. A certification for a partnership agreement
- -----------------------------------------------------------------------
TRUST 1. The pages from the trust document that
identify the trustees, or
2. A certification for trust
- -----------------------------------------------------------------------
</TABLE>
Street or Nominee Accounts. If you have Fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the shares
to the street or nominee name account of another Securities Dealer. Both
dealers must have an agreement with Distributors or we will not process the
transfer. Contact your Securities Dealer to initiate the transfer. We will
process the transfer after we receive authorization in proper form from your
delivering Securities Dealer. Accounts may be transferred electronically
through the NSCC. For accounts registered in street or nominee name, we may
take instructions directly from the Securities Dealer or your nominee.
Electronic Instructions. If there is a Securities Dealer or other
representative of record on your account, we are authorized to use and execute
electronic instructions received directly from your dealer or representative
without further inquiry. Electronic instructions may be processed through the
services of the NSCC, which currently include the NSCC's "Networking,"
"Fund/SERV," and "ACATS" systems, or through Franklin/Templeton's PCTrades
II(TM) System.
- Templeton Foreign Fund
20
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Tax Identification Number
For tax reasons, we must have your correct Social Security or tax identification
number on a signed shareholder application or applicable tax form. Federal law
requires us to withhold 31% of your taxable distributions and sale proceeds if
(i) you have not furnished a certified correct taxpayer identification number,
(ii) you have not certified that withholding does not apply, (iii) the IRS or a
Securities Dealer notifies the Fund that the number you gave us is incorrect, or
(iv) you are subject to backup withholding.
We may refuse to open an account if you fail to provide the required tax
identification number and certifications. We may also close your account if the
IRS notifies us that your tax identification number is incorrect. If you
complete an "awaiting TIN" certification, we must receive a correct tax
identification number within 60 days of your initial purchase to keep your
account open.
Keeping Your Account Open
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is $50 or less, except for investors
under categories (d), (f) and (h) under "Opening Your Account." We will only do
this if the value of your account falls below this minimum because you
voluntarily sold your shares and your account has been inactive (except for the
reinvestment of distributions) for at least six months. Before we close your
account, we will notify you and give you 30 days to increase the value of your
account to the required minimum amount of at least $100.
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
Automatic Investment Plan
Our automatic investment plan offers a convenient way to invest in the Fund.
Under the plan, you can have money transferred automatically from your checking
account to the Fund each month to buy additional shares. If you are interested
in this program, please refer to the account application included with this
prospectus or contact your investment representative. The market value of the
Fund's shares may fluctuate and a systematic investment plan such as this will
not assure a profit or protect against a loss. You may discontinue the program
at any time by notifying Investor Services by mail or phone.
Systematic Withdrawal Plan
Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or annual
basis. The value of your account must be at least $5,000 and the minimum payment
Templeton Foreign Fund -
21
PAGE
amount for each withdrawal must be at least $50. For retirement plans subject to
mandatory distribution requirements, the $50 minimum will not apply.
If you would like to establish a systematic withdrawal plan, please complete the
systematic withdrawal plan section of the shareholder application included with
this prospectus and indicate how you would like to receive your payments. You
may choose to direct your payments to buy the same class of shares of another
Franklin Templeton Fund or have the money sent directly to you, to another
person, or to a checking account. You will generally receive your payment by the
end of the month in which a payment is scheduled. When you sell your shares
under a systematic withdrawal plan, it is a taxable transaction.
You may discontinue a systematic withdrawal plan, change the amount and
schedule of withdrawal payments, or suspend one payment by notifying us in
writing at least seven business days before the end of the month preceding a
scheduled payment. Please see "How Do I Buy, Sell and Exchange Shares? -
Systematic Withdrawal Plan" in the SAI for more information.
Statements and Reports to Shareholders
We will send you the following statements and reports on a regular basis:
- - Confirmation and account statements reflecting transactions in your account,
including additional purchases and dividend reinvestments. PLEASE VERIFY THE
ACCURACY OF YOUR STATEMENTS WHEN YOU RECEIVE THEM.
- - Financial reports of the Fund will be sent every six months. To reduce Fund
expenses, we attempt to identify related shareholders within a household and
send only one copy of a report. Call Fund Information if you would like an
additional free copy of the Fund's financial reports or an interim quarterly
report.
Brokers and Dealers and Plan Administrators
You may buy and sell Fund shares through registered broker-dealers. The Fund
does not impose a sales or service charge but your broker-dealer may charge you
a transaction fee. Transaction fees and services may vary among broker-dealers,
and your broker-dealer may impose higher initial or subsequent investment
requirements than those established by the Fund. Services provided by broker-
dealers may include allowing you to establish a margin account and borrow on
the value of the Fund's shares in that account. If your broker-dealer receives
your order before pricing on a given day, the broker-dealer is required to
forward the order to the Fund before pricing closes on that day. A broker-
dealer's failure to timely forward an order may give rise to a claim by the
investor against the broker.
- Templeton Foreign Fund
22
PAGE
Third party plan administrators of tax-qualified retirement plans and other
entities may provide sub-transfer agent services to the Fund. In such cases, the
Fund may pay the third party an annual sub-transfer agency fee that is not
greater than the Fund otherwise would have paid for such services.
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 application or additional
information regarding institutional accounts, contact Franklin Templeton
Institutional Services at 1-800/321-8563 Monday through Friday, from 9:00 a.m.
to 5:00 p.m. Eastern time.
Availability of These Services
The services above are available to most shareholders. If, however, your shares
are held by a financial institution, in a street name account, or networked
through the NSCC, the Fund may not be able to offer these services directly to
you. Please contact your investment representative.
What If I Have Questions About My Account?
If you have any questions about your account, you may write to Investor
Services, P.O. Box 33030, St. Petersburg, FL 33733-8030. The Fund and
Distributors are also located at this address. You may also contact us by phone
at one of the numbers listed below.
<TABLE>
<CAPTION>
HOURS OF OPERATION (EASTERN
TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
- ----------------------------------------------------------------------------
<S> <C> <C>
Shareholder Services 1-800/632-2301 8:30 a.m. to 8:00 p.m.
Dealer Services 1-800/524-4040 8:30 a.m. to 8:00 p.m.
Fund Information 1-800/DIAL BEN 8:30 a.m. to 11:00 p.m.
(1-800/342-5236) 11:30 a.m. to 8:00 p.m. (Saturday)
Retirement Plans 1-800/527-2020 8:30 a.m. to 8:00 p.m.
Institutional Services 1-800/321-8563 9:00 a.m. to 8:00 p.m.
TDD (hearing impaired) 1-800/851-0637 8:30 a.m. to 8:00 p.m.
</TABLE>
Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.
Templeton Foreign Fund -
23
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GLOSSARY
USEFUL TERMS AND DEFINITIONS
1940 Act - Investment Company Act of 1940, as amended.
Board - The Board of Directors of the Company.
Class I, Class II and Advisor Class - The Fund offers three classes of shares,
designated "Class I," "Class II," and "Advisor Class." The three classes have
proportionate interests in the Fund's portfolio. Class I and Class II differ,
however, primarily in their sales charge structures and Rule 12b-1 plans.
Advisor Class shares are purchased without a sales charge and do not have a Rule
12b-1 plan.
Code - Internal Revenue Code of 1986, as amended.
Contingency Period - For Class I shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. For Class II shares, the
contingency period is 18 months. Regardless of when during the month you
purchased shares, they will age one month on the last day of that month and
each following month.
Contingent Deferred Sales Charge (CDSC) - A sales charge of 1% that may apply
if you sell your shares within the Contingency Period.
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Directors."
Franklin Funds - The mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin Government Securities Trust.
Franklin Templeton Funds - The Franklin Funds and the Templeton Funds.
Franklin Templeton Group - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries.
Franklin Templeton Group of Funds - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds.
FT Services - Franklin Templeton Services, Inc., the Fund's administrator.
Investor Services - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing agent and transfer agent.
IRS - Internal Revenue Service.
Market Timer(s) - Market Timers generally include market timing or allocation
services, accounts administered so as to buy, sell or exchange shares based on
predetermined market indicators, or any person or group whose transactions seem
to follow a timing pattern.
Moody's - Moody's Investors Service, Inc.
- Templeton Foreign Fund
24
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Mutual Series - Franklin Mutual Series Fund Inc., a member of the Franklin
Group of Funds, formerly the Mutual Series Fund Inc. Each series of Mutual
Series began offering three classes of shares on November 1, 1996, Class I,
Class II and Class Z. All shares sold before that time are designated Class Z
shares.
NASD - National Association of Securities Dealers, Inc.
Net Asset Value (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by
the number of shares outstanding.
NSCC - National Securities Clearing Corporation.
NYSE - New York Stock Exchange, Inc.
Offering Price - The public offering price is based on the Net Asset Value per
share of the class and includes the front-end sales charge, if applicable. The
maximum front-end sales charge is 5.75% for Class I and 1% for Class II.
Advisor Class has no front-end sales charge.
Qualified Retirement Plan(s) - An employer sponsored pension or profit-sharing
plan that qualifies under section 401 of the Code. Examples include 401(k),
money purchase pension, profit sharing and defined benefit plans.
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information.
SEC - U.S. Securities and Exchange Commission.
Securities Dealer - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
Templeton Funds - The U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund.
TGAL - Templeton Global Advisers Limited, the Fund's investment manager, is
located at Lyford Cay, Nassau, Bahamas.
Trust Company - Franklin Templeton Trust Company. Trust Company is an affiliate
of Distributors and both are wholly-owned subsidiaries of Resources.
U.S. - United States.
We/Our/Us - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Investor Services, Distributors, or other wholly-owned
subsidiaries of Resources.
Templeton Foreign Fund -
25
PAGE
PART B
STATEMENT OF ADDITIONAL INFORMATION
PAGE
TEMPLETON FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 1,1997
700 CENTRAL AVENUE
ST. PETERSBURG, FL 33701 1-800/DIAL BEN
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
How does the Fund Invest its Assets?........................................
What are the Fund's Potential Risks?........................................
Investment Restrictions.....................................................
Officers and Directors......................................................
Investment Management and Other Services....................................
How does the Fund Buy Securities for its Portfolio?.........................
How Do I Buy, Sell and Exchange Shares?.....................................
How are Fund Shares Valued?.................................................
Additional Information on Distributions and Taxes...........................
The Fund's Underwriter......................................................
How does the Fund Measure Performance?......................................
Miscellaneous Information...................................................
Financial Statements........................................................
Useful Terms and Definitions................................................
</TABLE>
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WHEN READING THIS SAI, YOU WILL SEE CERTAIN
TERMS IN CAPITAL LETTERS. THIS MEANS THE TERM
IS EXPLAINED UNDER "USEFUL TERMS AND DEFINITIONS."
- --------------------------------------------------------------------------------
Templeton Foreign Fund (the "Fund") is a series of Templeton Funds, Inc. (the
"Company"), a diversified, open-end management investment company. 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 U.S. Any income realized will be
incidental. This SAI relates to the Advisor Class shares of the Fund.
Advisor Class shares are only available for purchase by certain persons,
including, among others, certain broker-dealers and qualified registered
investment advisors; participants in Franklin Templeton's 401(k) and Franklin
Templeton's Profit Sharing Plans; Franklin Templeton Fund Allocator Series; and
directors, trustees, officers and full time employees (and their family members)
of Franklin Templeton Group and the Franklin Templeton Group of Funds.
The Fund's Prospectus relating to the Advisor Class, dated January 1, 1997, as
may be amended from time to time, contains the basic information you should know
before investing in the Fund. For a free copy, call 1-800/DIAL BEN or write the
Fund at the address shown.
PAGE
THIS SAI IS NOT A PROSPECTUS. IT CONTAINS INFORMATION IN ADDITION TO AND IN MORE
DETAIL THAN SET FORTH IN THE FUND'S PROSPECTUS. THIS SAI IS INTENDED TO PROVIDE
YOU WITH ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF THE
FUND, AND SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS.
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MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
- - ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
- - ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK;
- - ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
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HOW DOES THE FUND INVEST ITS ASSETS?
The following provides more detailed information about some of the securities
the Fund may buy and its investment policies. You should read it together with
the section in the Fund's Prospectus entitled "How does the Fund Invest its
Assets?" The Fund may invest for defensive purposes in commercial paper which,
at the date of investment, 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.
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. TGAL 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 the
Fund's ability to dispose of the underlying securities. The Fund will enter into
repurchase agreements only with parties who meet creditworthiness standards
approved by the Board, i.e., banks or broker-dealers which have been determined
by TGAL to present no serious risk of becoming involved in bankruptcy
proceedings within the time frame contemplated by the repurchase transaction.
Debt Securities. The Fund 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 TGAL. As
an operating policy, the 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 market value of
debt securities generally varies in response to changes in interest rates and
the financial condition of each issuer. During periods of declining interest
rates, the value of debt securities generally increases. Conversely, during
periods of rising interest rates, the value of such securities generally
declines. These changes in market value will be reflected in the 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
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rated securities are traded. The existence of limited markets for particular
securities may diminish the 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 the 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 the 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 the 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, the Fund may incur additional expenses to seek
recovery.
The Fund may accrue and report interest on high yield bonds structured as zero
coupon bonds or pay-in-kind securities as income even though it receives no cash
interest until the security's maturity or payment date. In order to qualify for
beneficial tax treatment afforded regulated investment companies, the Fund must
distribute substantially all of its net income to shareholders (see "Additional
Information on Distributions and Taxes"). Thus, the Fund may have to dispose of
its portfolio securities under disadvantageous circumstances to generate cash in
order to satisfy the distribution requirement.
Structured Investments. Included among the issuers of debt securities in which
the Fund 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 Fund anticipates investing typically involve no credit enhancement, their
credit risk will generally be equivalent to that of the underlying instruments.
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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. 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.
WHAT ARE THE FUND'S POTENTIAL RISKS?
The 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 U.S.
Foreign companies are not generally subject to uniform accounting or financial
reporting standards, and auditing practices and requirements may not be
comparable to those applicable to U.S. companies. The 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 U.S. companies.
Although the Fund may not 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 U.S., 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 U.S.
Investments in companies domiciled in developing countries may be subject to
potentially higher risks than investments in developed countries. These risks
include (i) less social, political and economic stability; (ii) the small
current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict the
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
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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 the 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 and 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 U.S. 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, the 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 U.S. dollars, the conversion rates may be
artificial to the actual market values and may be adverse to the Fund's
shareholders.
Investing in Russian companies involves a high degree of risk and special
considerations not typically associated with investing in the U.S. 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 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 the 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 the 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
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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 the Fund to lose its registration
through fraud, negligence or even mere oversight. While the 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 dilute its interests. In addition, while applicable Russian
regulations impose liability on registrars for losses resulting from their
errors, it may be difficult for the 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 the Fund from investing in the securities of
certain Russian companies deemed suitable by TGAL. Further, this also could
cause a delay in the sale of Russian company securities by the Fund if a
potential purchaser is deemed unsuitable, which may expose the Fund to potential
loss on the investment.
The 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 the 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 the 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.
The 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 the Fund may invest may also have fixed or
managed currencies that are not free-floating against the U.S. dollar. Further,
certain currencies may not be internationally traded. Certain of these
currencies have experienced a steady devaluation relative to the U.S. dollar.
Any devaluations in the currencies in which the Fund's portfolio securities are
denominated may have a detrimental impact on the Fund. Through the flexible
policy of the Fund, TGAL 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 the Fund.
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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 Board considers at least annually the likelihood of the imposition by any
foreign government of exchange control restrictions which would affect the
liquidity of the 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 Board also considers the degree of risk
involved through the holding of portfolio securities in domestic and foreign
securities depositories (see "Investment Management and Other Services -
Shareholder Servicing Agent and Custodian"). However, in the absence of willful
misfeasance, bad faith or gross negligence on the part of TGAL, any losses
resulting from the holding of the 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 Board's appraisal of the risks
will always be correct or that such exchange control restrictions or political
acts of foreign governments might not occur.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions as fundamental policies. These
restrictions may not be changed without the approval of a majority of the
outstanding voting securities of the Fund. Under the 1940 Act, this means the
approval of (i) more than 50% of the outstanding shares of the Fund or (ii) 67%
or more of the shares of the Fund present at a shareholder meeting if more than
50% of the outstanding shares of the Fund are represented at the meeting in
person or by proxy, whichever is less.
The Fund MAY NOT:
1. Invest in real estate or mortgages on real estate (although the 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.
2. Purchase or retain securities of any company in which directors or
officers of the Company or of TGAL, 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; or write, buy or sell puts, calls, straddles or spreads.
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 Fund may buy from a bank
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or broker-dealer U.S. 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 Board may by
resolution approve. As an operating policy approved by the Board, the
Fund will not 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 the
Fund.
7. Invest more than 5% of the value of the Fund's total assets in
securities of issuers which have been in continuous operation less than
three years.
8. Invest more than 5% of the Fund's total assets in warrants, whether or
not listed on the NYSE or AMEX, 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 the 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 the Fund's total assets in securities of
foreign issuers which are not listed on a recognized U.S. 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. The Fund's position in the latter type of securities
may be of such size as to affect adversely their liquidity and
marketability and the Fund may not be able to dispose of its holdings
in these securities at the current market price.
10. Invest more than 25% of the 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 "How does the Fund Buy Securities for its
Portfolio?" as to transactions in the same securities for the Fund,
other clients and/or other mutual funds within the Franklin Templeton
Group of Funds.)
Nothing in the investment policy or investment restrictions (except restrictions
9 and 10) shall be deemed to prohibit the Fund from purchasing securities
pursuant to subscription rights distributed to the Fund by any issuer of
securities held at the time in its portfolio (as long as such purchase is not
contrary to the Fund's status as a diversified investment company under the 1940
Act). If a percentage restriction is met at the time of investment, a later
increase or decrease in the percentage due to a change in value of portfolio
securities or the amount of assets will not be considered a violation of any of
the foregoing restrictions.
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OFFICERS AND DIRECTORS
The Board has the responsibility for the overall management of the Fund,
including general supervision and review of its investment activities. The
Board, in turn, elects the officers of the Company who are responsible for
administering the Fund's day-to-day operations. The affiliations of the officers
and Board members and their principal occupations for the past five years are
shown below. Members of the Board who are considered "interested persons" of the
Company under the 1940 Act are indicated by an asterisk ("*").
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATION
NAME, ADDRESS AND OFFICES WITH DURING THE PAST
AGE THE COMPANY FIVE YEARS
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<S> <C> <C>
HARRIS J. ASHTON Director Chairman of the board, president and chief executive officer of General Host
Metro Center Corporation (nursery and craft centers); director of RBC Holdings (U.S.A.)
1 Station Place Inc. (a bank holding company) and Bar-S Foods; and director or trustee of 55
Stamford, Connecticut of the investment companies in the Franklin Templeton Group of Funds.
Age 64
NICHOLAS F. BRADY* Director Chairman of Templeton Emerging Markets Investment Trust PLC; chairman of
The Bullitt House Templeton Latin America Investment Trust PLC; chairman of Darby Overseas
102 East Dover Street Investments, Ltd. (an investment firm) (1994-present); chairman and director
Easton, Maryland of Templeton Central and Eastern European Fund; director of the Amerada Hess
Age 66 Corporation, Christiana Companies, and the H.J. Heinz Company; formerly,
Secretary of the United States Department of the Treasury (1988-1993) and
chairman of the board of Dillon, Read & Co. Inc. (investment banking) prior
to 1988; and director or trustee of 23 of the investment companies in the
Franklin Templeton Group of Funds.
S. JOSEPH FORTUNATO Director Member of the law firm of Pitney, Hardin, Kipp & Szuch; director of General
200 Campus Drive Host Corporation (nursery and craft centers); and director or trustee of 57
Florham Park, New Jersey of the investment companies in the Franklin Templeton Group of Funds.
Age 64
JOHN Wm. GALBRAITH Director President of Galbraith Properties, Inc. (personal investment company);
360 Central Avenue director of Gulf West Banks, Inc. (bank holding company) (1995-present);
Suite 300 formerly, director of Mercantile Bank (1991-1995), vice chairman of
St. Petersburg, Florida Templeton, Galbraith & Hansberger Ltd. (1986-1992), and chairman of
Age 75 Templeton Funds Management, Inc. (1974-1991); and director or trustee of 22
of the investment companies in the Franklin Templeton Group of Funds.
ANDREW H. HINES, Jr. Director Consultant for the Triangle Consulting Group; chairman and director of
150 2nd Avenue N. Precise Power Corporation; executive-in-residence of Eckerd College
St. Petersburg, Florida (1991-present); director of Checkers Drive-In Restaurants, Inc.; formerly,
Age 73 chairman of the board and chief executive officer of Florida Progress
Corporation (1982-1990) and director of various of its subsidiaries; and
director or trustee of 24 of the investment companies in the Franklin
Templeton Group of Funds.
CHARLES B. JOHNSON* Chairman of the Board President, chief executive officer, and director of Franklin Resources,
777 Mariners Island Blvd. and Vice President Inc.; chairman of the board and director of Franklin Advisers, Inc. and
San Mateo, California Franklin Templeton Distributors, Inc.; director of General Host Corporation
Age 63 (nursery and craft centers); Franklin Templeton Investment Services, Inc.;
and officer and/or director, trustee or managing general partner, as the
case may be, of most other subsidiaries of Franklin Resources, Inc. and 56
of the investment companies in the Franklin Templeton Group of Funds.
RUPERT H. JOHNSON, JR.* Director Executive vice president and director of Franklin Resources, Inc. and
777 Mariners Island Blvd. Franklin Templeton Distributors, Inc.; president and director of Franklin
San Mateo, California Advisers, Inc.; and officer and/or director, trustee or managing general
Age 56 partner, as the case may be, of most other subsidiaries of Franklin
Resources, Inc. and 60 of the investment companies in the Franklin Templeton
Group of Funds.
BETTY P. KRAHMER Director Director or trustee of various civic associations; formerly, economic
2201 Kentmere Parkway analyst, U.S. government; and director or trustee of 23 of the investment
Wilmington, Delaware companies in the Franklin Templeton Group of Funds.
GORDON S. MACKLIN Director Chairman of White River Corporation (information services); director of Fund
8212 Burning Tree Road America Enterprises Holdings, Inc., MCI Communications Corporation, Fusion
Bethesda, Maryland Systems Corporation, Infovest Corporation, MedImmune, Inc., Source One
Age 68 Mortgage Services Corporation, and Shoppers Express, Inc. (on-line shopping
service); formerly, chairman of Hambrecht and Quist Group, director of H&Q
Healthcare Investors and Lockheed Martin Corporation, and president of the
National Association of Securities Dealers, Inc.; and director or trustee of
52 of the investment companies in the Franklin Templeton Group of Funds.
FRED R. MILLSAPS Director Manager of personal investments (1978-present); director of various business
2665 N.E. 37th Drive and nonprofit organizations; formerly, chairman and chief executive officer
Fort Lauderdale, Florida of Landmark Banking Corporation (1969-1978), financial vice president of
Age 67 Florida Power and Light (1965-1969), and vice president of The Federal
Reserve Bank of Atlanta (1958-1965); and director or trustee of 24 of the
investment companies in the Franklin Templeton Group of Funds.
MARK G. HOLOWESKO President President and director of Templeton Global Advisors Limited; chief
Lyford Cay investment officer of global equity research for Templeton Worldwide, Inc.;
Nassau, Bahamas president or vice president of the Templeton Funds; formerly, investment
Age 36 administrator with Roy West Trust Corporation (Bahamas) Limited (1984-1985);
and officer of 23 of the investment companies in the Franklin Templeton
Group of Funds.
HARMON E. BURNS Vice President Executive vice president, secretary and director of Franklin Resources,
777 Mariners Island Blvd. Inc.; executive vice president and director of Franklin Templeton
San Mateo, California Distributors, Inc.; executive vice president of Franklin Advisers, Inc.;
Age 51 officer and/or director, as the case may be, of other subsidiaries of
Franklin Resources, Inc.; and officer and/or director or trustee of
60 of the investment companies in the Franklin Templeton Group of Funds.
CHARLES E. JOHNSON Vice President Senior vice president and director of Franklin Resources, Inc.; senior vice
500 East Broward Blvd. president of Franklin Templeton Distributors, Inc.; president and chief
Fort Lauderdale, Florida executive officer of Templeton Worldwide, Inc.; president and director of
Age 40 Franklin Institutional Services Corporation; chairman of the board of
Templeton Investment Counsel, Inc.; officer and/or director, as the case may
be, of other subsidiaries of Franklin Resources, Inc.; and officer and/or
director or trustee of 39 of the investment companies in the Franklin
Templeton Group of Funds.
DEBORAH R. GATZEK Vice President Senior vice president and general counsel of Franklin Resources, Inc.;
777 Mariners Island Blvd. senior vice president of Franklin Templeton Distributors, Inc.; vice
San Mateo, California president of Franklin Advisers, Inc. and officer of 60 of the investment
Age 47 companies in the Franklin Templeton Group of Funds.
MARTIN L. FLANAGAN Vice President Senior vice president, treasurer and chief financial officer of Franklin
777 Mariners Island Blvd. Resources, Inc.; director and executive vice president of Templeton
San Mateo, California Investment Counsel, Inc.; a member of the International Society of Financial
Age 36 Analysts and the American Institute of Certified Public Accountants;
formerly, with Arthur Andersen & Company (1982-1983); officer and/or
director, as the case may be, of other subsidiaries of Franklin Resources,
Inc.; and officer and/or director or trustee of 60 of the investment
companies in the Franklin Templeton Group of Funds.
JOHN R. KAY Vice President Vice president and treasurer of Templeton Worldwide, Inc.; assistant vice
500 East Broward Blvd. president of Franklin Templeton Distributors, Inc.; formerly, vice president
Fort Lauderdale, Florida and controller of the Keystone Group, Inc.; and officer of 27 of the
Age 56 investment companies in the Franklin Templeton Group of Funds.
JEFFREY A. EVERETT Vice President Executive vice president, portfolio management/research of Templeton Global
Lyford Cay Advisors Limited; formerly, investment officer at First Pennsylvania
Nassau, Bahamas Investment Research (until 1989); and officer of 2 of the investment
Age 32 companies in the Franklin Templeton Group of Funds.
ELIZABETH M. KNOBLOCK Vice President- General counsel, secretary and a senior vice president of Templeton
500 East Broward Blvd. Compliance Investment Counsel, Inc.; formerly, vice president and associate general
Fort Lauderdale, Florida counsel of Kidder Peabody & Co. Inc. (1989-1990), assistant general counsel
Age 41 of Gruntal & Co., Inc. (1988), vice president and associate general counsel
Shearson Lehman Hutton Inc. (1988), vice president and assistant general
counsel of E.F. Hutton & Co. Inc. (1986-1988), and special counsel of the
division of investment management of the Securities and Exchange Commission
(1984-1986); and officer of 23 of the investment companies in the Franklin
Templeton Group of Funds.
JAMES R. BAIO Treasurer Certified public accountant; senior vice president of Templeton Worldwide,
500 East Broward Blvd. Inc. and Templeton Funds Trust Company; formerly, senior tax manager with
Fort Lauderdale, Florida Ernst & Young (certified public accountants) (1977-1989); and treasurer of
Age 42 23 of the investment companies in the Franklin Templeton Group of Funds.
BARBARA J. GREEN Secretary Senior vice president of Templeton Worldwide, Inc. and an officer of other
500 East Broward Blvd. subsidiaries of Templeton Worldwide, Inc.; formerly, deputy director of the
Fort Lauderdale, Florida Division of Investment Management, executive assistant and senior advisor to
Age 49 the chairman, counsellor to the chairman, special counsel and attorney
fellow, U.S. Securities and Exchange Commission (1986-1995), attorney,
Rogers & Wells, and judicial clerk, U.S. District Court (District of
Massachusetts); and secretary of 23 of the investment companies in the
Franklin Templeton Group of Funds.
</TABLE>
The table above shows the officers and Board members who are affiliated with
Distributors and TGAL. Nonaffiliated members of the Board and Mr. Brady are
currently paid an annual retainer and/or fees for attendance at Board and
Committee meetings, the amount of which is based on the level of assets in the
Funds. Accordingly, the Company currently pays the independent members of the
Board and Mr. Brady an annual retainer of $12,500 and a fee of $950 per meeting
of the Board and its portion of a flat fee of $2,000 for each Audit Committee
meeting and/or Nominating and Compensation Committee meeting attended. As shown
above, some of the nonaffiliated Board members also serve as directors, trustees
or managing general partners of other investment companies in the Franklin
Templeton Group of Funds. They may receive fees from these funds for their
services. The following table provides the total fees paid to nonaffiliated
Board members and Mr. Brady by the Company and by other funds in the Franklin
Templeton Group of Funds.
<TABLE>
<CAPTION>
Number of
Boards in the
Total Fees Franklin
Received from Templeton Group
Total Fees the Franklin of Funds on
Received from Templeton Group Which Each
Name the Company(A) of Funds(B) Serves(C)
- ---- -------------- --------------- ---------------
<S> <C> <C> <C>
Harris J. Ashton $17,250 $339,592 55
Nicholas F. Brady 17,250 119,275 23
F. Bruce Clarke(D) 17,536 69,500 0
Hasso-G von Diergardt-Naglo(E) 17,250 66,375 0
S. Joseph Fortunato 17,250 356,412 57
John Wm. Galbraith 15,636 102,475 22
Andrew H. Hines, Jr. 17,670 130,525 24
Betty P. Krahmer 17,250 119,275 23
Gordon S. Macklin 17,384 331,542 52
Fred R. Millsaps 17,536 130,525 24
</TABLE>
- -------------
(A) For the fiscal year ended August 31, 1996.
(B) For the calendar year ended December 31, 1996.
-9-
PAGE
(C) We base the number of boards on the number of registered investment
companies in the Franklin Templeton Group of Funds. This number does not
include the total number of series of funds within each investment company for
which the Board members are responsible. The Franklin Templeton Group of Funds
currently includes 61 registered investment companies with approximately 171
U.S. based funds or series.
(D) Mr. Clarke resigned as a director on October 20, 1996.
(E) Mr. Von Diergardt resigned as a director on December 31, 1996.
Nonaffiliated members of the Board and Mr. Brady are reimbursed for expenses
incurred in connection with attending board meetings, and paid pro rata by each
fund in the Franklin Templeton Group of Funds for which they serve as director,
trustee or managing general partner. No officer or Board member received any
other compensation, including pension or retirement benefits, directly or
indirectly from the Company or other funds in the Franklin Templeton Group of
Funds. Certain officers or Board members who are shareholders of Resources may
be deemed to receive indirect remuneration by virtue of their participation, if
any, in the fees paid to its subsidiaries.
As December 1, 1996, the officers and Board members, as a group, owned of record
and beneficially approximately 687,622 shares, or less than 1% of each class of
the Fund's total outstanding shares. Many of the Board members also own shares
in other funds in the Franklin Templeton Group of Funds. Charles B. Johnson and
Rupert H. Johnson, Jr. are brothers and the father and uncle, respectively, of
Charles E. Johnson.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Investment Manager and Services Provided. TGAL provides investment research and
portfolio management services, including the selection of securities for the
Fund to buy, hold or sell and the selection of brokers through whom the Fund's
portfolio transactions are executed. TGAL renders its services to the Fund from
outside the U.S. and its activities are subject to the review and supervision of
the Board to whom TGAL renders periodic reports of the Fund's investment
activities. TGAL is covered by fidelity insurance on its officers, directors and
employees for the protection of the Fund.
TGAL and its affiliates act as investment manager to numerous other investment
companies and accounts. TGAL may give advice and take action with respect to any
of the other funds it manages, or for its own account, that may differ from
action taken by TGAL on behalf of the Fund. Similarly, with respect to the Fund,
TGAL is not obligated to recommend, buy or sell, or to refrain from
recommending, buying or selling any security that TGAL and access persons, as
defined by the 1940 Act, may buy or sell for its or their own account or for the
accounts of any other fund. TGAL is not obligated to refrain from investing in
securities held by the Fund or other funds that it manages. Of course, any
transactions for the accounts of TGAL and other access persons will be made in
compliance with the Fund's Code of Ethics. Please see "Miscellaneous Information
- - Summary of Code of Ethics."
Management Fees. Under its management agreement, the Fund pays TGAL a monthly
management fee equal to an annual rate of 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 pays its proportionate share of the management fee.
For the fiscal years
-10-
PAGE
ended August 31, 1996, 1995 and 1994, management fees totaled $51,600,846,
$36,110,792, and $23,889,119, respectively.
Investment Management Agreement. The Fund's investment management agreement may
continue in effect for successive annual periods if its continuance is
specifically approved at least annually by a vote of the Board or by a vote of
the holders of a majority of the Fund's outstanding voting securities, and in
either event by a majority vote of the Board members who are not parties to the
investment management agreement or interested persons of any such party (other
than as members of the Board), cast in person at a meeting called for that
purpose. The investment management agreement may be terminated without penalty
at any time by the Board or by a vote of the holders of a majority of the Fund's
outstanding voting securities, or by TGAL on 60 days' written notice, and will
automatically terminate in the event of its assignment, as defined in the 1940
Act.
Administrative Services. FT Services (and, prior to October 1, 1996, Templeton
Global Investors, Inc.) provides certain administrative services and facilities
for the Fund. These include preparing and maintaining books, records, and tax
and financial reports, and monitoring compliance with regulatory requirements.
FT Services is a wholly owned subsidiary of Resources.
Under the administration agreement, the Company pays FT Services a monthly
administration fee equal to an annual rate of 0.15% of the Company's average
daily net assets up to $200 million, 0.135% of average daily net assets over
$200 million up to $700 million, 0.10% of average daily net assets over $700
million up to $1.2 billion, and 0.075% of average daily net assets over $1.2
billion. During the fiscal years ended August 31, 1996, 1995, and 1994,
administration fees totaling $11,564,072, $8,965,630 and $7,161,271,
respectively, were paid to Templeton Global Investors, Inc.
Shareholder Servicing Agent. Investor Services, a wholly owned subsidiary of
Resources, is the Company's shareholder servicing agent and acts as the
Company's transfer agent and dividend-paying agent. Investor Services is
compensated on the basis of a fixed fee per account.
Custodian. The Chase Manhattan Bank, at its principal office at MetroTech
Center, Brooklyn, NY 11245, and at the offices of its branches and agencies
throughout the world, acts as custodian of the Fund's assets. The custodian does
not participate in decisions relating to the purchase and sale of portfolio
securities.
Auditors. McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, NY 10017, are the
Company's independent auditors. During the fiscal year ended August 31, 1996,
their auditing services consisted of rendering an opinion on the Fund's
financial statements included in the Fund's Annual Report to Shareholders for
the fiscal year ended August 31, 1996, and review of the Fund's filings with the
SEC and the IRS. Advisor Class shares of the Fund were not offered to the public
before January 1, 1997.
HOW DOES THE FUND BUY SECURITIES FOR ITS PORTFOLIO?
The selection of brokers and dealers to execute transactions in the Fund's
portfolio is made by TGAL in accordance with criteria set forth in the
investment management agreement and any directions that the Board may give.
-11-
PAGE
When placing a portfolio transaction, TGAL seeks to obtain prompt execution of
orders at the most favorable net price. When portfolio transactions are done on
a securities exchange, the amount of commission paid by the Fund is negotiated
between TGAL and the broker executing the transaction. The determination and
evaluation of the reasonableness of the brokerage commissions paid in connection
with portfolio transactions are based to a large degree on the professional
opinions of the persons responsible for the placement and review of the
transactions. These opinions are based on the experience of these individuals in
the securities industry and information available to them about the level of
commissions being paid by other institutional investors of comparable size. TGAL
will ordinarily place orders to buy and sell over-the-counter securities on a
principal rather than agency basis with a principal market maker unless, in the
opinion of TGAL, a better price and execution can otherwise be obtained.
Purchases of portfolio securities from underwriters will include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
will include a spread between the bid and ask price.
The amount of commission is not the only factor TGAL considers in the selection
of a broker to execute a trade. If TGAL believes it is in the Fund's best
interest, it may place portfolio transactions with brokers who provide the types
of services described below, even if it means the Fund will pay a higher
commission than if no weight were given to the broker's furnishing of these
services. This will be done only if, in the opinion of TGAL, the amount of any
additional commission is reasonable in relation to the value of the services.
Higher commissions will be paid only when the brokerage and research services
received are bona fide and produce a direct benefit to the Fund or assist TGAL
in carrying out its responsibilities to the Fund, or when it is otherwise in the
best interest of the Fund to do so, whether or not such services may also be
useful to TGAL in advising other clients.
When TGAL believes several brokers are equally able to provide the best net
price and execution, it may decide to execute transactions through brokers who
provide quotations and other services to the Fund, in an amount of total
brokerage as may reasonably be required in light of these services.
Specifically, these services may include providing the quotations necessary to
determine the Fund's Net Asset Value, as well as research, statistical and other
data.
It is not possible to place a dollar value on the special executions or on the
research services received by TGAL from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits TGAL to supplement its own research and
analysis activities and to receive the views and information of individuals and
research staff of other securities firms. As long as it is lawful and
appropriate to do so, TGAL and its affiliates may use this research and data in
their investment advisory capacities with other clients. If the Company's
officers are satisfied that the best execution is obtained, consistent with
internal policies, the sale of the Fund's shares as well as shares of other
funds in the Franklin Templeton Group of Funds, may also be considered a factor
in the selection of broker-dealers to execute the Fund's portfolio transactions.
Because Distributors is a member of the NASD, it may sometimes receive certain
fees when the Fund tenders portfolio securities pursuant to a tender-offer
solicitation. As a means of recapturing brokerage for the benefit of the Fund,
any portfolio securities tendered by the Fund will be tendered through
Distributors if it is legally permissible to do so. In turn, the next investment
management fee payable to TGAL will be reduced by the amount of any fees
received by Distributors in cash, less any costs and expenses incurred in
connection with the tender.
-12-
PAGE
If purchases or sales of securities of the Fund and one or more other investment
companies or clients supervised by TGAL are considered at or about the same
time, transactions in these securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by TGAL
taking into account the respective sizes of the funds and the amount of
securities to be purchased or sold. In some cases this procedure could have a
detrimental effect on the price or volume of the security so far as the Fund is
concerned. In other cases it is possible that the ability to participate in
volume transactions and to negotiate lower brokerage commissions will be
beneficial to the Fund.
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.
During the fiscal years ended August 31, 1996, 1995 and 1994, the Fund paid
brokerage commissions totaling $10,641,000, $11,925,138 and $7,329,697,
respectively.
As of August 31, 1996, the Fund did not own any securities of its regular
broker-dealers.
HOW DO I BUY, SELL AND EXCHANGE SHARES?
ADDITIONAL INFORMATION ON BUYING SHARES
Securities laws of states where the Fund offers its shares may differ from
federal law. Banks and financial institutions that sell shares of the Fund may
be required by state law to register as Securities Dealers. Financial
institutions or their affiliated brokers may receive an agency transaction fee
in the percentages indicated in the table under "How Do I Buy Shares? - Purchase
Price of Fund Shares" in the Fund's Prospectus.
When you buy shares, if you submit a check or a draft that is returned unpaid to
the Fund we may impose a $10 charge against your account for each returned item.
Reinvestment Date. Shares acquired through the reinvestment of dividends will be
purchased at the Net Asset Value determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The processing
date for the reinvestment of dividends may vary and does not affect the amount
or value of the shares acquired.
ADDITIONAL INFORMATION ON EXCHANGING SHARES
If you request the exchange of the total value of your account, declared but
unpaid income dividends and capital gain distributions will be exchanged into
the new fund and will be invested at Net Asset Value. Backup withholding and
information reporting may apply. Information regarding the possible tax
consequences of an exchange is included in the tax section in this SAI and in
the Fund's Prospectus.
If a substantial number of shareholders should, within a short period, sell
their shares of the Fund under the exchange privilege, the Fund might have to
sell portfolio securities it might otherwise hold
-13-
PAGE
and incur the additional costs related to such transactions. On the other hand,
increased use of the exchange privilege may result in periodic large inflows of
money. If this occurs, it is the Fund's general policy to initially invest this
money in short-term, interest-bearing money market instruments, unless it is
believed that attractive investment opportunities consistent with the Fund's
investment objective exist immediately. This money will then be withdrawn from
the short-term money market instruments and invested in portfolio securities in
as orderly a manner as is possible when attractive investment opportunities
arise.
The proceeds from the sale of shares of an investment company are generally not
available until the fifth business day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange until
that fifth business day. The sale of the Fund's shares to complete an exchange
will be effected at Net Asset Value at the close of business on the day the
request for exchange is received in proper form. Please see "May I Exchange
Shares for Shares of Another Fund?" in the Fund's Prospectus.
ADDITIONAL INFORMATION ON SELLING SHARES
Systematic Withdrawal Plan. There are no service charges for establishing or
maintaining a systematic withdrawal plan. Once your plan is established, any
distributions paid by the Fund will be automatically reinvested in your account.
Payments under the plan will be made from the redemption of an equivalent amount
of shares in your account, generally on the 25th day of the month in which a
payment is scheduled.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you. Because the amount
withdrawn under the plan may be more than your actual yield or income, part of
the payment may be a return of your investment.
The Fund may discontinue a systematic withdrawal plan by notifying you in
writing and will automatically discontinue a systematic withdrawal plan if all
shares in your account are withdrawn or if the Fund receives notification of the
shareholder's death or incapacity.
Through Your Securities Dealer. If you sell shares through your Securities
Dealer, it is your dealer's responsibility to transmit the order to the Fund in
a timely fashion. Any loss to you resulting from your dealer's failure to do so
must be settled between you and your Securities Dealer.
Redemptions in Kind. The Fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the Fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior approval of the SEC. In the case of redemption
requests in excess of these amounts, the Board reserves the right to make
payments in whole or in part in securities or other assets of the Fund, in case
of an emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of the Fund. In these circumstances,
the securities distributed would be valued at the price used to compute the
Fund's net
-14-
PAGE
assets and you may incur brokerage fees in converting the securities to cash.
The Fund does not intend to redeem illiquid securities in kind. If this happens,
however, you may not be able to recover your investment in a timely manner.
GENERAL INFORMATION
If dividend checks are returned to the Fund marked "unable to forward" by the
postal service, we will consider this a request by you to change your dividend
option to reinvest all distributions. The proceeds will be reinvested in
additional shares at Net Asset Value until we receive new instructions.
If mail is returned as undeliverable or we are unable to locate you or verify
your current mailing address, we may deduct the costs of our efforts to find you
from your account. These costs may include a percentage of the account when a
search company charges a percentage fee in exchange for its location services.
All checks, drafts, wires and other payment mediums used to buy or sell shares
of the Fund must be denominated in U.S. dollars. We may, in our sole discretion,
either (a) reject any order to buy or sell shares denominated in any other
currency or (b) honor the transaction or make adjustments to your account for
the transaction as of a date and with a foreign currency exchange factor
determined by the drawee bank.
Special Services. The Franklin Templeton Institutional Services Department
provides specialized services, including recordkeeping, for institutional
investors. The cost of these services is not borne by the Fund.
Investor Services may pay certain financial institutions that maintain omnibus
accounts with the Fund on behalf of numerous beneficial owners for recordkeeping
operations performed with respect to such owners. For each beneficial owner in
the omnibus account, the Fund may reimburse Investor Services an amount not to
exceed the per account fee that the Fund normally pays Investor Services. These
financial institutions may also charge a fee for their services directly to
their clients.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
HOW ARE FUND SHARES VALUED?
We calculate the Net Asset Value per share of each class as of the scheduled
close of the NYSE, generally 4:00 p.m. Eastern time, each day that the NYSE is
open for trading. As of the date of this SAI, the Fund is informed that the NYSE
observes the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
For the purpose of determining the aggregate net assets of the Fund, cash and
receivables are valued at their realizable amounts. Interest is recorded as
accrued and dividends are recorded on the ex-dividend date. 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.
-15-
PAGE
Over-the-counter portfolio securities are valued within the range of the most
recent quoted bid and ask prices. Portfolio securities that are traded both in
the over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market as determined by TGAL.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
of the NYSE on each day that the NYSE is open. Trading in European or Far
Eastern securities generally, or in a particular country or countries, may not
take place on every NYSE business day. Furthermore, trading takes place in
various foreign markets on days that are not business days for the NYSE and on
which the Net Asset Value of each class is not calculated. Thus, the calculation
of the Net Asset Value of each class does not take place contemporaneously with
the determination of the prices of many of the portfolio securities used in the
calculation and, if events materially affecting the values of these foreign
securities occur, the securities will be valued at fair value as determined by
management and approved in good faith by the Board.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times before
the scheduled close of the NYSE. The value of these securities used in computing
the Net Asset Value of each class is determined as of such times. Occasionally,
events affecting the values of these securities may occur between the times at
which they are determined and the scheduled close of the NYSE that will not be
reflected in the computation of the Net Asset Value of each class. If events
materially affecting the values of these securities occur during this period,
the securities will be valued at their fair value as determined in good faith by
the Board.
Other securities for which market quotations are readily available are valued at
the current market price, which may be obtained from a pricing service, based on
a variety of factors including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific issues. Securities and other assets for which
market prices are not readily available are valued at fair value as determined
following procedures approved by the Board. With the approval of the Board, the
Fund may utilize a pricing service, bank or Securities Dealer to perform any of
the above described functions.
ADDITIONAL INFORMATION ON DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
You may receive two types of distributions from the Fund:
1. Income dividends. The Fund receives income generally in the form of
dividends, interest and other income derived from its investments. This income,
less the expenses incurred in the Fund's operations, is its net investment
income from which income dividends may be distributed. Thus, the amount of
dividends paid per share may vary with each distribution.
2. Capital gain distributions. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any capital loss carryforward or post October
loss deferral) may generally be made once a year in December to reflect any net
short-term and net long-term capital gains realized by the Fund as of October 31
of the current fiscal year and any
-16-
PAGE
undistributed capital gains from the prior fiscal year. The Fund may make more
than one distribution derived from net short-term and net long-term capital
gains in any year or adjust the timing of these distributions for operational or
other reasons.
TAXES
As stated in the Prospectus, the Fund has elected and qualified to be treated as
regulated investment company under Subchapter M of the Code. The status of the
Fund as a regulated investment company does not involve government supervision
of management or of its investment practices or policies. As a regulated
investment company, the Fund generally will be relieved of liability for U.S.
federal income tax on that portion of its net investment income and net realized
capital gains which it distributes to its shareholders. Amounts not distributed
on a timely basis in accordance with a calendar year distribution requirement
also are subject to a nondeductible 4% excise tax. To prevent application of the
excise tax, the Fund intends to make distributions in accordance with the
calendar year distribution requirement.
The Board reserves the right not to maintain the qualification of the Fund as a
regulated investment company if it determines this course of action to be
beneficial to shareholders. In that case, the Fund will be subject to federal
and possibly state corporate taxes on its taxable income and gains, and
distributions to shareholders will be taxable to the extent of the Fund's
available earnings and profits.
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 the 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
the 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 the Fund. Any distributions that are
not from the 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 the Fund reduce the Net Asset Value of the Fund's 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 the 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 Fund may be treated as debt
securities that were originally issued at a discount. Original issue discount
can generally be defined as the difference
-17-
PAGE
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 Fund, original
issue discount on a taxable debt security earned in a given year generally is
treated for federal income tax purposes as interest and, therefore, such income
would be subject to the distribution requirements of the Code.
Some of the debt securities may be purchased by the Fund 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 the Fund at a
constant rate over the time remaining to the debt security's maturity or, at the
election of the Fund, at a constant yield to maturity which takes into account
the semi-annual compounding of interest.
The 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 the Fund held the PFIC stock. The Fund itself will be subject to tax on
the portion, if any, of the excess distribution that is allocated to the 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.
The Fund may be able to elect alternative tax treatment with respect to PFIC
stock. Under an election that currently may be available, the 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
Fund's 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 Fund could, in
limited circumstances, incur nondeductible interest charges. The Fund's
intention to qualify annually as a regulated investment company may limit its
elections with respect to PFIC shares.
Because the application of the PFIC rules may affect, among other things, the
character of gains, the amount of gain or loss and the timing of the recognition
of income with respect to PFIC stock, as well as subject the Fund itself to tax
on certain income from PFIC stock, the amount that must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to a fund that did not invest in PFIC stock.
Income received by the 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 the Fund's
-18-
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total assets at the close of its taxable year consists of securities of foreign
corporations, the Fund will be eligible and intends to elect to "pass through"
to the Fund's shareholders the amount of foreign taxes paid by the 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 the 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
Fund's taxable year whether the foreign taxes paid by the 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
the Fund's income flows through to its shareholders. With respect to the 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 the Fund. Shareholders may be unable to claim a credit for the
full amount of their proportionate share of the foreign taxes paid by the Fund.
Foreign taxes may not be deducted in computing alternative minimum taxable
income and the foreign tax credit can be used to offset only 90% of the
alternative minimum tax (as computed under the Code for purposes of this
limitation) imposed on corporations and individuals. If the 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 the Fund will be treated as U.S. source
income.
Under the Code, gains or losses attributable to fluctuations in foreign currency
exchange rates which occur between the time the Fund accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the 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
the 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 the 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, the 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.
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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 the Fund) within
a period of 61 days beginning 30 days before and ending 30 days after the
disposition of the shares. In such a case, the basis of the shares acquired will
be adjusted to reflect the disallowed loss. Any loss realized by a shareholder
on the sale of the 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.
The 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 the
Fund with the shareholder's correct taxpayer identification number or social
security number and to make such certifications as the Fund may require, (2) the
IRS notifies the shareholder or the 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 the Fund and received
by shareholders on December 31 of the calendar year in which declared, rather
than the calendar year in which the dividends are actually received.
Distributions also may be subject to state, local and foreign taxes. U.S. tax
rules applicable to foreign investors may differ significantly from those
outlined above. Shareholders are advised to consult their own tax advisers for
details with respect to the particular tax consequences to them of an investment
in the Fund.
THE FUND'S UNDERWRITER
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Pursuant to the underwriting agreement, Distributors acts as principal
underwriter in a continuous public offering for shares of the Fund. The
underwriting agreement will continue in effect for successive annual periods if
its continuance is specifically approved at least annually by a vote of the
Board or by a vote of the holders of a majority of the Fund's outstanding voting
securities, and in either event by a majority vote of the Board members who are
not parties to the underwriting agreement or interested persons of any such
party (other than as members of the Board), cast in person at a meeting called
for that purpose. The underwriting agreement terminates automatically in the
event of its assignment and may be terminated by either party on 90 days'
written notice.
Distributors pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The Fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
Distributors and/or its affiliates provide financial support to various
Securities Dealers that sell shares of the Franklin Templeton Group of Funds.
Such support is based primarily upon the amount of sales of fund shares. The
amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a Securities Dealers' sales and marketing efforts
in the Franklin Templeton Group of Funds; a Securities Dealer's support of, and
participation in, Distributors' marketing programs; a Securities Dealer's
compensation programs for its registered representatives; and the extent of a
Securities Dealer's marketing programs relating to the Franklin Templeton Group
of Funds. Financial support to Securities Dealers may be made by payments from
Distributors' resources, from Distributors' retention of underwriting
concessions and, in the case of funds that have Rule 12b-1 distribution plans,
from payments to Distributors under such plans. In addition, certain Securities
Dealers may receive brokerage commissions generated by fund portfolio
transactions in accordance with the NASD's Rules.
Distributors will not receive compensation from the Fund for acting as
underwriter with respect to the Advisor Class shares.
HOW DOES THE FUND MEASURE PERFORMANCE?
Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Fund be accompanied by
certain standardized performance information computed as required by the SEC.
Average annual total return quotations used by the Fund are based on the
standardized methods of computing performance mandated by the SEC. If a Rule
12b-1 plan is adopted, performance figures reflect fees from the date of the
plan's implementation. An explanation of these and other methods used by the
Fund to compute or express performance for the Advisor Class shares follows. For
any period prior to January 1, 1997, the standardized performance quotations for
the Advisor Class will be calculated by substituting the performance of Class I
for the relevant time period, and excluding the effect of the maximum sales
charge and including the effect of the Rule 12b-1 fees
-21-
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applicable to Class I. Regardless of the method used, past performance is not
necessarily indicative of future results, but is an indication of the return to
shareholders only for the limited historical period used.
TOTAL RETURN
Average Annual Total Return. Average annual total return is determined by
finding the average annual rates of return over one-, five- and ten-year periods
that would equate an initial hypothetical $1,000 investment to its ending
redeemable value. The calculation assumes income dividends and capital gain
distributions are reinvested at Net Asset Value. The quotation assumes the
account was completely redeemed at the end of each one-, five- and ten-year
period and the deduction of all applicable charges and fees.
The average annual total return for the Advisor Class for the one, five, and
ten-year periods ended August 31, 1996 would have been _______%,_______% and
_______%, respectively.
These figures were calculated according to the SEC formula:
P(1+T)(n) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the period
Cumulative Total Return. The Fund may also quote its cumulative total return, in
addition to its average annual total return. These quotations are computed the
same way, except the cumulative total return will be based on the Fund's actual
return for a specified period rather than on its average return over the period.
The cumulative total return for the Advisor Class for the one, five and ten-
year periods ended August 31, 1996 would have been ______%, ______% and
______%, respectively.
VOLATILITY
Occasionally statistics may be used to show the Fund's volatility or risk.
Measures of volatility or risk are generally used to compare the Fund's Net
Asset Value or performance to a market index. One measure of volatility is beta.
Beta is the volatility of a fund relative to the total market, as represented by
an index considered representative of the types of securities in which the fund
invests. A beta of more than 1.00 indicates volatility greater than the market
and a beta of less than 1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation. Standard deviation is used
to measure variability of Net Asset Value or total return around an average over
a
-22-
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specified period of time. The idea is that greater volatility means greater risk
undertaken in achieving performance.
OTHER PERFORMANCE QUOTATIONS
For any period prior to January 1, 1997, sales literature about the Advisor
Class may quote a current distribution rate, yield, cumulative total return,
average annual total return and other measures of performance as described
elsewhere in this SAI by substituting the performance of Class I for the
relevant time period and excluding the effect of the maximum sales charge, if
applicable, and Rule 12b-1 fees applicable to Class I.
Sales literature referring to the use of the Fund as a potential investment for
Individual Retirement Accounts (IRAs), Business Retirement Plans, and other
tax-advantaged retirement plans may quote a total return based upon compounding
of dividends on which it is presumed no federal income tax applies.
The Fund may include in its advertising or sales material information relating
to investment objectives and performance results of funds belonging to the
Franklin Templeton Group of Funds. Resources is the parent company of the
advisors and underwriter of both the Franklin Group of Funds and Templeton Group
of Funds.
COMPARISONS AND OTHER INFORMATION
To help you better evaluate how an investment in the Fund may satisfy your
investment objective, advertisements and other materials about the Fund may
discuss certain measures of Fund performance as reported by various financial
publications. Materials may also compare performance (as calculated above) to
performance as reported by other investments, indices, and averages.
From time to time, advertisements or information for the Fund may include a
discussion of certain attributes or benefits to be derived from an investment in
the Fund. The advertisements or information may include symbols, headlines, or
other material that highlights or summarizes the information discussed in more
detail in the communication.
Advertisements or information may also compare the performance of the Advisor
Class to the return on CDs or other investments. You should be aware, however,
that an investment in the Fund involves the risk of fluctuation of principal
value, a risk generally not present in an investment in a CD issued by a bank.
For example, as the general level of interest rates rise, the value of the
Fund's fixed-income investments, if any, as well as the value of its shares that
are based upon the value of such portfolio investments, can be expected to
decrease. Conversely, when interest rates decrease, the value of the Fund's
shares can be expected to increase. CDs are frequently insured by an agency of
the U.S. government. An investment in the Fund is not insured by any federal,
state or private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not
-23-
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be identical to the formula used by the Fund to calculate its figures. In
addition, there can be no assurance that the Fund will continue its performance
as compared to these other averages.
Performance information for the Fund may be compared, in reports and promotional
literature, to: (i) unmanaged indices so that investors may compare the 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 the 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 the Fund reflects only the performance of a
hypothetical investment in the Fund during the particular time period on which
the calculations are based. Performance information should be considered in
light of the 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, the Fund and TGAL may also refer to the following
information:
(1) TGAL's and its affiliates' market share of international equities
managed in mutual funds prepared or published by Strategic Insight or a
similar statistical organization.
(2) The performance of U.S. equity and debt markets relative to foreign
markets prepared or published by Morgan Stanley Capital International
or a similar financial organization.
(3) The capitalization of U.S. and foreign stock markets as prepared or
published by the International Finance Corporation, Morgan Stanley
Capital International or a similar financial organization.
(4) The geographic and industry distribution of the Fund's portfolio and
the Fund's top ten holdings.
(5) The gross national product and populations, including age
characteristics, literacy rates, foreign investment improvements due to
a liberalization of securities laws and a reduction of foreign exchange
controls, and improving communication technology, of various countries
as published by various statistical organizations.
(6) To assist investors in understanding the different returns and risk
characteristics of various investments, the Fund may show historical
returns of various investments and published indices (e.g., Ibbotson
Associates, Inc. Charts and Morgan Stanley EAFE - Index).
(7) The major industries located in various jurisdictions as published by
the Morgan Stanley Index.
-24-
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(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) The number of shareholders in the Fund or the aggregate number of
shareholders of the open-end investment companies in the Franklin
Templeton Group of Funds or the dollar amount of fund and private
account assets under management.
(13) Comparison of the characteristics of various emerging markets,
including population, financial and economic conditions.
(14) Quotations from the Templeton organization's founder, Sir John
Templeton,1 advocating the virtues of diversification and long-term
investing, including the following:
_ "Never follow the crowd. Superior performance is possible only
if you invest differently from the crowd."
_ "Diversify by company, by industry and by country."
_ "Always maintain a long-term perspective."
_ "Invest for maximum total real return."
_ "Invest - don't trade or speculate."
_ "Remain flexible and open-minded about types of investment."
_ "Buy low."
_ "When buying stocks, search for bargains among quality
stocks."
_ "Buy value, not market trends or the economic outlook."
_ "Diversify. In stocks and bonds, as in much else, there is
safety in numbers."
_ "Do your homework or hire wise experts to help you."
- --------
(1) Sir John Templeton sold the Templeton organization to Resources in
October, 1992 and resigned from the Funds' Board on April 16, 1995. He
is no longer involved with the investment management process.
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_ "Aggressively monitor your investments."
_ "Don't panic."
_ "Learn from your mistakes."
_ "Outperforming the market is a difficult task."
_ "An investor who has all the answers doesn't even understand
all the questions."
_ "There's no free lunch."
_ "And now the last principle: Do not be fearful or negative too
often."
MISCELLANEOUS INFORMATION
The Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis in order to have
a projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by the
College Board.) The Franklin Retirement Planning Guide leads you through the
steps to start a retirement savings program. Of course, an investment in the
Fund cannot guarantee that these goals will be met.
The Company is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 48 years and
now services more than 2.5 million shareholder accounts. In 1992, Franklin, a
leader in managing fixed-income mutual funds and an innovator in creating
domestic equity funds, joined forces with Templeton Worldwide, Inc., a pioneer
in international investing. Together, the Franklin Templeton Group has over $150
billion in assets under management for more than 4.2 million U.S. based mutual
fund shareholder and other accounts. The Franklin Templeton Group of Funds
offers 125 U.S. based open-end investment companies to the public. The Fund may
identify itself by its NASDAQ symbol or CUSIP number.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one in
service quality for five of the past eight years.
As of December 1, 1996, the principal shareholders of the Foreign Fund,
beneficial or of record were as follows:
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARE AMOUNT PERCENTAGE
<S> <C> <C>
CLASS I
Merrill Lynch, Pierce, 63,250,305 6%
Fenner & Smith, Inc.
4800 Deer Lake Drive East
3rd Floor
Jacksonville, FL 32246
CLASS II
Merrill Lynch, Pierce, 16,814,108 25%
Fenner & Smith, Inc.
4800 Deer Lake Drive East
3rd Floor
Jacksonville, FL 32246
</TABLE>
From time to time, the number of Fund shares held in the "street name" accounts
of various Securities Dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding. To the
best knowledge of the Fund, no other person holds beneficially or of record more
than 5% of the Fund's outstanding Advisor Class shares.
-26-
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In the event of disputes involving multiple claims of ownership or authority to
control your account, the Fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all persons deemed by
the Fund to have a potential property interest in the account, prior to
executing instructions regarding the account; (b) interplead disputed funds or
accounts with a court of competent jurisdiction; or (c) surrender ownership of
all or a portion of the account to the IRS in response to a Notice of Levy.
Summary of Code of Ethics. Employees of Resources or its subsidiaries who are
access persons under the 1940 Act are permitted to engage in personal securities
transactions subject to the following general restrictions and procedures: (i)
the trade must receive advance clearance from a compliance officer and must be
completed within 24 hours after clearance; (ii) copies of all brokerage
confirmations must be sent to a 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; and (iii) access persons involved in
preparing and making investment decisions must, in addition to (i) and (ii)
above, file annual reports of their securities holdings each January and 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.
FINANCIAL STATEMENTS
The audited financial statements contained in the Annual Report to Shareholders
of the Fund, for the fiscal year ended August 31, 1996, including the auditors'
report, are incorporated herein by reference. The audited financial statements
do not include information for the Advisor Class as those shares were not
publicly offered prior to the date of this SAI.
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USEFUL TERMS AND DEFINITIONS
1933 Act - Securities Act of 1933, as amended.
1940 Act - Investment Company Act of 1940, as amended.
AMEX - American Stock Exchange, Inc.
Board - The Board of Directors of the Company.
CD - Certificate of deposit.
Class I, Class II and Advisor Class - The Fund offers three classes of shares,
designated "Class I," "Class II," and "Advisor Class." The three classes have
proportionate interests in the Fund's portfolio. Class I and Class II differ,
however, primarily in their sales charge structures and Rule 12b-1 plans.
Advisor Class shares are purchased without a sales charge and do not have a Rule
12b-1 plan.
Code - Internal Revenue Code of 1986, as amended.
Contingency Period - For Class I shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. For Class II shares, the contingency
period is 18 months. Regardless of when during the month you purchased shares,
they will age one month on the last day of that month and each following month.
Contingent Deferred Sales Charge (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the Contingency Period.
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Directors."
Franklin Funds - The mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin Government Securities Trust.
Franklin Templeton Funds - The Franklin Funds and the Templeton Funds.
Franklin Templeton Group - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries.
Franklin Templeton Group of Funds - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds.
FT Services - Franklin Templeton Services, Inc., the Fund's administrator.
Investor Services - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing agent and transfer agent.
-28-
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IRS - Internal Revenue Service.
Market Timer(s) - Market Timers generally include market timing or allocation
services, accounts administered so as to buy, sell or exchange shares based on
predetermined market indicators, or any person or group whose transactions seem
to follow a timing pattern.
Moody's - Moody's Investors Service, Inc.
Mutual Series - Franklin Mutual Series Fund Inc., a member of the Franklin Group
of Funds, formerly Mutual Series Fund Inc. Each series of Mutual Series began
offering three classes of shares on November 1, 1996, Class I, Class II and
Class Z. All shares sold before that time are designated Class Z shares.
NASD - National Association of Securities Dealers, Inc.
Net Asset Value (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NSCC - National Securities Clearing Corporation.
NYSE - New York Stock Exchange, Inc.
Offering Price - The public offering price is based on the Net Asset Value per
share of the class and includes the front-end sales charge, if applicable. The
maximum front-end sales charge is 5.75% for Class I and 1% for Class II. Advisor
Class has no front-end sales charge.
Qualified Retirement Plan(s) - An employer sponsored pension or profit-sharing
plan that qualifies under section 401 of the Code. Examples include 401(k),
money purchase pension, profit sharing and defined benefit plans.
REIT - Real Estate Investment Trust.
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information.
S&P - Standard & Poor's Corporation.
SEC - U.S. Securities and Exchange Commission.
Securities Dealer - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
-29-
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TGAL - Templeton Global Advisers Limited, the Fund's investment manager, is
located in Lyford Cay, Nassau, Bahamas.
Templeton Funds - The U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., the Templeton Variable
Annuity Fund, and the Templeton Variable Products Series Fund.
Trust Company - Franklin Templeton Trust Company. Trust Company is the affiliate
of Distributors and both are wholly-owned subsidiaries of Resources.
U.S. - United States.
We/Our/Us - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Investor Services, Distributors, or other wholly-owned
subsidiaries of Resources.
-30-
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PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements: Incorporated by reference
from the 1996 Annual Reports to Shareholders of Templeton World Fund and
Templeton Foreign Fund:
Independent Auditors' Report
Investment Portfolios as of August 31, 1996
Statements of Assets and Liabilities as of
August 31, 1996
Statements of Operations for the year ended
August 31, 1996
Statements of Changes in Net Assets for the years
ended August 31, 1996 and 1995
Notes to Financial Statements
(b) EXHIBITS
(1)(A) Amended and Restated Articles of
Incorporation dated January 26, 1989 *
(B) Articles Supplementary dated October 24,
1990 *
(C) Articles Supplementary dated October 16,
1993 *
(D) Articles Supplementary dated February 22,
1994 *
(E) Articles Supplementary dated January 6,
1995 *
(F) Articles Supplementary dated April 13, 1995*
(G) Articles of Amendment dated April 17, 1995*
(H) Articles Supplementary dated October 26,
1995 *
(I) Articles Supplementary dated December 27,
1996
(2) By-laws (Amended and Restated)*
(3) Not Applicable
(4)(A) Specimen stock certificate for
Templeton World Fund*
(B) Specimen stock certificate for Templeton
Foreign Fund*
(5)(A) Amended and Restated Investment Management
Agreement - Templeton World Fund *
(B) Amended and Restated Investment Management
Agreement - Templeton Foreign Fund *
(6)(A) Distribution Agreement *
(B) Form of Dealer Agreement *
(7) Not Applicable
(8)(A) Custody Agreement dated June 1, 1984 as
amended and restated February 11, 1986 on
behalf of Templeton World Fund with The
Chase Manhattan Bank, N.A. *
(B) Custody Agreement dated June 1, 1984 as
amended and restated February 11, 1986 on
behalf of Templeton Foreign Fund with The
Chase Manhattan Bank, N.A. *
(9)(A) Fund Administration Agreement *
(B) Form of Transfer Agent Agreement *
(C) Form of Sub-Transfer Agent Services
Agreement *
(D) Form of Sub-Accounting Services Agreement *
(E) Form of Sub-Transfer Agent Agreement between
Fidelity Investments Institutional
Operations Company and Templeton Funds
Trust Company *
(10) Opinion and consent of counsel (filed with Rule
24f-2 Notice) **
(11) Consent of Independent Public Accountants *
(12) Not Applicable
(13) Not Applicable
(14) Model Retirement plans *
(15)(A)(1) Distribution Plan - Templeton World Fund
Class I Shares *
(2) Distribution Plan - Templeton World Fund
Class II Shares *
(B)(1) Distribution Plan - Templeton Foreign
Fund Class I Shares *
(2) Distribution Plan - Templeton Foreign
Fund Class II Shares *
(16) Schedule showing computation of performance
quotations provided in response to Item 22 *
(18) Form of Multi-class Plan *
(27) Financial Data Schedule
* Previously filed with Registration Statement No. 2-60067 and
incorporated by reference herein.
** Rule 24f-2 Notice filed with the Securities and Exchange Commission on
October 30, 1996.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF RECORD HOLDERS
Templeton World Fund
Shares of Common Stock, 288,285 Class I Shareholders, 6,138
Class II Shareholders as of November 30, 1996.
Templeton Foreign Fund
Shares of Common Stock, 383,164 Class I Shareholders, 38,879
Class II Shareholders as of November 30, 1996.
ITEM 27. INDEMNIFICATION
All officers, directors, employees and agents of the
Registrant are to be indemnified to the fullest extent permitted by law for any
liabilities of any nature whatsoever incurred in connection with the affairs of
the Registrant, except in cases where willful misfeasance, bad faith, gross
negligence or reckless disregard of duties to the Registrant are established.
See Articl 5.1 of the By-Laws of the Registrant, filed as Exhibit 2 to the
Registration Statement, which is incorporated herein by reference, for a more
complete description of matters relating to indemnification.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The business and other connections of Registrant's investment
manager, Templeton Global Advisors Limited, are described
in Parts A and B.
For information relating to the investment manager's officers
and directors, reference is made to Form ADV filed under the
Investment Advisers Act of 1940 by Templeton Global Advisors
Limited
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Franklin Templeton Distributors, Inc. also acts as
principal underwriter of shares of:
Franklin Templeton Japan Fund
Templeton American Trust, Inc.
Templeton Capital Accumulator Fund, Inc.
Templeton Developing Markets Trust
Templeton Global Investment Trust
Templeton Global Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller Companies Fund, Inc.
Templeton Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
Templeton Variable Products Series Fund
Franklin Asset Allocation Fund
Franklin California Tax Free Income Fund, Inc.
Franklin California Tax Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Gold Fund
Franklin High Income Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund
Franklin New York Tax-Free Trust
Franklin Premier Return Fund
Franklin Real Estate Securities Fund
Franklin Strategic Mortgage Portfolio
Franklin Strategic Series
Franklin Tax-Advantaged High Yield Securities Fund
Franklin Tax-Advantaged International Bond Fund
Franklin Tax-Advantaged U.S. Government Securities
Fund
Franklin Tax Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton International Trust
Franklin Value Investors Trust
Franklin Templeton Global Trust
Franklin Templeton Money Fund Trust
Institutional Fiduciary Trust
(b) The directors and officers of FTD are identified below.
Except as otherwise indicated, the address of each director or officer is 777
Mariners Island Blvd., San Mateo, CA 94404.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
<S> <C> <C>
Charles B. Johnson Chairman of the Board and Director Chairman,Vice President
and Director
Gregory E. Johnson President None
Rupert H. Johnson, Jr. Executive Vice President Director and Vice President
and Director
Harmon E. Burns Executive Vice President Vice President
and Director
Edward V. McVey Senior Vice President None
Kenneth V. Domingues Senior Vice President None
William J. Lippman Senior Vice President None
Richard C. Stoker Senior Vice President None
Charles E. Johnson Senior Vice President Vice President
500 East Broward Blvd.
Ft. Lauderdale, FL 33394
PAGE
Deborah R. Gatzek Senior Vice President and Asst. Vice President
Secretary
Peter Jones Senior Vice President None
700 Central Avenue
St. Petersburg, Fl 33701
Daniel T. O'Lear Senior Vice President None
James K. Blinn Vice President None
Richard O. Conboy Vice President None
James A. Escobedo Vice President None
Bert W. Feuss Vice President None
Loretta Fry Vice President None
Robert N. Geppner Vice President None
Mike Hackett Vice President None
Philip J. Kearns Vice President None
Ken Leder Vice President None
Jack Lemein Vice President None
John R. McGee Vice President None
Harry G. Mumford Vice President None
Vivian J. Palmieri Vice President None
Kent P. Strazza Vice President None
Alison Hawksley Vice President None
Francie Arnone Vice President None
Sarah Stypa Vice President None
John R. Kay Asst. Vice President Vice President
500 East Broward Blvd.
Ft. Lauderdale, Fl 33394
Andrea Dover Asst. Vice President None
Laura Komar Asst. Vice President None
Virginia Marans Asst. Vice President None
Bernadette Marino Howard Asst. Vice President None
Susan Thompson Asst. Vice President None
Kenneth A. Lewis Treasurer None
Karen DeBellis Asst. Treasurer Asst. Treasurer
700 Central Avenue
St. Petersburg, Fl 33710
Philip A. Scatena Assistant Treasurer None
Leslie M. Kratter Secretary None
</TABLE>
(c) Not applicable (information on unaffiliated underwriters).
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books and other documents required to be
maintained by Registrant pursuant to Rule 31a-1(a) of the Investment Company
Act of 1940 are in the possession of Franklin Templeton Services, Inc.,
500 East Broward Blvd., Fort Lauderdale, Florida 33394.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
(a) Not Applicable.
(b) Not Applicable.
(c) Registrant undertakes to furnish to each person to
whom a Prospectus for Templeton World Fund or
Templeton Foreign Fund is provided a copy of such
Fund's latest Annual Report, upon request and
without charge.
PAGE
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in St. Petersburg, Florida, on the
30th day of December, 1996.
Templeton Funds, Inc.
By:
Mark G. Holowesko*
President
*By:/s/JOHN K.CARTER
John K. Carter
as attorney-in-fact**
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Mark G. Holowesko* President (Chief Executive December 30, 1996
Officer)
Charles B. Johnson* Director December 30, 1996
Betty P. Krahmer* Director December 30, 1996
Fred R. Millsaps* Director December 30, 1996
John Wm. Galbraith* Director December 30, 1996
Rupert H. Johnson, Jr.* Director December 30, 1996
Harris J. Ashton* Director December 30, 1996
Hasso-G Von Diergardt-Naglo* Director December 30, 1996
S. Joseph Fortunato* Director December 30, 1996
Andrew H. Hines, Jr.* Director December 30, 1996
Gordon S. Macklin* Director December 30, 1996
Nicholas F. Brady* Director December 30, 1996
James R. Baio* Treasurer December 30, 1996
(Chief Financial
and Accounting Officer)
</TABLE>
*By:/s/JOHN K.CARTER
John K. Carter
as attorney-in-fact**
** Powers of Attorney are filed with Post-Effective Amendmen No. 21 to this
Registration Statement on August 19, 1992, Post-Effective Amendment No. 23
to this Registration Statement on November 2, 1993, Post-Effective
Amendment No. 24 to this Registration Statement on December 23, 1993,
Post-Effective Amendment No. 25 to this Registration Statement on December
30, 1994, and Post-effective Amendment No. 28 to this Registration
Statement on December 27, 1996, or filed herewith.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS FILED WITH
POST-EFFECTIVE AMENDMENT NO. 29 TO
REGISTRATION STATEMENT ON
FORM N-1A
TEMPLETON FUNDS, INC.
PAGE
EXHIBIT LIST
EXHIBIT NUMBER NAME OF EXHIBIT
1(I) Articles Supplementary dated
December 27, 1996
27 Financial Data Schedules
PAGE
TEMPLETON FUNDS, INC.
ARTICLES SUPPLEMENTARY
TEMPLETON FUNDS, INC., a Maryland corporation registered under
the Investment Company Act of 1940 (the "1940 Act") and having its principal
office in the State of Maryland in Baltimore City, Maryland (hereinafter called
the "Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Board of Directors of the Corporation, at a
meeting duly convened and held on October 19, 1996, adopted a resolution to
classify two hundred million (200,000,000) shares of Common Stock
previously classified as "Templeton Funds, Inc. - Templeton Foreign Fund Class
II" shares of Common Stock as "Templeton Funds, Inc. - Templeton Foreign Fund
Advisor Class" shares of Common Stock.
SECOND: Immediately prior to the effectiveness of the Articles
Supplementary of the Corporation as hereinabove set forth, the Corporation had
authority to issue THREE BILLION TWO HUNDRED MILLION (3,200,000,000) shares of
Common Stock, par value $1.00 per share and of the aggregate par value of THREE
BILLION TWO HUNDRED MILLION DOLLARS ($3,200,000,000), of which the Board of
Directors had (i) classified eight hundred million (800,000,000) shares as
Templeton World Fund Class I shares of Common Stock, classified four hundred
million (400,000,000) shares as Templeton World Fund Class II shares of Common
Stock, and (ii) classified one billion five hundred million (1,500,000,000)
shares as Templeton Foreign Fund Class I shares of Common Stock, and classified
five hundred million (500,000,000) shares of Templeton Foreign Fund Class II
shares of Common Stock. As amended hereby, the Corporation's Articles of
Incorporation authorize the issuance of three billion two hundred million
(3,200,000,000) Common shares of the par value $1.00 per share and of the
aggregate par value of three billion two hundred million dollars
($3,200,000,000), of which the Board of Directors had (i) classified eight
hundred million (800,000,000) shares as Templeton World Fund Class I shares of
Common Stock, classified four hundred million (400,000,000) shares as Templeton
World Fund Class II shares of Common Stock, and (ii) classified one billion five
hundred million (1,500,000,000) shares as Templeton Foreign Fund Class I shares
of Common Stock, classified three hundred million (300,000,000) shares of
Templeton Foreign Fund Class II shares of Common Stock and classified two
hundred million (200,000,000) shares as Templeton Foreign Fund Advisor Class
shares of Common Stock. The preferences, rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption of the three classes of shares, as set forth in the Articles of
Incorporation of the Corporation as heretofore amended and supplemented, are not
changed by these Articles Supplementary.
THIRD: The shares of Common Stock of the Corporation
authorized and classified pursuant to Articles First and Second of these
Articles Supplementary have been so authorized and classified by the Board of
Directors under the authority contained in the Charter of the Corporation. The
total number of shares of Common Stock of the various classes that the
Corporation has authority to issue has been established by the Board of
Directors in accordance with Section 2-105(c) of the Maryland General
Corporation Law.
FOURTH: The preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividend, qualifications and terms and
conditions of redemption of the three classes of shares shall be as set forth
in the Corporation's charter and shall be subject to all provisions of the
charter relating to shares of the Corporation generally, including those set
forth as follows:
(a) The assets of each class of a series shall be invested in the same
investment portfolio of such series of the Corporation.
(b) The dividends and distributions of investment income and
capital gains with respect to each class of shares of a series shall be in
such amounts as may be declared from time to time by the Board of Directors,
and the dividends and distributions of each class of shares may vary from the
dividends and distributions of the other classes of shares of such series to
reflect differing allocations of the expenses of the respective series among
the holders of each class and any resultant differences between the net
asset value per share of each class, to such extent and for such purposes as
the Board of Directors may deem appropriate. The allocation of investment
income or capital gains and expenses and liabilities of the series among the
classes shall be determined by the Board of Directors in a manner it deems
appropriate.
(c) Class I shares (including fractional shares) of each series may be
subject to an initial sales charge and service and/or distribution fee pursuant
to the terms of the issuance of such shares, and the proceeds of the redemption
of Class I shares (including fractional shares) may be reduced by the amount of
any contingent deferred sales charge payable on such redemption pursuant to the
terms of the issuance of such shares, as set forth in the Corporation's
then-current registration statement on Form N-1A pursuant to the Securities Act
of 1933 and the 1940 Act (the "Registration Statement") and determined in
accordance with the applicable provisions of the 1940 Act and the rules and the
regulations of the NASD.
(d) Class II shares (including fractional shares) of each series may be
subject to an initial sales charge and service and/or distribution fee pursuant
to the terms of the issuance of such shares, and the proceeds of the redemption
of Class II shares (including fractional shares) may be reduced by the amount of
any contingent deferred sales charge payable on such redemption pursuant to the
terms of the issuance of such shares, as set forth in the Registration
Statement, and determined in accordance with the applicable provisions of the
1940 Act and the rules and regulations of the NASD.
(e) Advisor Class shares (including fractional shares) of each series
may be subject to an initial sales charge and service and/or distribution fee
pursuant to the terms of the issuance of such shares, and the proceeds of the
redemption of Advisor Class shares (including fractional shares) may be reduced
by the amount of any contingent deferred sales charge payable on such redemption
pursuant to the terms of the issuance of such shares, as set forth in the
Registration Statement.
(f) The holders of Class I, Class II and Advisor Class shares, as the
case may be, of each series shall have (i) exclusive voting rights with respect
to provisions of any service plan or service and distribution plan adopted by
the Corporation pursuant to Rule 12b-1 under the 1940 Act (a "Plan") applicable
to the respective class and (ii) no voting rights with respect to the provisions
of any Plan applicable to another class of shares or with regard to any other
matter submitted to a vote of shareholders which does not affect holders of that
respective class of shares.
(g) Class II shares (including fractional shares) of each series may be
subject to automatic conversion into Class I shares pursuant to the terms of the
issuance of such shares as described in the Registration Statement.
PAGE
IN WITNESS WHEREOF, Templeton Funds, Inc. has caused these
Articles Supplementary to be signed in its name on its behalf by its authorized
officers who acknowledge that these Articles Supplementary are the act of the
Corporation, that to the best of their knowledge, information and belief, all
matters and facts set forth herein relating to the authorization and approval
of these Articles Supplementary are true in all material respects and that this
statement is made under the penalties of perjury.
Date: December 27, 1996
TEMPLETON FUNDS, INC.
[CORPORATE SEAL]
By:/s/HARMON E.BURNS
Harmon E. Burns
Vice President
ATTEST: /s/JEFFREY L. STEELE
Jeffrey L. Steele
Assistant Secretary
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
TEMPLETON FOREIGN FUND AUGUST 31, 1996 ANNUAL REPORT AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000225930
<NAME> TEMPLETON FOREIGN FUND
<SERIES>
<NUMBER> 021
<NAME> TEMPLETON FOREIGN FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 9192822821
<INVESTMENTS-AT-VALUE> 10035594838
<RECEIVABLES> 168371637
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 478977
<TOTAL-ASSETS> 10204445452
<PAYABLE-FOR-SECURITIES> 57211512
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 17581496
<TOTAL-LIABILITIES> 74793009
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8900725448
<SHARES-COMMON-STOCK> 963394211
<SHARES-COMMON-PRIOR> 721254797
<ACCUMULATED-NII-CURRENT> 209796228
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 176358750
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 842772017
<NET-ASSETS> 10129652443
<DIVIDEND-INCOME> 219029252
<INTEREST-INCOME> 136447476
<OTHER-INCOME> 0
<EXPENSES-NET> 96452880
<NET-INVESTMENT-INCOME> 259023848
<REALIZED-GAINS-CURRENT> 261925623
<APPREC-INCREASE-CURRENT> 309726009
<NET-CHANGE-FROM-OPS> 830675480
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (185409586)
<DISTRIBUTIONS-OF-GAINS> (267921946)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 351052593
<NUMBER-OF-SHARES-REDEEMED> (151516955)
<SHARES-REINVESTED> 42603776
<NET-CHANGE-IN-ASSETS> 3124986702
<ACCUMULATED-NII-PRIOR> 139048660
<ACCUMULATED-GAINS-PRIOR> 186948350
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 51600846
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 96452880
<AVERAGE-NET-ASSETS> 8130035046
<PER-SHARE-NAV-BEGIN> 9.62
<PER-SHARE-NII> .27
<PER-SHARE-GAIN-APPREC> .69
<PER-SHARE-DIVIDEND> (.25)
<PER-SHARE-DISTRIBUTIONS> (.36)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.97
<EXPENSE-RATIO> 1.12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
TEMPLETON FOREIGN FUND AUGUST 31, 1996 ANNUAL REPORT AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000225930
<NAME> TEMPLETON FOREIGN FUND
<SERIES>
<NUMBER> 022
<NAME> TEMPLETON FOREIGN FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 9192822821
<INVESTMENTS-AT-VALUE> 10035594838
<RECEIVABLES> 168371637
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 478977
<TOTAL-ASSETS> 10204445452
<PAYABLE-FOR-SECURITIES> 57211513
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 17581496
<TOTAL-LIABILITIES> 74793009
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8900725448
<SHARES-COMMON-STOCK> 53423444
<SHARES-COMMON-PRIOR> 6612262
<ACCUMULATED-NII-CURRENT> 209796228
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 176358750
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 842772017
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<DIVIDEND-INCOME> 219029252
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<NET-INVESTMENT-INCOME> 259023848
<REALIZED-GAINS-CURRENT> 261925623
<APPREC-INCREASE-CURRENT> 309726009
<NET-CHANGE-FROM-OPS> 830675480
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2866694)
<DISTRIBUTIONS-OF-GAINS> (4593277)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 48025414
<NUMBER-OF-SHARES-REDEEMED> (1794465)
<SHARES-REINVESTED> 580233
<NET-CHANGE-IN-ASSETS> 3124986702
<ACCUMULATED-NII-PRIOR> 139048660
<ACCUMULATED-GAINS-PRIOR> 186948350
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 51600846
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 96452880
<AVERAGE-NET-ASSETS> 283745933
<PER-SHARE-NAV-BEGIN> 9.59
<PER-SHARE-NII> .30
<PER-SHARE-GAIN-APPREC> .58
<PER-SHARE-DIVIDEND> (.24)
<PER-SHARE-DISTRIBUTIONS> (.36)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.87
<EXPENSE-RATIO> 1.87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
