FRANKLIN TEMPLETON
GERMAN GOVERNMENT
BOND FUND
Franklin Templeton Global Trust
PROSPECTUS
March 1, 1996
777 Mariners Island Blvd.,
P.O. Box 7777
San Mateo, CA 94403-7777
1-800/DIAL BEN
The Franklin Templeton German Government Bond Fund (the "Fund"), is a
non-diversified series of Franklin Templeton Global Trust (the "Trust"),
formerly known as the Huntington Funds, an open-end management investment
company consisting of four separate series. The Fund's investment objective is
to seek, over the long-term, total return through investment in a managed
portfolio of German government bonds. Total return consists of a combination of
interest income, capital appreciation and currency gains. The Fund may invest in
domestic and foreign securities as described under "How Does the Fund Invest Its
Assets?"
This Prospectus is intended to set forth in a clear and concise manner
information about the Fund that you should know before investing. After reading
the Prospectus, you should retain it for future reference; it contains
information about the purchase and sale of shares and other items which you will
find useful to have.
An SAI concerning the Fund, dated March 1, 1996, as may be amended from time to
time, provides a further discussion of certain areas in this Prospectus and
other matters which may be of interest to you. It has been filed with the SEC
and is incorporated herein by reference. A copy is available without charge from
the Fund or from Distributors, at the address or telephone number shown above.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES REPRESENTATIVE, DEALER,
OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER
INFORMATION MAY BE OBTAINED FROM THE UNDERWRITER.
Contents Page
Expense Table.................................... 2
Financial Highlights -
How Has the Fund Performed?.................... 4
What Is the Franklin Templeton
German Government Bond Fund?................... 4
How Does the Fund Invest Its Assets?............. 4
What Are the Fund's Potential Risks?............. 9
How You Participate in the Results
of the Fund's Activities....................... 13
Who Manages the Fund?............................ 13
What Distributions Might
I Receive from the Fund?....................... 16
How Taxation Affects You and the Fund............ 17
How Do I Buy Shares?............................. 18
What Programs and Privileges
Are Available to Me as a Shareholder?.......... 24
What If My Investment Outlook Changes? -
Exchange Privilege............................. 26
How Do I Sell Shares?............................ 29
Telephone Transactions........................... 33
How Are Fund Shares Valued?...................... 34
How Do I Get More Information
About My Investment?........................... 34
How Does the Fund
Measure Performance?........................... 35
General Information.............................. 35
Registering Your Account......................... 36
Important Notice Regarding
Taxpayer IRS Certifications.................... 37
Useful Terms and Definitions..................... 37
EXPENSE TABLE
The purpose of this table is to assist you in understanding the various costs
and expenses that you will bear directly or indirectly in connection with an
investment in the Fund. These figures are based on the aggregate operating
expenses of the Fund for the fiscal year ended October 31, 1995.
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price)............................................................. 3.00%
Deferred Sales Charge.............................................. None+
Exchange Fee (per transaction)..................................... $5.00*
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees.................................................... 0.51%**
Rule 12b-1 Fees.................................................... 0.19%***
Other Expenses:
Reports to Shareholders.................................... 0.16%
Shareholder servicing costs................................ 0.06%
Other...................................................... 0.33%
Total Other Expenses............................................... 0.55%
Total Fund Operating Expenses...................................... 1.25%**
+Investments of $1 million or more are not subject to a front-end sales
charge; however, a contingent deferred sales charge of 1% is generally
imposed on certain redemptions within a "contingency period" of 12 months of
the calendar month of such investments. See "How Do I Sell Shares? -
Contingent Deferred Sales Charge."
*$5.00 fee imposed only on Market Timers as described under "What If My
Investment Outlook Changes? - Exchange Privilege." All other exchanges are
processed without a fee.
**The Manager has agreed in advance to waive a portion of its management fee and
to make certain payments to reduce expenses of the Fund, so that the Fund's
aggregate annual operating expenses do not exceed 1.25% of the Fund's average
net assets for the current fiscal year. Absent this reduction, management fees
and total operating expenses would have represented 0.55% and 1.29%,
respectively, of the Fund's average net assets.
***The maximum amount of Rule 12b-1 fees allowed pursuant to the Fund's
distribution plan is 0.25%. See "Who Manages the Fund? - Plan of Distribution."
Consistent with National Association of Securities Dealers, Inc.'s rules, it is
possible that the combination of front-end sales charges and Rule 12b-1 fees
could cause long-term shareholders to pay more than the economic equivalent of
the maximum front-end sales charges permitted under those same rules.
You should be aware that the above table is not intended to reflect in precise
detail the fees and expenses associated with an investment in the Fund. Rather,
the table has been provided only to assist you in gaining a more complete
understanding of fees, charges and expenses. For a more detailed discussion of
these matters, you should refer to the appropriate sections of this Prospectus.
EXAMPLE
As required by SEC regulations, the following example illustrates the expenses,
including the maximum front-end sales charge, that apply to a $1,000 investment
in the Fund over various time periods assuming (1) a 5% annual rate of return
and (2) redemption at the end of each time period.
One year Three years Five years Ten years
$42* $68 $97 $177
*Assumes that a contingent deferred sales charge will not apply.
This example is based on the aggregate annual operating expenses shown above and
should not be considered a representation of past or future expenses, which may
be more or less than those shown. The operating expenses are borne by the Fund
and only indirectly by you as a result of your investment in the Fund. In
addition, federal securities regulations require the example to assume an annual
return of 5%, but the Fund's actual return may be more or less than 5%.
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FINANCIAL HIGHLIGHTS - HOW HAS THE FUND PERFORMED?
Set forth below is a table containing the financial highlights for a share of
the Fund from the effective date of registration, as indicated below, through
the fiscal year ended October 31, 1995. The information for the fiscal year
ended October 31, 1995, the six-month period ended October 31, 1994 and the
fiscal year ended April 30, 1994 has been audited by Coopers & Lybrand L.L.P.,
independent auditors, whose audit report appears in the financial statements in
the Trust's Annual Report to Shareholders for the year ended October 31, 1995.
The previous fiscal year of the Fund was audited by other independent auditors
whose opinions are not included herein. See "Reports to Shareholders" under
"General Information" in this Prospectus.
<TABLE>
<CAPTION>
Per Share Operating Performance+ Ratios/Supplemental Data
____________________________________________________________ __________________________
Ratio of Net
Distri- Distri- Distri- Invest-
Net Asset Net Net Total butions butions butions Net Asset Net Assets Ratio of ment
Value at Invest-Realized & From From Net From From Total Value at End of Expenses Income to Portfolio
Period Beginning ment Unrealized Investment InvestmentCapital Return Distri- at End Total Year (in to Average Average Turnover
Ended of Year Income Gain (Loss)Operations Income Gains of Capital butions of Year Return++ 000's) Net Assets** Net Assets Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19931 $12.50 $.27 $ .56 $ .83 $(.25) $ - $ - $(.25) $13.08 6.15% $10,738 .87%* 6.06%* 190.89%*
1994 13.08 .78 (.72) .06 (.39) (.06) (.40) (.85) 12.29 .64 13,341 1.00 4.74 185.66
19942 12.29 .41 .92 1.33 (.36) - - (.36) 13.26 10.92 13,236 1.04* 6.37 301.60*
19953 13.26 1.53 0.71 2.24 (1.19) - - (1.19) 14.31 18.28 24,113 1.25 5 67.77
</TABLE>
1For the period December 31, 1992 (effective date of registration) to April 30,
1993.
2SIX MONTH PERIOD ENDED OCTOBER 31, 1994, REFLECTING A CHANGE IN FISCAL YEAR.
3For the year ended October 31, 1995.
+Selected data for a share of beneficial interest outstanding throughout the
period.
++Total return measures the change in value of an investment over the periods
indicated. It does not include the maximum front-end sales charge and assumes
reinvestment of dividends and capital gains, if any, at net asset value.
*Annualized
**During the periods indicated, the Manager agreed in advance to waive a portion
of its management fees and make certain payments to reduce expenses of the Fund.
Had such action not been taken, the ratios of expenses to average net assets
would have been as follows:
Ratio of
Expenses
to Average
Net Assets
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1993.............................................. 1.73%*
1994.............................................. 1.83
19942............................................. 1.77
19953............................................. 1.29
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WHAT IS THE FRANKLIN TEMPLETON GERMAN GOVERNMENT BOND FUND?
The Fund is a non-diversified series of the Trust, an open-end management
investment company commonly called a "mutual fund." The Trust was organized as a
Massachusetts business trust on November 6, 1985, and registered with the SEC
under the 1940 Act. Shares of the Fund may be considered Class I shares, as
described under "Useful Terms and Definitions," for redemption, exchange and
other purposes.
HOW DOES THE FUND INVEST ITS ASSETS?
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The Fund's investment objective is to seek, over the long-term, total return
through investment in a managed portfolio of German government bonds.
The Fund is designed for U.S. investors who wish to invest in German government
bonds for the purpose of seeking one or more of the following potential
benefits:
n Higher current yields than may be available on U.S. government bonds
n Capital appreciation resulting from a decline in German interest rates and a
corresponding increase in German government bond prices
n Currency gains from an increase in the value of the German mark relative to
the U.S. dollar
n Safety of principal due to the high credit quality of German government
bonds
n Portfolio diversification outside the U.S. through German currency and
interest rate exposure
n Protection of global purchasing power in the event of higher U.S. inflation
rates and/or depreciation of the U.S. dollar relative to the German mark
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 or that any of the potential benefits listed above will be
realized. In addition, there are significant risk considerations relevant to an
investment in the Fund, as described below.
The Fund invests between 65% and 100% of its total assets in debt obligations
issued or guaranteed by the Federal Republic of Germany, its agencies,
instrumentalities and political subdivisions ("German government obligations").
The German government obligations in which the Fund invests are denominated in
the German mark and are rated, at the time of purchase, triple A by a U.S.
nationally recognized rating service, such as Standard & Poor's Corporation
("S&P") or Moody's Investors Service ("Moody's"), or, if unrated, are considered
by the Fund's Investment Managers to be of comparable quality to triple A rated
instruments. See "Investing in German Government Obligations."
Consistent with its investment objective, the Fund may also invest up to 35% of
its total assets in (i) German mark-denominated bonds and other debt instruments
issued by sovereign governments other than the Federal Republic of Germany and
by supranational organizations (such as the World Bank) that are rated, at the
time of purchase triple A by a U.S. nationally recognized rating service, such
as S&P or Moody's, or which, if unrated, are considered by the Fund's Investment
Managers to be of comparable quality to triple A rated instruments; and (ii)
cash and money market instruments denominated in the German mark which are rated
at time of purchase A-1+ by S&P and/or P-1 by Moody's, or which, if unrated, are
considered by the Fund's Investment Managers to be of comparable high quality.
Under normal market conditions, the Fund may have up to 5% of its total assets
invested in U.S. dollar denominated cash and money market instruments, such as
U.S. Treasury bills, to provide extra liquidity for meeting shareholder
redemptions and exchanges.
While the Fund does not anticipate that it will have less than 75% of its total
assets invested in German government obligations under normal market conditions,
the Fund reserves the right to reduce its investment in German government
obligations to 65% of its total assets (with a corresponding increase in the
amount it invests in other German mark-denominated securities and cash) if such
investment allocation is deemed to be in the Fund's best interest by the Fund's
Investment Managers. It is also possible that the Fund may occasionally hold
significant cash or cash equivalents denominated in German marks until suitable
investment positions are available. You should understand that in order to
preserve its favorable tax status, the Fund may regularly hold 25% or less of
its assets in obligations issued or guaranteed by the Federal Republic of
Germany even while holding 65% or more of its total assets in German government
obligations (as defined above). In addition, as a temporary measure, the Fund
may reduce its investment in German government obligations and/or increase its
investment in U.S. government and agency securities from time to time to
preserve its favorable tax status.
The rate of exchange between the U.S. dollar and the German mark
fluctuates. As a result, the Fund generally will experience gains and losses
attributable to those fluctuations. The Fund does not generally position hedge
or otherwise attempt to limit its exposure to German mark currency risk and,
therefore, is designed for investors who are prepared to accept the risk of
currency fluctuations.
Changes in German market interest rates will affect the market value of the
Fund. When German market interest rates rise, the market value of the Fund's
securities generally will decline. Conversely, when German market interest rates
decline, the market value of the Fund's securities generally will rise. The
Fund's Investment Managers will actively manage the Fund's portfolio maturity
structure in an attempt to achieve positive returns for the Fund over time from
changes in interest rates. See "What Are the Fund's Potential Risks?"
It is anticipated that under normal market conditions, the Fund's weighted
average portfolio maturity will be at least five years. For temporary, defensive
purposes, however, the Fund's weighted average portfolio maturity may be less
than five years.
The Fund's Investment Managers invest the Fund's assets on the basis of a number
of factors, including, (i) the current level of interest rates on German
government obligations of various maturities and (ii) its view of future
movements of those interest rates. In determining the Fund's maturity structure,
the Fund's Investment Managers consider many factors pertaining to the German
economy, including the current stage of the economic cycle, government fiscal
and monetary policy, inflation expectations, the relationship of interest rates
of varying maturities, (i.e., the slope of the yield curve), currency market
outlook, and economic growth prospects within Germany and around the world.
Any policy or technique that is described in this Prospectus or in the SAI,
unless identified as a fundamental policy, may be changed by the Board without
shareholder approval.
INVESTING IN GERMAN GOVERNMENT OBLIGATIONS
German government obligations generally are considered by rating agencies to be
among the highest credit quality debt instruments worldwide. In addition, the
Bundesbank (the German central bank) generally is viewed as among the most
disciplined and ardent central banks in the world in its policies of fighting
domestic inflation and protecting the international value of the German mark.
The German bond market is the third largest in the world and currently also one
of the fastest growing. The fall of the Berlin Wall in 1989 and the subsequent
reunification of what were previously East Germany and West Germany in 1990 have
significantly increased German public sector financing requirements and caused
substantial recent growth of the German government bond market.
According to Merrill Lynch, the face amount of German mark-denominated bonds
outstanding as of December 31, 1994, was approximately 4.02 trillion marks (U.S.
$2.68 trillion). Of this total, German government and agency bonds accounted for
1.276 trillion marks (U.S. $851 billion), or about 32% of the total market.
Liquidity in the German government bond market is considered by the Fund's
Investment Managers to be very high.
The table below shows publicly issued German bonds outstanding, by issuer
type, as of December 31, 1994. U.S. bond market statistics are also provided
for comparison purposes.
COMPARATIVE BOND MARKET STATISTICS
(IN U.S. $BILLIONS)
Issuer Type Germany U.S.
- ------------------------------------------------------------------------------
Central government......... $ 718.9 $2,392.2
Central government agency
& government guaranteed.. 132.2 2,176.0
State and local............ 424.6 921.0
Corporates................. 957.2 2,246.5
Other, foreign, international
and Euros................ 449.5 856.1
Total...................... $2,682.4 $8,591.8
Source: Merrill Lynch
Certain German government obligations are issued or otherwise guaranteed by the
Federal Republic of Germany. These obligations carry the explicit full faith and
credit backing of the German government and include direct obligations of the
government (Bunds), as well as certain government agency issues, such as the
German Unity Fund (Fonds Deutsche Einheit), established to help pay for the
reconstruction of former East Germany's economy, and the Treuhandanstalt,
established to facilitate the privatization of assets of former East Germany.
Other German government obligations are guaranteed by their issuing agency,
instrumentality or political subdivision, but do not carry the explicit full
faith and credit guarantee of the German government. The Fund will invest only
in such obligations that the Fund's Investment Managers consider to be of credit
quality substantially equivalent to direct obligations of the German government.
Issuers presently satisfying this criterion include the German Federal Railways
(Bundesbahn), the German Post Office (Bundespost), the Kreditanstalt fur
Wiederaufbau ("KFW"), as well as certain of the 16 separate federal states
(Lander) of which Germany is comprised.
Forwards, Futures and Option Contracts
The Fund may use forward foreign currency exchange contracts ("forwards"),
futures contracts ("futures"), option contracts on futures and over-the-counter
options (collectively, "options") in the management of its investment portfolio.
A forward is individually negotiated and privately traded by currency traders
(usually large commercial banks) and their customers. There are generally no
deposit requirements, and the contracts are traded at a net price without
commission. A forward involves an obligation to exchange one specific currency
for another specific currency (e.g., an obligation to exchange U.S. dollars for
German marks) at an agreed-upon rate of exchange at a future date, which may be
any fixed number of days from the date of the contract. The market for forwards
involving the exchange of U.S. dollars and German marks is highly liquid.
A bond (or currency) future is an agreement to buy or sell a specified quantity
of bonds (or currency) at an agreed-upon price on a specified date. Upon
entering into a future, the Fund makes a margin deposit, which is adjusted to
reflect changes in the value of the contract and which continues until the
contract is terminated. Futures are transacted through established futures
exchanges.
An option gives the holder (buyer) of the option the right, but not the
obligation, to buy (in the case of a call option) or sell (in the case of a put
option) a specified amount of a particular security or currency (such as German
government obligations or German marks), or a specified number of futures on
such security or currency, on a specified date in the future at a specified
price. The option buyer pays the option seller a negotiated premium upon the
establishment of the contract. Options on futures are transacted through
established exchanges. Options on German government obligations and on German
marks are transacted over-the-counter directly between the buyer and seller. The
staff of the SEC has taken the position that purchased over-the-counter options
and the assets used as "cover" for written over-the-counter options are illiquid
securities. However, the Fund may treat the securities it uses as cover for
written over-the-counter options as liquid provided that the Fund follows
certain procedures. The Fund may sell over-the-counter options only to qualified
dealers who agree that the Fund may repurchase any over-the-counter options it
writes for a maximum price to be calculated by a predetermined formula. In such
cases, the option would be considered illiquid only to the extent that the
maximum repurchase price under the formula exceeds the intrinsic value of the
option.
When the Fund agrees to buy or sell a security denominated in the German mark,
it may enter into forwards in order to "lock in" the U.S. dollar price of the
security. By entering into a forward calling for the receipt or delivery, for a
fixed amount of U.S. dollars, of the amount of German marks involved in the
underlying security transactions, the Fund will be able to protect itself
against a change in the relationship between the U.S. dollar and the German mark
during the period between the date the security is purchased or sold and the
date on which payment is made or received.
For investment purposes, the Fund may use forwards, futures and options to
establish Fund exposure to the German mark, and futures and options to establish
Fund exposure to German government obligations, in a fast and cost-effective
way. This may be necessary either when the Fund has a substantial U.S. dollar
account receivable for Fund shares sold or when the Fund's Investment Managers
require extra time to invest cash balances in German mark-denominated
securities. In each of these cases, the Fund's use of forwards, futures and
options is temporary and for the purpose of maintaining the Fund's intended
ongoing exposure to the German mark and to German government obligations.
The Fund may from time to time also use forwards calling for the future purchase
of German marks, in conjunction with U.S. dollar-denominated cash or money
market instruments, for the purpose of obtaining an investment result that is
substantially equivalent to a direct investment in a German mark-denominated
money market instrument.
Although permitted to do so, the Fund does not currently intend to enter into
currency futures contracts or options on currency futures.
As indicated earlier, the Fund may, under extraordinary circumstances and for
temporary, defensive purposes only, employ forwards, futures and options for
hedging the Fund's German bond and currency exposure.
WHEN-ISSUED AND FIRM COMMITMENT AGREEMENTS
The Fund may invest up to 25% of its assets in securities on a "when-issued" or
"firm commitment" basis, for payment and delivery at a later date. Under these
arrangements, the securities' prices and yields are fixed on the date of the
commitment, but payment and delivery are scheduled for a future time.
At the time of settlement (normally within 30 to 60 days after the day of the
agreement or purchase), the market value of the security may be more or less
than its purchase or sale price and the Fund, as purchaser, assumes the risk of
any decline in value of the security beginning on the date of the agreement or
purchase. There is also a risk that the party with whom the Fund enters into a
transaction may default. Failure of the other party to perform its part of the
commitment could result in a loss of income to the Fund. The Fund will make
commitments to purchase or sell only securities that are eligible for inclusion
in its portfolio.
While the Fund normally enters into these transactions with the intention of
actually receiving or delivering the securities, it may sell the securities
before the settlement date or enter into a new commitment to extend the delivery
date further into the future if the Fund's Investment Managers consider it
advisable as a matter of investment strategy.
Between the time of purchase and settlement, no payment is made and no interest
on securities purchased for future delivery is received by the Fund. If the
assets of the Fund were held in cash pending the settlement of a transaction,
the Fund would earn no income. The Fund, however, intends to be fully invested
to the extent practicable.
When the Fund enters into a when-issued purchase or a firm commitment to
purchase securities, the Fund will maintain, in a segregated account with its
custodian, cash or high-grade marketable securities having an aggregate value
equal to the amount of the purchase commitments until payment is made. These
procedures are designed to help insure that the Fund maintains sufficient assets
at all times to cover its obligations under when-issued purchases and firm
commitments.
OTHER INVESTMENT POLICIES OF THE FUND
Although permitted to do so, the Fund does not currently intend to enter into
repurchase agreements or lend its portfolio securities. The Fund will not borrow
money, except from banks for temporary or emergency purposes in amounts not
exceeding 331/3% of the total value of its assets (no additional investments may
be made while any such borrowings exceed 5% of the Fund's total assets). The
Fund may invest in time deposits of commercial banks having short-term deposit
ratings of A-1+ (by S&P) and/or P-1 (by Moody's), but will limit its investment
in time deposits maturing in more than seven days as described in the SAI. The
Fund will not otherwise invest in illiquid securities.
Portfolio Turnover. The Fund's portfolio turnover rate for the fiscal year ended
October 31, 1995, the period ended October 31, 1994 (annualized as a result of a
change in fiscal year end from April to October) and for the fiscal year ended
April 30, 1994 was 67.77%, 301.60% and 185.66%, respectively. Turnover rates in
excess of 100% often result in higher portfolio brokerage, execution and
transaction costs, which will be borne by the Fund. The higher the portfolio
turnover rate, the greater the likelihood that capital gains or losses and
foreign exchange gains or losses may be realized by the Fund, which would affect
taxable distributions paid to you. (See "How Taxation Affects You and the Fund"
below and "Additional Information Regarding Taxation" in the SAI.) Because
transaction costs are normally higher for non-U.S. bonds than for U.S. bonds,
the higher portfolio turnover rate may also have a larger negative impact on
Fund returns than would be the case with a mutual fund investing primarily in
U.S. bonds.
Other. The Fund is subject to a number of additional investment restrictions,
some of which may be changed only with the approval of shareholders, which limit
its activities to some extent. For a list of these restrictions and more
information about the policies discussed herein, please see "How Does the Fund
Invest Its Assets?" and "Investment Restrictions" in the SAI.
WHAT ARE THE FUND'S POTENTIAL RISKS?
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The primary risk factors associated with investment in German government
obligations arise in connection with market fluctuations in the level of German
interest rates and in the exchange rate between the U.S. dollar and the German
mark. At any given point in time, the impact of interest rate and currency
exchange rate changes on the Fund's share price may be reinforcing or
offsetting. These risks are described in more detail below.
The yield and total return of the Fund may be higher or lower than the yield and
total return of a fund investing in U.S. dollar-denominated bonds of comparable
maturity and quality. In addition, you should recognize that due to periodic
interest rate and exchange rate volatility, the Fund's share price is likely to
experience significant volatility from time to time, and this volatility may be
greater than would be experienced by a comparable U.S.
dollar-denominated bond fund.
The Fund is intended to be only one part of your international and global
diversification program, and holding shares of the Fund should not be considered
a complete investment program.
INTEREST RATE RISK
Bond prices move inversely to the direction of changes in interest rates. When
interest rates rise, bond prices generally decline, and when interest rates
decline, bond prices generally rise. For any given change in market interest
rates, bonds having longer maturities generally will experience greater price
movements.
It is anticipated that under normal market conditions, the Fund's weighted
average portfolio maturity will be at least five years and may be as long as ten
years. Therefore, a significant rise in German bond market interest rates can
generally be expected to cause a significant decline in the Fund's net asset
value per share. Conversely, a large decline in German bond market interest
rates can generally be expected to cause the Fund's share price to rise
significantly.
The Fund's Investment Managers actively manage the average maturity of the
Fund's investments, shortening the Fund's maturity when it is expected that
German interest rates will rise and lengthening the maturity when it is expected
that German interest rates will decline. This active management of the Fund's
maturity structure is intended to improve the long-term performance of the Fund
on a total return basis relative to that of an unmanaged portfolio of German
government obligations. Of course, there can be no assurance that active
management will achieve the desired result.
CURRENCY RISK
The value of German government obligations, when expressed in U.S. dollars,
will fluctuate with changes in the exchange rate between the U.S. dollar and
the German mark. A decline in the mark relative to the dollar will generally
result in a decline in the Fund's share price (which is determined on a U.S.
dollar basis). Conversely, if the mark appreciates relative to the U.S.
dollar (i.e., the U.S. dollar declines), the Fund's share price generally can
be expected to rise.
To give U.S. dollar-based investors the opportunity to achieve more fully the
benefit of German mark currency diversification, the Fund does not engage in
hedging strategies to minimize or eliminate Fund share price fluctuations
arising from changes in the exchange rate between the U.S. dollar and the German
mark. Hedging strategies could reduce the currency risk of investing in German
government obligations, but would also reduce the potential benefits or gains
that can be achieved.
Because of its investment primarily in German mark-denominated obligations and
its policy of not hedging currency risk, the Fund's share price will likely
exhibit greater day-to-day volatility than a fund that diversifies its currency
risk across multiple currencies and/or regularly hedges its currency risk. You
should also recognize that even though interest rates on German government
obligations may from time to time exceed the rates on U.S. dollar-denominated
bonds of comparable maturity and quality, a decline in the German mark relative
to the U.S. dollar over any given period could more than offset any interest
rate advantage, resulting in a negative total return for the Fund over that
period.
In the event of an extraordinary political or world development which, in the
view of the Fund's Investment Managers, threatens the social or political
stability of Germany or the viability of the German government, the Fund may
invest in U.S. government securities and U.S. dollar-denominated cash
equivalents or otherwise hedge its German bond and currency risk, without
limitation, but only for temporary, defensive purposes.
GERMAN ECONOMIC RISK FACTORS
The following information is a brief summary of factors affecting the Fund and
does not purport to be a complete description of such factors. The information
is based primarily upon information derived from public documents relating to
securities offerings of issuers of German government obligations, from
independent credit reports and historically reliable sources, but has not been
independently verified by the Fund.
The Federal Republic of Germany, which comprises what was formerly the nations
of East Germany and West Germany, is considered by the rating agencies and by
the Fund's Investment Managers to be among the world's most creditworthy issuers
of debt obligations. Both S&P and Moody's have assigned their highest ratings
(AAA/Aaa) to obligations of the Federal Republic of Germany.
The German mark is considered to be the primary reserve currency of Europe and,
along with the Japanese yen, has increasingly been used as a reserve currency
worldwide, sharing the traditional role of the U.S. dollar. Because of Germany's
strong record of economic growth and responsible fiscal and monetary policy, the
mark has been among the strongest of the world's major currencies in the period
dating back to the return of freely floating exchange rates in the early 1970s.
Of course, there can be no assurance that the German mark will perform or be
regarded in the future as it has in the past.
The Bundesbank (the German central bank) operates largely independently of
Germany's political system and is charged with responsibility for protecting the
international value of the German mark. In response to the high levels of
unification-related public and private expenditures and the inflationary
pressures arising from these expenditures, the Bundesbank has maintained a tight
monetary policy in recent years, resulting in interest rates well above those in
the U.S., Japan and other countries outside Europe. In mid-1992, German interest
rates began to decline as continued tight monetary policy created expectations
of economic slowing. This decline in German rates continued through the end of
1993 as the German economy suffered a significant recession and the Bundesbank
accelerated the easing process. During the first quarter of 1994, German yields
began to rise as signs of economic growth emerged in the German economy.
The unification of East Germany and West Germany and the ensuing efforts to
raise living standards and modernize infrastructure in what was previously East
Germany have been a costly undertaking for Germany. Much of the cost of
unification has been financed through deficit spending, resulting in
significantly increased public-sector borrowing requirements since 1989. The
ongoing high levels of public sector borrowing and spending in Germany resulting
from unification may cause German interest rates and inflation rates to be
higher than would otherwise be the case. This, in turn, may adversely affect the
total returns on German government obligations. Unification has placed great
pressure on the German economy and, although progress has recently been made to
improve German government finances, these pressures may adversely affect
monetary policy as conducted by the Bundesbank as well as the credit quality of
German government obligations.
In addition to unification, the disintegration of the Soviet Union and its
sphere of influence also may have an adverse impact on the German economy. In
particular, Germany may be subject to increased immigration pressures and social
discord. Germany also faces uncertainty with respect to repayment of
government-guaranteed loans made to former eastern bloc countries.
FORWARDS, FUTURES AND OPTIONS
The use of forwards, futures and options by the Fund involves investment risks
to which the Fund would not be subject absent its use of these instruments. The
risks inherent in the use of forwards, futures and options include: (1)
dependence on the ability of the Fund's Investment Managers correctly to predict
movements in the direction of interest rates, securities prices and currency
rates; (2) imperfect correlation between the price of options and futures and in
the prices of the securities or the currencies underlying the options and
futures; (3) the skills needed to use these instruments are different from those
needed to select portfolio securities; (4) the possible absence of a liquid
secondary market for any particular instrument at any particular time; (5) the
possible loss by the Fund of margin deposits or collateral in the event of
bankruptcy of a broker with whom the Fund has an open position in a future or an
option; and (6) the possible need to defer closing out certain hedged positions
to avoid adverse tax consequences. The Fund's ability to enter into certain
futures and options is also limited by the requirements of the Code for
qualification of the Fund as a regulated investment company. These securities
may also require the application of complex and special tax rules and elections
that may affect the amount, timing and character of distributions to
shareholders. Transactions in options, futures and options on futures are
generally considered "derivative securities." These investments and transactions
are discussed further in the tax section included in this Prospectus and in the
SAI.
OTHER RISK FACTORS
Foreign taxes can adversely affect the Fund's performance, though it is
anticipated that the Fund will invest only in debt obligations that are not
subject to foreign tax withholding. For more information on tax issues affecting
the Fund, see "How Taxation Affects You and the Fund" in this Prospectus and
"Additional Information Regarding Taxation" in the SAI.
The Fund is a "non-diversified" fund, which means there are no restrictions
under the 1940 Act on the percentage of assets that may be invested at any time
in the securities of any one issuer. However, as a non-diversified fund, and as
a fund that concentrates its investments primarily in German government
obligations denominated in German marks, the Fund may be subject to greater risk
with respect to its portfolio securities than a mutual fund that has a broader
range of investments. Although the Fund is "non-diversified" for purposes of the
1940 Act, it nevertheless must meet certain diversification standards to qualify
as a regulated investment company under the Code. If the Fund is unable to meet
such diversification standards, the Fund may be subject to taxation as a
corporation. These diversification standards require the Fund to invest no more
than 25% of its total assets in a single issuer and, with respect to at least
50% of its total assets, to invest in cash, U.S. Government securities,
securities of other regulated investment companies, and other securities as to
which the Fund invests no more than 5% of its assets in the securities of any
one issuer or holds no more than 10% of the outstanding voting securities of any
one issuer. The Fund's Investment Managers believe the Fund will be able to meet
these diversification standards following its normal investment policies. As
necessary to satisfy such diversification standards, the Fund may invest a
significant portion of its assets in German government obligations other than
those issued or guaranteed by the Federal Republic of Germany and in German
mark-denominated obligations issued by other sovereign governments and
supranational organizations. To the extent the Fund is not fully diversified, it
may be more susceptible to adverse economic, political or regulatory
developments affecting a single issuer than would be the case if it was more
broadly diversified.
A mutual fund can incur significant transaction costs in its purchases and sales
of foreign securities and currencies. Due to the highly liquid nature of the
German government obligation and foreign exchange markets, however, it is
anticipated that Fund transaction costs will be minimal and will not have a
material impact on the Fund's performance.
The Fund's custody and portfolio accounting expenses may be higher than those
experienced by a fund investing solely in U.S. dollar-denominated bonds.
Investing in non-U.S. securities generally may be subject to certain risk
factors not thought to be present in the U.S. These include expropriation of
foreign-owned assets, confiscatory taxation, exchange controls, political and
social instability, and the difficulty of enforcing obligations in other
countries. See "Investing in Foreign Securities" in the SAI for a more detailed
discussion of those risk factors.
How You Participate in the Results of the Fund's Activities
The assets of the Fund are invested in portfolio securities. If the securities
owned by the Fund increase in value, either because their price appreciates in
local currency terms or because the currency in which they are denominated
appreciates relative to the U.S. dollar, the value of the shares of the Fund
which you own will increase. If the securities owned by the Fund decrease in
value, the value of your shares will also decline. In this way, you participate
in any change in the value of the securities owned by the Fund.
Under normal market conditions, the Fund invests a significant portion of its
assets in instruments denominated in German marks. Therefore, your gains or
losses on shares of the Fund will in large part be based on changes in the net
asset value of such shares, expressed in U.S. dollars, attributable to
fluctuations in the exchange rate between the U.S. dollar and the German mark.
Changes in Germany's prevailing interest rates will affect the value of the
Fund's portfolio and thus its share price. Increased rates of interest which
frequently accompany higher inflation and/or a growing economy are likely to
have a negative effect on the value of Fund shares.
German interest rates and currency valuations have fluctuated unpredictably in
the past and can be expected to do so in the future.
WHO MANAGES THE FUND?
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The Board has the primary responsibility for the overall management of the Trust
and for electing the officers of the Trust who are responsible for administering
its day-to-day operations.
Advisers serves as the Fund's investment manager. Advisers is a wholly-owned
subsidiary of Resources, a publicly owned holding company, the principal
shareholders of which are Charles B. Johnson and Rupert H. Johnson, Jr., who own
approximately 20% and 16%, respectively, of Resources' outstanding shares.
Resources is engaged in various aspects of the financial services industry
through its subsidiaries. Advisers acts as investment manager or administrator
to 36 U.S. registered investment companies (118 separate series) with aggregate
assets of over $80 billion.
TICI serves as the subadvisor for the Funds under a contract with the Manager.
TICI is an indirect subsidiary of Templeton Worldwide, Inc., which is a direct,
wholly-owned subsidiary of Resources. Templeton Worldwide, Inc., operating
through its subsidiaries, is a major investment management organization with
approximately $53.5 billion of assets currently under management and a long
history of global investing.
The team responsible for the day-to-day management of the Fund's portfolio
is: Tom Latta and Neil S. Devlin since November 1993.
Thomas Latta Portfolio Manager of TICI
Mr. Latta attended the University of Missouri and New York University. Mr.
Latta joined Templeton in 1991. Prior to joining Templeton, Mr. Latta worked
as a portfolio manager with Forester and Hairston, a global fixed-income
investment management firm, and prior thereto, he worked for Merrill Lynch as
an investment adviser to a large mid-east central bank and then within the
structured products group.
Neil S. Devlin Executive Vice President of TICI
Mr. Devlin holds a Bachelor of Arts degree in Economics and Philosophy from
Brandeis University. Prior to joining Templeton in 1987, Mr. Devlin was a
portfolio manager and bond analyst with Constitutional Capital Management of
Boston and a bond trader and research analyst for the Bank of New England.
Donald P. Gould, a Portfolio Manager with Advisers, is founder and president of
the Trust. Mr. Gould supervises the implementation of the Funds' portfolio
investment policies. He holds a Master of Business Administration degree from
the Harvard Business School and a Bachelor of Arts degree in economics from
Pomona College. He joined the Franklin Templeton Group in November 1993 upon its
acquisition of certain assets of Huntington Advisers, Inc. He has been in the
securities industry since 1981.
Pursuant to a management agreement and a sub-advisory agreement, the Fund's
Investment Managers supervise and implement the Fund's investment policies and
provide certain administrative services and facilities which are necessary to
conduct the Fund's business. The Fund's Investment Managers perform similar
services for other funds and there may be times when the actions taken with
respect to the Fund's portfolio will differ from those taken by the Fund's
Investment Managers on behalf of other funds. Neither the Fund's Investment
Managers (including its affiliates) nor its officers, trustees or employees nor
the officers and trustees of the Fund are prohibited from investing in
securities held by the Fund or other funds which are managed or administered by
the Fund's Investment Managers to the extent such transactions comply with the
Trust's Code of Ethics. Please see "Investment Advisory and Other Services" and
" General Information" in the SAI for further information on securities
transactions and a summary of the Fund's Code of Ethics.
Pursuant to the subadvisory agreement between the Manager and TICI, and subject
to the overall policies, control, direction and review of the Board and to the
instructions and supervision of the Manager, TICI will provide day-to-day
portfolio management for the Fund.
Under a subcontract with the Manager, the Business Manager provides certain
administrative facilities and services for the Fund that are not provided by the
Fund's Investment Managers, including the payment of the salaries of officers,
preparation and maintenance of books and records, preparation of tax and
financial reports, and monitoring compliance with regulatory requirements. The
fees paid to the Business Manager, which are 0.15% or less of the average daily
net assets of each Fund, are not separate expenses of the Fund but are paid by
the Manager from the management fees it receives from the Fund. The subcontract
is not renewed on any schedule, but upon termination of the Fund's contract with
the Manager, the subcontract will also terminate.
During the fiscal year ended October 31, 1995, management fees before any
advance waiver, totaled 0.55% of the average monthly net assets of the Fund.
Total operating expenses, including management fees, before any advance waiver,
totaled 1.29% of the average monthly net assets of the Fund. Pursuant to an
agreement by Advisers to waive its fees, the Fund paid management fees totaling
0.51% of the average monthly net assets of the Fund and operating expenses
(including management fees) totaling 1.25%. This arrangement may be terminated
by the Manager at any time upon notice to the Board.
Among the responsibilities of the Manager under the management agreement is the
selection of brokers and dealers through whom transactions in the Fund's
portfolio securities will be effected. The Manager tries to obtain the best
execution on all such transactions. If it is felt that more than one broker is
able to provide the best execution, the Manager will consider the furnishing of
quotations and of other market services, research, statistical and other data
for the Manager and its affiliates, as well as the sale of shares of the Fund,
as factors in selecting a broker. Further information is included under "How
Does the Fund Purchase Securities For Its Portfolio?" in the SAI.
Shareholder accounting and many of the clerical functions for the Fund are
performed by Investor Services, in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.
PLAN OF DISTRIBUTION
A plan of distribution has been approved and adopted for the Fund (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Fund may
reimburse Distributors or others for all expenses incurred by Distributors or
others in the promotion and distribution of the Fund's shares. Such expenses may
include, but are not limited to, the printing of prospectuses and reports used
for sales purposes, expenses of preparing and distributing sales literature and
related expenses, advertisements, and other distribution-related expenses,
including a prorated portion of Distributors' overhead expenses attributable to
the distribution of Fund shares, as well as any distribution or service fees
paid to securities dealers or their firms or others who have executed a
servicing agreement with the Fund, Distributors or its affiliates.
The maximum amount which the Fund may reimburse to Distributors or others for
such distribution expenses is 0.25% per annum of its average daily net assets,
payable on a quarterly basis. All expenses of distribution in excess of 0.25%
per annum will be borne by Distributors, or others who have incurred them,
without reimbursement from the Fund.
The Plan also covers any payments to or by the Fund, Advisers, Distributors, or
other parties on behalf of the Fund, Advisers or Distributors, to the extent
such payments are deemed to be for the financing of any activity primarily
intended to result in the sale of shares issued by the Fund within the context
of Rule 12b-1. The payments under the Plan are included in the maximum operating
expenses which may be borne by the Fund. For more information, please see "The
Fund's Underwriter" in the SAI.
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
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You may receive two types of distributions from the Fund:
1. Income dividends. The Fund receives income generally in the form of 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 net capital loss carryovers) 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 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.
DISTRIBUTION DATE
Although subject to change by the Board without prior notice to or approval by
shareholders, the Fund's current policy is to declare income dividends monthly
for shareholders of record on the first business day preceding the 15th of the
month, payable on or about the last business day of that month.
The amount of income dividend payments by the Fund is dependent upon the amount
of net income received by the Fund from its portfolio holdings, is not
guaranteed and is subject to the discretion of the Board. Fund shares are quoted
ex-dividend on the first business day following the record date (generally the
15th day of the month or prior business day depending on the record date). The
Fund does not pay "interest" or guarantee any fixed rate of return on an
investment in its shares.
In order to be entitled to a dividend, you must have acquired Fund shares prior
to the close of business on the record date. If you are considering purchasing
Fund shares shortly before the record date of a distribution, you should be
aware that because the value of the Fund's shares is based directly on the
amount of its net assets, rather than on the principle of supply and demand, any
distribution of income or capital gain will result in a decrease in the value of
the Fund's shares equal to the amount of the distribution. While a dividend or
capital gain distribution received shortly after purchasing shares represents,
in effect, a return of a portion of your investment, it may be taxable as
dividend income or capital gain.
DISTRIBUTION OPTIONS
You may choose to receive your distributions from the Fund in any of these ways:
1. Purchase additional shares of the Fund - You may purchase additional shares
of the Fund (without a sales charge or imposition of a contingent deferred sales
charge) by reinvesting capital gain distributions, or both dividend and capital
gain distributions. This is a convenient way to accumulate additional shares and
maintain or increase your earnings base.
2. Purchase shares of other Franklin Templeton Funds - You may direct your
distributions to purchase the same class of shares of another Franklin Templeton
Fund (without a sales charge or imposition of a contingent deferred sales
charge). Many shareholders find this a convenient way to diversify their
investments.
3. Receive distributions in cash - You may choose to receive dividends, or both
dividend and capital gain distributions in cash. You may have the money sent
directly to you, to another person, or to a checking account. If you choose to
send the money to a checking account, please see "Electronic Fund Transfers"
under "What Programs and Privileges Are Available to Me as a Shareholder?"
To select one of these options, please complete sections 6 and 7 of the
Shareholder Application included with this Prospectus or tell your investment
representative which option you prefer. If no option is selected, dividend and
capital gain distributions will be automatically reinvested in the Fund. You may
change the distribution option selected at any time by notifying the Fund by
mail or by telephone. Please allow at least seven days prior to the record date
for the Fund to process the new option.
HOW TAXATION AFFECTS YOU AND THE FUND
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The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For additional information on tax matters
relating to the Fund and its shareholders, see "Additional Information Regarding
Taxation" in the SAI.
The Fund intends to continue to qualify as a regulated investment company under
Subchapter M of the Code. By distributing all of its income and meeting certain
other requirements relating to the sources of its income and diversification of
its assets, the Fund will not be liable for federal income or excise taxes.
Regular income dividends (which are generally distributed monthly) will be
determined from the Fund's net investment income, excluding any realized net
foreign currency gains and losses. Under U.S. Treasury regulations, net realized
foreign currency gains and losses are required to be reported as ordinary income
or loss to the Fund. Therefore, if in the course of a fiscal year, the Fund
realizes net foreign currency losses, the Fund may be required to reclassify all
or a portion of its income dividend distributions made during such fiscal year
as a return-of-capital for federal income tax purposes. Net foreign currency
gains, if any, will generally be distributed as a supplemental income dividend
once each year in December to reflect any net foreign currency gain realized by
the Fund as of October 31 for the current fiscal year, and may also reflect any
undistributed foreign currency gains for the prior fiscal year. You will be
informed of the tax status of all distributions shortly after the close of each
calendar year.
For federal income tax purposes, any income dividends which you receive from the
Fund, as well as any distributions derived from the excess of net short-term
capital gain over net long-term capital loss, are treated as ordinary income
whether you have elected to receive them in cash or in additional shares.
Distributions derived from the excess of net long-term capital gain over net
short-term capital loss are treated as long-term capital gain regardless of the
length of time you have owned Fund shares and regardless of whether such
distributions are received in cash or in additional shares.
Pursuant to the Code, certain distributions which are declared in October,
November or December but which, for operational reasons, may not be paid to you
until the following January, will be treated for tax purposes as if received by
you on December 31 of the calendar year in which they are declared.
Redemptions and exchanges of Fund shares are taxable events on which you may
realize a gain or loss. Any loss incurred on sale or exchange of the Fund's
shares, held for six months or less, will be treated as a long-term capital loss
to the extent of capital gain dividends received with respect to such shares.
The Fund's investments in options, futures contracts and forward contracts may
give rise to taxable income, gain or loss and will be subject to special tax
treatment under certain market-to-market and straddle rules, the effect of which
may be to accelerate income to the Fund, defer Fund losses and cause adjustments
in the holding periods of Fund securities. These rules could therefore affect
the amount, timing and character of distributions to shareholders. Certain
elections may be available to the Fund to mitigate some of the unfavorable
consequences of the provisions described in this paragraph. These investments
and transactions are discussed in the SAI.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currencies, foreign currency payables or
receivables, foreign currency-denominated debt securities, foreign currency
forward contracts, and options or futures contracts on foreign currencies are
subject to special tax rules that may cause gains and losses to be treated as
ordinary income and losses rather than capital gains and losses and may affect
the amount and timing of the Fund's income or loss from such transactions and in
turn its distributions to shareholders. These rules are discussed in the SAI.
The Fund will inform you of the source of your dividends and distributions at
the time they are paid and will, promptly after the close of each calendar year,
advise you of the tax status for federal income tax purposes of such dividends
and distributions.
If you are not a U.S. person for purposes of federal income taxation, you should
consult with your financial or tax advisors regarding the applicability of U.S.
withholding or other taxes to distributions received by you from the Fund and
the application of foreign tax laws to these distributions.
HOW DO I BUY SHARES?
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You may buy shares to open a Fund account with as little as $100 and make
additional investments at any time with as little as $25. These minimums may be
waived when shares are purchased by retirement plans. To open your account,
contact your investment representative or complete and sign the enclosed
Shareholder Application and return it to the Fund with your check.
PURCHASE PRICE OF FUND SHARES
You may buy shares at the public offering price, unless you qualify to purchase
shares at a discount or without a sales charge as discussed below. The offering
price will be calculated to two decimal places using standard rounding criteria.
QUANTITY DISCOUNTS IN SALES CHARGES
The sales charge you pay when you buy shares may be reduced based upon the size
of your purchase, as shown in the table below.
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Total Sales Charge
As a Percentage of
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Amount Allowed to
Size of Transaction Net Amount Dealer as a Percentage
at Offering Price Offering Price Invested of Offering Price*
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Less than $50,000................. 3.00% 3.09% 2.60%
$50,000 but less than $100,000.... 2.50% 2.56% 2.25%
$100,000 but less than $250,000... 2.00% 2.04% 1.85%
$250,000 but less than $500,000... 1.50% 1.52% 1.40%
$500,000 but less than $750,000... 1.00% 1.01% 1.00%
$750,000 but less than 1,000,000.. 0.75% 0.76% 0.75%
$1,000,000 or more................ None** None None***
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*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages indicated.
Distributors may at times reallow the entire sales charge to the securities
dealer. A securities dealer who receives 90% or more of the sales commission may
be deemed an underwriter under the Securities Act of 1933, as amended.
**A contingent deferred sales charge of 1% may be imposed on certain
redemptions of all or a part of an investment of $1 million or more. See "How
Do I Sell Shares? - Contingent Deferred Sales Charge."
***Please see "General - Other Payments to Securities Dealers" below for a
discussion of payments Distributors may make to securities dealers out of its
own resources.
Rights of Accumulation. To determine if you may pay a reduced sales charge, you
may add the cost or current value, whichever is higher, of your Class I and
Class II shares in other Franklin Templeton Funds, as well as those of your
spouse, children under the age of 21 and grandchildren under the age of 21, to
the amount of your current purchase. To receive the reduction, you or your
investment representative must notify Distributors that your investment
qualifies for a discount.
Letter of Intent. You may purchase shares at a reduced sales charge by
completing the Letter of Intent section of the Shareholder Application. A Letter
of Intent is a commitment by you to invest a specified dollar amount during a 13
month period. The amount you agree to invest determines the sales charge you
pay. You or your investment representative must inform us that the Letter is in
effect each time you purchase shares.
BY COMPLETING THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION, YOU
ACKNOWLEDGE AND AGREE TO THE FOLLOWING:
o You authorize Distributors to reserve five percent (5%) of the amount of the
total intended purchase in Fund shares registered in your name. o You grant
Distributors a security interest in these shares and appoint Distributors as
attorney-in-fact with full power of substitution to redeem any or all of these
reserved shares to pay any unpaid sales charge if you do not fulfill the terms
of the Letter. o We will include the reserved shares in the total shares you own
as reflected on your periodic statements. o You will receive dividend and
capital gain distributions on the reserved shares; we will pay or reinvest these
distributions as you direct. o Although you may exchange your shares, you may
not liquidate reserved shares until you complete the Letter or pay the higher
sales charge. o Our policy of reserving shares does not apply to certain benefit
plans described under "Purchases at Net Asset Value."
If you would like more information about the Letter of Intent privilege, please
see "How Do I Buy and Sell Shares? - Letter of Intent" in the SAI or call our
Shareholder Services Department.
Group Purchases. If you are a member of a qualified group, you may purchase Fund
shares at the reduced sales charge applicable to the group as a whole. The sales
charge is based on the combined dollar value of the group members' existing
investments, plus the amount of the current purchase. For example, if group
members previously invested and still hold $80,000 of Fund shares and invest
$25,000, the sales charge will be 2.0%.
We define a qualified group as one which (i) has been in existence for more than
six months, (ii) has a purpose other than acquiring Fund shares at a discount
and (iii) satisfies uniform criteria which enable Distributors to realize
economies of scale in its costs of distributing shares.
In addition, a qualified group must have more than 10 members, and be available
to arrange for meetings between our representatives and group members. It must
also agree to include sales and other materials related to the Franklin
Templeton Funds in publications and mailings to its members at reduced or no
cost to Distributors, and arrange for payroll deduction or other bulk
transmission of investments to the Fund.
If you select a payroll deduction plan, your investments will continue
automatically until you notify the Fund and your employer to discontinue further
investments. Due to the varying procedures used by employers to handle payroll
deductions, there may be a delay between the time of the payroll deduction and
the time the money reaches the Fund. We invest your purchase at the applicable
offering price per share determined on the day that the Fund receives both the
check and the payroll deduction data in required form.
PURCHASES AT NET ASSET VALUE
You may invest money from the following sources in shares of the Fund without
paying front-end or contingent deferred sales charges:
(i) a distribution that you have received from a Franklin Templeton Fund or a
real estate investment trust ("REIT") sponsored or advised by Franklin
Properties, Inc., if the distribution is returned within 365 days of its payment
date. You may reinvest Class II distributions in either Class I or Class II
shares, but Class I distributions may only be invested in Class I shares under
this privilege. For more information, see "Distribution Options" under "What
Distributions Might I Receive from the Fund?" or call Shareholder Services at
1-800/632-2301; or (ii) a redemption from a mutual fund with investment
objectives similar to those of the Fund, if (a) your investment in that fund was
subject to either a front-end or contingent deferred sales charge at the time of
purchase, (b) the fund is not part of the Franklin Templeton Funds, and (c) your
redemption occurred within the past 60 days; (iii) a distribution from an
existing retirement plan already invested in the Franklin Templeton Funds
(including the Franklin Templeton Profit Sharing 401(k) plan), up to the total
amount of the distribution. The distribution must be returned to the Fund within
365 days of the distribution date; or
(iv) a redemption from Templeton Institutional Funds, Inc., if you then reinvest
the redemption proceeds under an employee benefit plan qualified under Section
401 of the Code, in shares of the Fund.
You may also reinvest the proceeds from a redemption of any of the Franklin
Templeton Funds at net asset value. To do so, you must (a) have paid a sales
charge on the purchase or sale of the original shares, (b) reinvest the
redemption money in the same class of shares, and (c) request the reinvestment
of the money within 365 days of the redemption date. You may reinvest up to the
total amount of the redemption proceeds under this privilege. If a different
class of shares is purchased, the full front-end sales charge must be paid at
the time of purchase of the new shares. While you will receive credit for any
contingent deferred sales charge paid on the shares redeemed, a new contingency
period will begin. Shares that were no longer subject to a contingent deferred
sales charge will be reinvested at net asset value and will not be subject to a
new contingent deferred sales charge. Shares exchanged into other Franklin
Templeton Funds are not considered "redeemed" for this privilege (see "What If
My Investment Outlook Changes? - Exchange Privilege").
If you immediately reinvested your redemption proceeds in a Franklin Bank
Certificate of Deposit ("CD") but you would like to reinvest them back into the
Franklin Templeton Funds as described above, you will have 365 days from the
date the CD (including any rollover) matures to do so.
If your securities dealer or another financial institution reinvests your money
in the Fund at net asset value for you, that person or institution may charge
you a fee for this service.
A redemption is a taxable transaction, but reinvestment without a sales charge
may affect the amount of gain or loss you recognize and the tax basis of the
shares reinvested. If you have a loss on the redemption, the loss may be
disallowed if you reinvest in the same fund within a 30-day period. If you would
like more information regarding the possible tax consequences of such a
reinvestment, please see the tax section of this Prospectus and the SAI.
Certain categories of investors also qualify to purchase shares of the Fund at
net asset value regardless of the source of the investment proceeds. If you or
your account is included in one of the categories below, none of the shares of
the Fund you purchase will be subject to front-end or contingent deferred sales
charges:
(i) companies exchanging shares or selling assets pursuant to a merger,
acquisition or exchange offer;
(ii) accounts managed by the Franklin Templeton Group;
(iii) certain unit investment trusts and unit holders of these trusts
reinvesting distributions from the trusts in the Fund;
(iv) registered securities dealers and their affiliates, for their investment
accounts only;
(v) current employees of securities dealers and their affiliates and their
family members, in accordance with the internal policies and procedures of the
employing securities dealer and affiliate;
(vi) broker-dealers who have entered into a supplemental agreement with
Distributors, or registered investment advisors affiliated with such
broker-dealers, on behalf of their clients who are participating in a
comprehensive fee program (sometimes known as a wrap fee program);
(vii) any state, county, or city, or any instrumentality, department, authority
or agency thereof which has determined that the Fund is a legally permissible
investment and which is prohibited by applicable investment laws from paying a
sales charge or commission in connection with the purchase of shares of any
registered management investment company ("an eligible governmental authority").
IF YOU ARE SUCH AN INVESTOR, PLEASE CONSULT YOUR OWN LEGAL ADVISORS TO DETERMINE
WHETHER AND TO WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any, of
various payments made by the Fund or the Manager on arbitrage rebate
calculations. If you are a securities dealer who has executed a dealer agreement
with Distributors and, through your services, an eligible governmental authority
invests in the Fund at net asset value, Distributors or one of its affiliates
may make a payment, out of its own resources, to you in an amount not to exceed
0.25% of the amount invested. Please contact the Franklin Templeton
Institutional Services Department for additional information;
(viii) officers, trustees, directors and full-time employees of the Franklin
Templeton Funds, or of the Franklin Templeton Group, and their family members.
Although you may pay sales charges on investments in accounts opened after your
association with us has ended, you may continue to invest in accounts opened
while you were with us without paying sales charges;
(ix) trust companies and bank trust departments that exercise exclusive
discretionary investment authority over funds held in a fiduciary, agency,
advisory, custodial or similar capacity and agree to invest at least $1 million
in Franklin Templeton Funds over a 13-month period. We will accept orders for
such accounts by mail accompanied by a check or by telephone or other means of
electronic data transfer directly from the bank or trust company, with payment
by federal funds received by the close of business on the next business day
following such order;
(x) group annuity separate accounts offered to retirement plans;
(xi) trustees or other fiduciaries purchasing securities for certain retirement
plans of organizations with collective retirement plan assets of $1 million or
more, without regard to where such assets are currently invested; or
(xii) Designated Retirement Plans. Non-Designated Retirement Plans may also
qualify to purchase shares of the Fund under this privilege if they meet the
requirements for Designated Retirement Plans and those described under "Group
Purchases," above.
(xiii) registered investment advisors buying on behalf of a client, provided
that the registered investment advisor has a pre-existing investment advisory
relationship with the investor under which the investor compensates the
registered investment advisor through payment of an investment advisory fee and
the qualifying investment in that Fund is made within the context of that
investment advisory relationship. Shares acquired pursuant to this provision are
not eligible for exchange at net asset value into another of the Franklin
Templeton Funds.
If you qualify to buy shares at net asset value as discussed in this section,
please specify in writing the privilege that applies to your purchase and
include that written statement with your purchase order. We will not be
responsible for purchases that are not made at net asset value if this written
statement is not included with your order.
If you would like more information, please see "How Do I Buy and Sell Shares?"
in the SAI.
PURCHASING WITH GERMAN MARKS
If you have other German mark-denominated assets, you may wish to purchase Fund
shares with German marks in order to avoid the cost and inconvenience of first
converting your German marks into U.S. dollars. If you wish to purchase Fund
shares with German marks normally must add to an existing Fund account. The
minimum required Fund purchase that may be made in this manner is 10,000 German
marks. New accounts may not be opened in this manner without the prior consent
of Distributors. Investments in the Fund may not be made in currencies other
than the U.S. dollar or the German mark without the prior consent of
Distributors.
Provided that Distributors receives timely notice as described below, Fund
shares will be purchased at the public offering price in U.S. dollars next
determined after the Fund custodian's correspondent bank in Germany receives the
German marks, using the same exchange rate used to convert the value of the
Fund's German mark-denominated assets into U.S. dollars for portfolio valuation
purposes.
The Fund does not charge a fee for receiving investments in this manner. Your
bank, however, may impose wire and other fees.
To invest in the Fund with German marks, please follow the directions below:
1. Notify Distributors by phone at 1-800/632-2301 (or 1-415/312-3400) or by fax
at 1-415/312-4175 by 1:00 p.m., Eastern time, at least two business days prior
to the date on which funds are to be wired, that a purchase will be made with
German marks. Alternatively, Distributors may be notified after 1:00 p.m.,
Eastern time, at least three business days prior to the date on which funds are
to be wired. The following information must be included in the notice:
Date of Wire (Value Date) Amount of Wire (in German marks) Name of Bank
Wiring Funds Shareholder Name Shareholder Account Number Wire Control Number
(to be assigned each time)
2. At least two/three business days after notifying Distributors of your intent
to purchase Fund shares with German marks, you should request the bank to
transmit, for value, immediately available funds (German marks) to:
Bank......... Chase Bank A.G.
Alexanderstrasse 59
Postfach 90-01-09 6000
Frankfurt/Main 90
Frankfurt-Rodelheim
Germany
Account...... Chase Manhattan Bank,
London
623 120 0079
Further Credit for Franklin Templeton
German Government
Bond Fund
HOW DO I BUY SHARES IN CONNECTION
WITH TAX-DEFERRED RETIREMENT PLANS?
Your individual or employer-sponsored tax-deferred retirement plans may invest
in the Fund. You may use the Fund for an existing retirement plan, or, because
Trust Company can serve as custodian or trustee for retirement plans, you may
ask Trust Company to provide the plan documents and serve as custodian or
trustee. A plan document must be adopted in order for a retirement plan to be in
existence. Brochures for Trust Company plans contain important information
regarding eligibility, contribution and deferral limits and distribution
requirements. Please note that you must use an application other than the one
contained in this Prospectus to establish a retirement plan account with Trust
Company. To obtain a retirement plan brochure or application, please call
1-800/DIAL BEN (1-800/342-5236).
Please see "How Do I Sell Shares?" for information regarding redemptions from
retirement plan accounts. You must complete specific forms in order to receive
distributions from Trust Company retirement plans.
Individuals and plan sponsors should consult with legal, tax or benefits and
pension plan consultants before choosing a retirement plan. In addition, if you
are a retirement plan investor, you should consider consulting your investment
representatives or advisors about investment decisions within your plans.
General
The Fund continuously offers its shares through securities dealers who have an
agreement with Distributors. The Fund and Distributors may refuse any order for
the purchase of shares.
Securities laws of states in which the Fund offers its shares may differ from
federal law. Banks and financial institutions that sell shares of the Fund may
be required to register as securities dealers pursuant to state law.
Other Payments to Securities Dealers. Distributors will pay the following
commissions, out of its own resources, to securities dealers who initiate and
are responsible for purchases of $1 million or more: 0.75% on sales of $1
million but less than $2 million, plus 0.60% on sales of $2 million but less
than $3 million, plus 0.50% on sales of $3 million but less than $50 million,
plus 0.25% on sales of $50 million but less than $100 million, plus 0.15% on
sales of $100 million or more. These breakpoints are reset every 12 months for
purposes of additional purchases.
Distributors or one of its affiliates may also pay up to 1% of the purchase
price to securities dealers who initiate and are responsible for purchases made
at net asset value by any of the entities described in paragraphs (ix) , (xi) or
(xii) under "Purchases at Net Asset Value" above and up to 0.75% of the purchase
price to securities dealers who initiate and are responsible for purchases made
at net asset value by Non-Designated Retirement Plans. These payments may not be
made to securities dealers or others in connection with the sale of Fund shares
if the payments might be used to offset administration or recordkeeping costs
for retirement plans or circumstances suggest that plan sponsors or
administrators might use or otherwise allow the use of Rule 12b-1 fees to offset
such costs. Please see "How Do I Buy and Sell Shares?" in the SAI for the
breakpoints applicable to these purchases.
Either Distributors or one of its affiliates, out of its own resources, may also
provide additional compensation to securities dealers in connection with the
sale of shares of the Franklin Templeton Funds. In some cases, this compensation
may be available only to securities dealers whose representatives have sold or
are expected to sell significant amounts of shares of the Franklin Templeton
Funds. Compensation may include financial assistance and payments made in
connection with conferences, sales or training programs for employees of the
securities dealer, seminars for the public, advertising, sales campaigns and/or
shareholder services, programs regarding one or more of the Franklin Templeton
Funds and other programs or events sponsored by securities dealers, and payment
for travel expenses of invited registered representatives and their families,
including lodging, in connection with business meetings or seminars located
within or outside the U.S. Securities dealers may not use sales of the Fund's
shares to qualify for this compensation if prohibited by the laws of any state
or self-regulatory agency, such as the National Association of Securities
Dealers, Inc. None of this compensation is paid for by the Fund or its
shareholders.
For additional information about shares of the Fund, please see "How Do I Buy
and Sell Shares?" in the SAI. The SAI also includes a listing of the officers
and trustees of the Fund who are affiliated with Distributors. See "Officers
and Trustees."
WHAT PROGRAMS AND PRIVILEGES ARE AVAILABLE TO ME AS A SHAREHOLDER?
CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT BE
AVAILABLE DIRECTLY FROM THE FUND IF YOUR SHARES ARE HELD, OF RECORD, BY A
FINANCIAL INSTITUTION OR IN A "STREET NAME" ACCOUNT OR NETWORKED ACCOUNT THROUGH
THE NATIONAL SECURITIES CLEARING CORPORATION ("NSCC") (SEE "REGISTERING YOUR
ACCOUNT" IN THIS PROSPECTUS).
SHARE CERTIFICATES
Shares from an initial investment, as well as subsequent investments, including
the reinvestment of dividends and capital gain distributions, are generally
credited to an account in the name of an investor on the books of the Fund,
without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss or
theft of a share certificate. A lost, stolen or destroyed certificate cannot be
replaced without obtaining a sufficient indemnity bond. The cost of such a bond,
which is generally borne by you, can be 2% or more of the value of the lost,
stolen or destroyed certificate. A certificate will be issued if requested by
you or your securities dealer.
CONFIRMATIONS
A confirmation statement will be sent to you quarterly to reflect the dividends
reinvested during the period and after each other transaction which affects your
account. This statement will also show the total number of shares you own,
including the number of shares in "plan balance" for your account.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan offers a convenient way to invest in the Fund.
Under the plan, you can arrange to 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 Automatic Investment Plan
Application at the back of this Prospectus for the requirements of the program
or contact your investment representative. Of course, 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 terminate the program at
any time by notifying Investor Services by mail or by phone.
SYSTEMATIC WITHDRAWAL PLAN
The Systematic Withdrawal Plan allows you to receive regular payments from your
account on a monthly, quarterly, semiannual or annual basis. To establish a
Systematic Withdrawal Plan, the value of your account must be at least $5,000
and the minimum payment amount for each withdrawal must be at least $50. Please
keep in mind that $50 is merely the minimum amount and is not a recommended
amount. 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 receive your payments in any of the following ways:
1. Purchase shares of other Franklin Templeton Funds - You may direct your
payments to purchase the same class of shares of another Franklin Templeton
Fund.
2. Receive payments in cash - You may choose to receive your payments in cash.
You may have the money sent directly to you, to another person, or to a checking
account. If you choose to have the money sent to a checking account, please see
"Electronic Fund Transfers" below.
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 first business day of the month in which a payment is
scheduled. You will generally receive your payments within three to five days
after the shares are redeemed.
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.
Redemptions under a Systematic Withdrawal Plan are considered a sale for federal
income tax purposes. 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.
While a Systematic Withdrawal Plan is in effect, shares must be held either in
plan balance or, where share certificates are outstanding, deposited with the
Fund. You should ordinarily not make additional investments in the Fund of less
than $5,000 or three times the amount of annual withdrawals under the plan
because of the sales charge on additional purchases. Shares redeemed under the
plan may also be subject to a contingent deferred sales charge. Please see
"Contingent Deferred Sales Charge" under "How Do I Sell Shares?"
You may terminate a Systematic Withdrawal Plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying Investor Services in
writing at least seven business days prior to the end of the month preceding a
scheduled payment. The Fund may also terminate a Systematic Withdrawal Plan by
notifying you in writing and will automatically terminate 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.
ELECTRONIC FUND TRANSFERS
You may choose to have distributions from the Fund or payments under a
Systematic Withdrawal Plan sent directly to a checking account. If the checking
account is maintained at a bank that is a member of the Automated Clearing
House, the payments may be made automatically by electronic funds transfer. If
you choose this option, please allow at least fifteen days for initial
processing. Any payments made during that time will be sent to the address of
record on your account.
INSTITUTIONAL ACCOUNTS
There may be additional methods of buying, selling or exchanging shares of
the Fund available to institutional accounts. For further information,
contact the Franklin Templeton Institutional Services Department at
1-800/321-8563.
WHAT IF MY INVESTMENT OUTLOOK CHANGES? - EXCHANGE PRIVILEGE
The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives and policies. The shares of most of these funds are
offered to the public with a sales charge. If your investment objective or
outlook for the securities markets changes, Fund shares may be exchanged for the
same class of shares of another Franklin Templeton Fund eligible for sale in
your state of residence and in conformity with that fund's stated eligibility
requirements and investment minimums.
No exchanges between different classes of shares will be allowed. You may choose
to sell your shares of the Fund and buy Class II shares of another Franklin
Templeton Fund but such purchase will be subject to that fund's Class II
front-end and contingent deferred sales charges.
Although there are no exchanges between different classes of shares, Class II
shareholders of a Franklin Templeton Fund may elect to direct their dividends
and capital gain distributions to the Fund at net asset value.
A contingent deferred sales charge will not be imposed on exchanges. If,
however, the exchanged shares were subject to a contingent deferred sales charge
in the original fund purchased and shares are subsequently redeemed within the
contingency period, a contingent deferred sales charge will be imposed.
Before making an exchange, you should review the prospectus of the fund you wish
to exchange from and the fund you wish to exchange into for all specific
requirements or limitations on exercising the exchange privilege, for example,
limitations on a fund's sale of its shares, minimum holding periods for
exchanges at net asset value, or applicable sales charges.
You may exchange shares in any of the following ways:
BY MAIL
Send written instructions signed by all account owners and accompanied by any
outstanding share certificates properly endorsed. The transaction will be
effective upon receipt of the written instructions together with any outstanding
share certificates.
BY TELEPHONE
YOU OR YOUR INVESTMENT REPRESENTATIVE OF RECORD, IF ANY, MAY EXCHANGE SHARES OF
THE FUND BY CALLING INVESTOR SERVICES AT 1-800/632-2301 OR THE AUTOMATED
TELEFACTS(R) SYSTEM (DAY OR NIGHT) AT 1-800/247-1753. IF YOU DO NOT WISH THIS
PRIVILEGE EXTENDED TO A PARTICULAR ACCOUNT, YOU SHOULD NOTIFY THE FUND OR
INVESTOR SERVICES.
The telephone exchange privilege allows you to effect exchanges from the Fund
into an identically registered account of the same class of shares in one of the
other available Franklin Templeton Funds. The telephone exchange privilege is
available only for uncertificated shares or those which have previously been
deposited in your account. The Fund and Investor Services will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Please see "Telephone Transactions - Verification Procedures."
During periods of drastic economic or market changes, it is possible that the
telephone exchange privilege may be difficult to implement and the TeleFACTS
option may not be available. In this event, you should follow the other exchange
procedures discussed in this section, including the procedures for processing
exchanges through securities dealers.
THROUGH SECURITIES DEALERS
As is the case with all purchases and redemptions of the Fund's shares, Investor
Services will accept exchange orders from securities dealers who execute a
dealer or similar agreement with Distributors. See also "By Telephone" above.
Such a dealer-ordered exchange will be effective only for uncertificated shares
on deposit in your account or for which certificates have previously been
deposited. A securities dealer may charge a fee for handling an exchange.
ADDITIONAL INFORMATION REGARDING EXCHANGES
Exchanges are made on the basis of the net asset value of the funds involved,
except as set forth below. Exchanges of shares of the Fund which were purchased
without a sales charge will be charged a sales charge in accordance with the
terms of the prospectus of the fund being purchased, unless the original
investment in the Franklin Templeton Funds was made pursuant to the privilege
permitting purchases at net asset value, as discussed under "How Do I Buy
Shares?" Exchanges of shares of the Fund which were purchased with a lower sales
charge into a fund which has a higher sales charge will be charged the
difference, unless the shares were held in the Fund for at least six months
prior to executing the exchange.
The contingency period during which a contingent deferred sales charge may be
assessed will be tolled (or stopped) for the period shares are exchanged into
and held in a Franklin or Templeton money market fund. If your account has
shares subject to a contingent deferred sales charge, shares will be exchanged
into the new account on a "first-in, first-out" basis. See "How Do I Sell
Shares? - Contingent Deferred Sales Charge" for a discussion of investments
subject to a contingent deferred sales charge.
If you request the exchange of the total value of your account, declared but
unpaid income dividends and capital gain distributions will be transferred to
the fund being exchanged into and will be invested at net asset value. Because
the exchange is considered a redemption and purchase of shares, you may realize
a gain or loss for federal income tax purposes. Backup withholding and
information reporting may also apply. Information regarding the possible tax
consequences of such an exchange is included in the tax section in this
Prospectus and under "Additional Information Regarding Taxation" in the SAI.
If a substantial portion of the Fund's shareholders should, within a short
period, elect to redeem their shares of the Fund pursuant to the exchange
privilege, the Fund might have to liquidate portfolio securities it might
otherwise hold and incur the additional costs related to such transactions. On
the other hand, increased use of the exchange privilege may result in periodic
large inflows of money. If this should occur, it is the general policy of the
Fund to initially invest this money in short-term, interest-bearing money market
instruments, unless it is felt that attractive investment opportunities
consistent with the Fund's investment objectives exist immediately.
Subsequently, this money will be withdrawn from such short-term money market
instruments and invested in portfolio securities in as orderly a manner as is
possible when attractive investment opportunities arise.
The exchange privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.
RETIREMENT PLAN ACCOUNTS
Franklin Templeton IRA and 403(b) retirement plan accounts may exchange
shares directly. Certain restrictions may apply, however, to other types of
retirement plans. See "Restricted Accounts" under "Telephone Transactions."
MARKET TIMERS
Market Timers will be charged a $5.00 administrative service fee for each
exchange. All other exchanges are without charge.
RESTRICTIONS ON EXCHANGES
In accordance with the terms of their respective prospectuses, certain funds do
not accept or may place differing limitations than those below on exchanges by
Market Timers.
The Fund reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Market Timer, group or
person whose transactions seem to follow a timing pattern who: (i) makes an
exchange request out of the Fund within two weeks of an earlier exchange request
out of the Fund, (ii) makes more than two exchanges out of the Fund per calendar
quarter, or (iii) exchanges shares equal in value to at least $5 million, or
more than 1% of the Fund's net assets. Accounts under common ownership or
control, including accounts administered by Market Timers, will be aggregated
for purposes of the exchange limits.
The Fund also reserves the right to refuse the purchase side of an exchange
request by any Market Timer, person, or group if, in the Manager's judgment, the
Fund would be unable to invest effectively in accordance with its investment
objectives and policies, or would otherwise potentially be adversely affected.
The purchase side of an exchange may be restricted or refused if the Fund
receives or anticipates simultaneous orders affecting significant portions of
the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to the Fund and therefore may be
refused.
The Fund and Distributors, as indicated in "How Do I Buy Shares?", reserve the
right to refuse any order for the purchase of shares.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time and receive from the Fund the
value of the shares. You may sell shares in any of the following ways:
BY MAIL
Send a written request, signed by all registered owners to Investor Services, at
the address shown on the back cover of this Prospectus, and any share
certificates which have been issued for the shares being redeemed, properly
endorsed and in order for transfer. You will then receive from the Fund the
value of the shares redeemed based upon the net asset value per share (less a
contingent deferred sales charge, if applicable) next computed after the written
request in proper form is received by Investor Services. Redemption requests
received after the time at which the net asset value is calculated will receive
the price calculated on the following business day. The net asset value per
share is determined as of the scheduled close of the Exchange (generally 1:00
p.m. Pacific time) each day that the Exchange is open for trading. You are
requested to provide a telephone number where you may be reached during business
hours, or in the evening if preferred. Investor Services' ability to contact you
promptly when necessary will speed the processing of the redemption.
TO BE CONSIDERED IN PROPER FORM, SIGNATURES MUST BE GUARANTEED IF THE REDEMPTION
REQUEST INVOLVES ANY OF THE FOLLOWING:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other than the
registered owners of the account;
(3) the proceeds (in any amount) are to be sent to any address other than the
address of record, preauthorized bank account or brokerage firm account;
(4) share certificates, if the redemption proceeds are in excess of $50,000;
or
(5) the Fund or Investor Services believes that a signature guarantee would
protect against potential claims based on the transfer instructions, including,
for example, when (a) the current address of one or more joint owners of an
account cannot be confirmed, (b) multiple owners have a dispute or give
inconsistent instructions to the Fund, (c) the Fund has been notified of an
adverse claim, (d) the instructions received by the Fund are given by an agent,
not the actual registered owner, (e) the Fund determines that joint owners who
are married to each other are separated or may be the subject of divorce
proceedings, or (f) the authority of a representative of a corporation,
partnership, association, or other entity has not been established to the
satisfaction of the Fund.
Signatures must be guaranteed by an "eligible guarantor institution" as defined
under Rule 17Ad-15 under the Securities Exchange Act of 1934. Generally,
eligible guarantor institutions include (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities exchanges,
registered securities associations and clearing agencies; (3) securities dealers
that are members of a national securities exchange or a clearing agency or that
have minimum net capital of $100,000; or (4) institutions that participate in
the Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature guarantee medallion program. A notarized signature will not be
sufficient for the request to be in proper form.
When shares to be redeemed are represented by share certificates, the request
for redemption must be accompanied by the share certificate and a share
assignment form signed by the registered owners exactly as the account is
registered, with the signatures guaranteed as referenced above. You are advised,
for your protection, to send the share certificate and assignment form in
separate envelopes if they are being mailed in for redemption.
Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction require the following
documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from the authorized
officers of the corporation and (2) a corporate resolution.
Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent pages from the partnership agreement identifying the
general partners or a certification for a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the trustees and (2)
a copy of the pertinent pages of the trust document listing the trustees or a
Certification for Trust if the trustees are not listed on the account
registration.
Custodial (other than a retirement account) - Signature guaranteed letter of
instruction from the custodian.
Accounts under court jurisdiction - Check court documents and the applicable
state law since these accounts have varying requirements, depending upon the
state of residence.
Payment for redeemed shares will be sent to you within seven days after receipt
of the request in proper form.
BY TELEPHONE
If you complete the Franklin Templeton Telephone Redemption Authorization
Agreement (the "Agreement"), included with this Prospectus, you may redeem
shares of the Fund by telephone, subject to the Restricted Account exception
noted under "Telephone Transactions - Restricted Accounts." You may obtain
additional information about telephone redemptions by writing to the Fund or
Investor Services at the address shown on the cover or by calling
1-800/632-2301. The Fund and Investor Services will employ reasonable procedures
to confirm that instructions given by telephone are genuine. You, however, bear
the risk of loss in certain cases as described under "Telephone Transactions -
Verification Procedures."
If your account has a completed Agreement on file, redemptions of uncertificated
shares or shares which have previously been deposited with the Fund or Investor
Services may be made for up to $50,000 per day per Fund account. Telephone
redemption requests received before the scheduled close of the Exchange
(generally 1:00 p.m. Pacific time) on any business day will be processed that
same day. The redemption check will be sent within seven days, made payable to
all the registered owners on the account, and will be sent only to the address
of record.
Redemption requests by telephone will not be accepted within 30 days following
an address change by telephone. In that case, you should follow the other
redemption procedures set forth in this Prospectus. Institutional accounts
(certain corporations, bank trust departments, qualified retirement plans and
government entities that qualify to purchase shares at net asset value pursuant
to the terms of this Prospectus) that wish to execute redemptions in excess of
$50,000 must complete an Institutional Telephone Privileges Agreement which is
available from the Franklin Templeton Institutional Services Department by
calling 1-800/321-8563.
THROUGH SECURITIES DEALERS
The Fund will accept redemption orders from securities dealers who have entered
into an agreement with Distributors. This is known as a repurchase. The only
difference between a normal redemption and a repurchase is that if you redeem
shares through a dealer, the redemption price will be the net asset value next
calculated after your dealer receives the order which is promptly transmitted to
the Fund, rather than on the day the Fund receives your written request in
proper form. The documents described under " By Mail" above, as well as a signed
letter of instruction, are required regardless of whether you redeem shares
directly or submit such shares to a securities dealer for repurchase. Your
letter should reference the Fund, the account number, the fact that the
repurchase was ordered by a dealer and the dealer's name. Details of the
dealer-ordered trade, such as trade date, confirmation number, and the amount of
shares or dollars, will help speed processing of the redemption. The seven-day
period within which the proceeds of your redemption will be sent will begin when
the Fund receives all documents required to complete ("settle") the repurchase
in proper form. The redemption proceeds will not earn dividends or interest
during the time between receipt of the dealer's repurchase order and the date
the redemption is processed upon receipt of all documents necessary to settle
the repurchase. Thus, it is in your best interest to have the required
documentation completed and forwarded to the Fund as soon as possible. Your
dealer may charge a fee for handling the order. See "How Do I Buy and Sell
Shares?" in the SAI for more information on the redemption of shares.
CONTINGENT DEFERRED SALES CHARGE
In order to recover commissions paid to securities dealers, all or a portion of
investments of $1 million or more redeemed within the contingency period of 12
months of the calendar month of such investment will be assessed a contingent
deferred sales charge, unless one of the exceptions described below applies. The
charge is 1% of the lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the net asset value at
the time of purchase of such shares, and is retained by Distributors. The
contingent deferred sales charge is waived in certain instances.
In determining whether a contingent deferred sales charge applies, shares not
subject to a contingent deferred sales charge are deemed to be redeemed first,
in the following order: (i) a calculated number of shares representing amounts
attributable to capital appreciation on shares held less than the contingency
period; (ii) shares purchased with reinvested dividends and capital gain
distributions; and (iii) other shares held longer than the contingency period.
Shares subject to a contingent deferred sales charge will then be redeemed on a
"first-in, first-out" basis. For tax purposes, a contingent deferred sales
charge is treated as either a reduction in redemption proceeds or an adjustment
to the cost basis of the shares redeemed.
The contingent deferred sales charge is waived, as applicable, for: specified
net asset value purchases discussed under "How Do I Buy Shares? - Purchases at
Net Asset Value"; exchanges; any account fees; distributions from an individual
retirement plan account due to death or disability or upon periodic
distributions based on life expectancy; tax-free returns of excess contributions
from employee benefit plans; distributions from employee benefit plans,
including those due to termination or plan transfer; redemptions initiated by
the Fund due to an account falling below the minimum specified account size;
redemptions following the death of the shareholder or beneficial owner; and
redemptions through a Systematic Withdrawal Plan set up for shares prior to
February 1, 1995, and for Systematic Withdrawal Plans set up thereafter,
redemptions of up to 1% monthly of an account's net asset value (3% quarterly,
6% semiannually or 12% annually). For example, if an account maintained an
annual balance of $1,000,000, only $120,000 could be withdrawn through a
once-yearly Systematic Withdrawal Plan free of charge. Any amount over that
$120,000 would be assessed a 1% contingent deferred sales charge.
All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that month
and each subsequent month.
Unless otherwise specified, requests for redemptions of a specified dollar
amount will result in additional shares being redeemed to cover any applicable
contingent deferred sales charge, while requests for redemption of a specific
number of shares will result in the applicable contingent deferred sales charge
being deducted from the total dollar amount redeemed.
RECEIVING REDEMPTION PROCEEDS IN GERMAN MARKS
You may elect to have the proceeds of a redemption of Fund shares paid to you in
German marks. To use this service, you must first complete and return a Foreign
Currency Redemption Authorization Form. To request this form, please call
Distributors at 1-800/632-2301 (or 1-415/312-3400) or fax your request to
1-415/312-4175. As explained more fully in the instructions accompanying the
form, you must have established a German mark-denominated bank account before
using this service. Redemption proceeds paid in German marks will be calculated
using the net asset value per share and the U.S. dollar-German mark exchange
rate next determined after receipt of the redemption request in proper form.
To receive redemption proceeds in German marks, you must redeem shares valued at
a minimum of $5,000.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
The Fund may delay the mailing of the redemption check, or a portion thereof,
until the clearance of the check used to purchase Fund shares, which may take up
to 15 days or more. Although the use of a certified or cashier's check will
generally reduce this delay, shares purchased with these checks will also be
held pending clearance. Shares purchased by federal funds wire are available for
immediate redemption.
The right of redemption may be suspended or the date of payment postponed if the
Exchange is closed (other than customary closing) or upon the determination of
the SEC that trading on the Exchange is restricted or an emergency exists, or if
the SEC permits it, by order, for the protection of shareholders. Of course, the
amount received may be more or less than the amount you invested, depending on
fluctuations in the market value of securities owned by the Fund.
RETIREMENT PLAN ACCOUNTS
Retirement plan account liquidations require the completion of certain
additional forms to ensure compliance with IRS regulations. To liquidate a
retirement plan account, you or your securities dealer may call Franklin's
Retirement Plans Department to obtain the necessary forms.
Tax penalties will generally apply to any distribution from such plans to a
participant under age 591/2, unless the distribution meets one of the exceptions
set forth in the Code.
OTHER INFORMATION
Distribution or redemption checks sent to you do not earn interest or any other
income during the time such checks remain uncashed and neither the Fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks.
"Cash" payments to or from the Fund may be made by check, draft or wire. The
Fund has no facility to receive, or pay out, cash in the form of currency.
For any information required about a proposed liquidation, a you may call
Franklin's Shareholder Services Department. Securities dealers may call
Franklin's Dealer Services Department.
TELEPHONE TRANSACTIONS
By calling Investor Services at 1-800/632-2301, you or your investment
representative of record, if any, may be able to execute various telephone
transactions, including to: (i) effect a change in address, (ii) change a
dividend option (see "Restricted Accounts" below), (iii) transfer Fund shares in
one account to another identically registered account in the Fund, (iv) request
the issuance of certificates (to be sent to the address of record only) and (v)
exchange Fund shares as described in this Prospectus by telephone. In addition,
if you complete and file an Agreement as described under "How Do I Sell Shares?
- - By Telephone" you will be able to redeem shares of the Fund.
VERIFICATION PROCEDURES
The Fund and Investor Services will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the purpose
of establishing the caller's identification, and sending a confirmation
statement on redemptions to the address of record each time account activity is
initiated by telephone. So long as the Fund and Investor Services follow
instructions communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their affiliates will be
liable for any loss to you caused by an unauthorized transaction. The Fund and
Investor Services may be liable for any losses due to unauthorized or fraudulent
instructions in the event such reasonable procedures are not followed. You are,
of course, under no obligation to apply for or accept telephone transaction
privileges. In any instance where the Fund or Investor Services is not
reasonably satisfied that instructions received by telephone are genuine, the
requested transaction will not be executed, and neither the Fund nor Investor
Services will be liable for any losses which may occur because of a delay in
implementing a transaction.
RESTRICTED ACCOUNTS
Telephone redemptions and dividend option changes may not be accepted on
Franklin Templeton retirement accounts. To assure compliance with all applicable
regulations, special forms are required for any redemption, distribution or
dividend payment changes. While the telephone exchange privilege is extended to
Franklin Templeton IRA and 403(b) retirement accounts, certain restrictions may
apply to other types of retirement plans.
To obtain further information regarding distribution or transfer procedures,
including any required forms, retirement account shareholders may call to speak
to a Retirement Plan Specialist at 1-800/527-2020.
GENERAL
During periods of drastic economic or market changes, it is possible that the
telephone transaction privilege will be difficult to execute because of heavy
telephone volume. In these situations, you may wish to contact your investment
representative for assistance or send written instructions to the Fund as
detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any losses resulting
from your inability to execute a telephone transaction.
HOW ARE FUND SHARES VALUED?
The net asset value per share of the Fund is determined as of the scheduled
close of the Exchange (generally 1:00 p.m. Pacific time) each day that the
Exchange is open for trading. Many newspapers carry daily quotations of the
prior trading day's closing "bid" (net asset value) and "ask" (offering price).
The net asset value per share of the Fund is determined by deducting the
aggregate gross value of all liabilities from the aggregate gross value of all
assets, and then dividing the difference by the number of shares outstanding.
Assets in the Fund's portfolio are valued as described under "How Are Fund
Shares Valued?" in the SAI.
HOW DO I GET MORE INFORMATION ABOUT MY INVESTMENT?
Any questions or communications regarding your account should be directed to
Investor Services at the address shown on the back cover of this Prospectus.
From a touch-tone phone, you may access TeleFACTS(R). By calling the TeleFACTS
system (day or night) at 1-800/247-1753, you may obtain account information,
current price and, if available, yield or other performance information specific
to the Fund or any Franklin Templeton Fund. In addition, you may process an
exchange, within the same class, into an identically registered Franklin account
and request duplicate confirmation or year-end statements and deposit slips.
The Fund code, which will be needed to access system information, is 210. The
system's automated operator will prompt you with easy to follow step-by-step
instructions from the main menu. Other features may be added in the future.
To assist you and securities dealers wishing to speak directly with a
representative, the following list of Franklin departments, telephone numbers
and hours of operation is provided.
Hours of Operation (Pacific Time)
Department Name Telephone No. (Monday through Friday)
- ------------------------------------------------------------------------------
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m. (Saturday)
Retirement Plans 1-800/527-2020 5:30 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
In order to ensure that the highest quality of service is being provided,
telephone calls placed to or by representatives in Franklin's service
departments may be accessed, recorded and monitored. These calls can be
determined by the presence of a regular beeping tone.
HOW DOES THE FUND MEASURE PERFORMANCE?
Advertisements, sales literature and communications to you may contain several
measures of the Fund's performance, including current yield, various expressions
of total return and current distribution rate. They may also occasionally cite
statistics to reflect the Fund's volatility or risk.
Average annual total return figures as prescribed by the SEC represent the
average annual percentage change in value of $1,000 invested at the maximum
public offering price for one-, five- and ten-year periods, or portion thereof,
to the extent applicable, through the end of the most recent calendar quarter,
assuming reinvestment of all distributions. The Fund may also furnish total
return quotations for other periods or based on investments at various sales
charge levels or at net asset value. For such purposes, total return equals the
total of all income and capital gain paid to shareholders, assuming reinvestment
of all distributions, plus (or minus) the change in the value of the original
investment, expressed as a percentage of the purchase price.
Current yield reflects the income per share earned by the Fund's portfolio
investments. It is calculated by dividing the Fund's net investment income per
share during a recent 30-day period by the maximum public offering price on the
last day of that period and annualizing the result.
Current yield for the Fund, which is calculated according to a formula
prescribed by the SEC (see "General Information" in the SAI), is not indicative
of the dividends or distributions which were or will be paid to the Fund's
shareholders. Dividends or distributions paid to shareholders of the Fund are
reflected in the current distribution rate, which may be quoted to you. The
current distribution rate is computed by dividing the total amount of dividends
per share paid by the Fund during the past 12 months by a current maximum
offering price. Under certain circumstances, such as when there has been a
change in the amount of dividend payout or a fundamental change in investment
policies, it might be appropriate to annualize the dividends paid during the
period such policies were in effect, rather than using the dividends during the
past 12 months. The current distribution rate differs from the current yield
computation because it may include distributions to shareholders from sources
other than dividends and interest, such as premium income from option writing
and short-term capital gain, and is calculated over a different period of time.
In each case, performance figures are based upon past performance, reflect all
recurring charges against Fund income and will assume the payment of the maximum
sales charge on the purchase of shares. When there has been a change in the
sales charge structure, the historical performance figures will be restated to
reflect the new rate. The investment results of the Fund, like all other
investment companies, will fluctuate over time; thus, performance figures should
not be considered to represent what an investment may earn in the future or what
the Fund's performance may be in any future period.
GENERAL INFORMATION
REPORTS TO SHAREHOLDERS
The Fund's fiscal year ends October 31. Annual Reports containing audited
financial statements of the Trust, including the auditors' report, and
Semi-Annual Reports containing unaudited financial statements are automatically
sent to shareholders. To reduce the volume of mail sent to each household, as
well as to reduce Fund expenses, Investor Services will attempt to identify
related shareholders within a household and send only one copy of the report.
Additional copies may be obtained, without charge, upon request to the Fund at
the telephone number or address set forth on the cover page of this Prospectus.
Additional information on Fund performance is included in the Trust's Annual
Report to Shareholders and under "General Information" in the SAI.
ORGANIZATION AND VOTING RIGHTS
The Agreement and Declaration of Trust permits the trustees to issue an
unlimited number of full and fractional shares of beneficial interest of $.01
par value, which may be issued in any number of series and classes. Shares
issued will have no preemptive, conversion or sinking rights. Shares of each
series have equal and exclusive rights as to dividends and distributions as
declared by such series and the net assets of such series upon liquidation or
dissolution. Additional series or classes may be added in the future by the
Board.
Voting rights are noncumulative, so that in any election of trustees, the
holders of more than 50% of the shares voting can elect all of the trustees, if
they choose to do so, and in such event the holders of the remaining shares
voting will not be able to elect any person or persons to the Board.
The Trust does not intend to hold annual shareholder meetings. The Trust may,
however, hold a special shareholders' meeting of a series for such purposes as
changing fundamental investment restrictions, approving a new management
agreement or any other matters which are required to be acted on by shareholders
under the 1940 Act. A meeting may also be called by the trustees in their
discretion or by shareholders holding at least ten percent of the outstanding
shares of the Trust. Shareholders will receive assistance in communicating with
other shareholders in connection with the election or removal of trustees such
as that provided in Section 16(c) of the 1940 Act.
REDEMPTIONS BY THE FUND
The Fund reserves the right to redeem your shares, at net asset value, if your
account has a value of less than $50, but only where the value of your account
has been reduced by the prior voluntary redemption of shares and has been
inactive (except for the reinvestment of distributions) for a period of at least
six months, provided you are given advance notice. For more information, see
"How Do I Buy and Sell Shares?" in the SAI.
REGISTERING YOUR ACCOUNT
An account registration should reflect your intentions as to ownership. Where
there are two co-owners on the account, the account will be registered as "Owner
1" and "Owner 2"; the "or" designation is not used except for money market fund
accounts. If co-owners wish to have the ability to redeem or convert on the
signature of only one owner, a limited power of attorney may be used.
Accounts should not be registered in the name of a minor, either as sole or
co-owner of the account. Transfer or redemption for such an account may require
court action to obtain release of the funds until the minor reaches the legal
age of majority. The account should be registered in the name of one "Adult" as
custodian for the benefit of the "Minor" under the Uniform Transfer or Gifts to
Minors Act.
A trust designation such as "trustee" or "in trust for" should only be used if
the account is being established pursuant to a legal, valid trust document. Use
of such a designation in the absence of a legal trust document may cause
difficulties and require court action for transfer or redemption of the funds.
Shares, whether in certificate form or not, registered as joint tenants or "Jt
Ten" shall mean "as joint tenants with rights of survivorship" and not "as
tenants in common."
Except as indicated, you may transfer an account in the Fund carried in "street"
or "nominee" name by your securities dealer to a comparably registered Fund
account maintained by another securities dealer. Both the delivering and
receiving securities dealers must have executed dealer agreements on file with
Distributors. Unless a dealer agreement has been executed and is on file with
Distributors, the Fund will not process the transfer and will so inform your
delivering securities dealer. To effect the transfer, you should instruct the
securities dealer to transfer the account to a receiving securities dealer and
sign any documents required by the securities dealers to evidence consent to the
transfer. Under current procedures, the account transfer may be processed by the
delivering securities dealer and the Fund after the Fund receives authorization
in proper form from your delivering securities dealer. Account transfers may be
effected electronically through the services of the NSCC.
The Fund may conclusively accept instructions from you or your nominee listed in
publicly available nominee lists, regardless of whether the account was
initially registered in the name of or by you, your nominee, or both. If a
securities dealer or other representative is of record on your account, you will
be deemed to have authorized the use of electronic instructions on the account,
including, without limitation, those initiated through the services of the NSCC,
to have adopted as instruction and signature any such electronic instructions
received by the Fund and Investor Services, and to have authorized them to
execute the instructions without further inquiry. At the present time, such
services which are available include the NSCC's "Networking," "Fund/SERV," and
"ACATS" systems.
Any questions regarding an intended registration should be answered by the
securities dealer handling the investment or by calling Franklin's Fund
Information Department.
IMPORTANT NOTICE REGARDING TAXPAYER IRS CERTIFICATIONS
Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the IRS any taxable dividend, capital gain distribution, or other
reportable payment (including share redemption proceeds) and withhold 31% of any
such payments made to individuals and other non-exempt shareholders who have not
provided a correct taxpayer identification number ("TIN") and made certain
required certifications that appear in the Shareholder Application. You may also
be subject to backup withholding if the IRS or a securities dealer notifies the
Fund that the number furnished by you is incorrect or that you are subject to
backup withholding for previous under-reporting of interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then-current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by you is in
fact incorrect or upon the failure of a shareholder who has completed an
"awaiting TIN" certification to provide the Fund with a certified TIN within 60
days after opening the account.
USEFUL TERMS AND DEFINITIONS
1940 Act - Investment Company Act of 1940, as amended.
Advisers - Franklin Advisers, Inc., the Fund's investment manager.
Board - The Board of Trustees of the Trust.
Business Manager - Templeton Global Investors, Inc.
Class I and Class II - "Classes" of shares represent proportionate interests in
the same portfolio of investment securities but with different rights,
privileges and attributes, as determined by the trustees. Certain funds in the
Franklin Templeton Funds currently offer their shares in two classes, designated
"Class I" and "Class II." Because the Fund's sales charge structure and plan of
distribution are similar to those of Class I shares, shares of the Fund may be
considered Class I shares for redemption, exchange and other purposes.
Code - Internal Revenue Code of 1986, as amended.
Designated Retirement Plans - certain retirement plans, including
profit-sharing, pension, 401(k) and simplified employee pension plans, that: (i)
are sponsored by an employer with at least 200 employees; (ii) have aggregate
plan assets of at least $1 million; or (iii) agree to invest at least $1 million
in any of the Franklin Templeton Funds over a 13-month period. Distributors
determines the qualifications for Designated Retirement Plans.
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter.
Exchange - New York Stock Exchange.
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.
Fund's Investment Managers - Franklin Advisers, Inc., the Fund's investment
manager, and Templeton Investment Counsel, Inc., the Fund's subadvisor.
Investor Services - Franklin/Templeton Investor Services, Inc.
Letter - Letter of Intent.
Manager - Franklin Advisers, Inc., the Fund's investment manager.
Net asset value (NAV) - the value of a mutual fund 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. When you buy, sell or exchange shares, we will use
the NAV per share next calculated after we receive your request in proper form.
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.
Non-Designated Retirement Plans - employee benefit plans not included as
"Designated Retirement Plans" and not qualified under Section 401 of the Code.
Offering price - The public offering price is equal to the net asset value per
share plus the applicable sales charge.
Proper Form (Purchases) - generally, the Fund must receive a completed
Shareholder Application accompanied by a negotiable check.
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information.
SEC - Securities and Exchange Commission.
Securities Dealer - financial institutions which, either directly or through
affiliates, have 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.
TeleFACTS(R) - Franklin Templeton's automated customer servicing system.
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.
TICI - Franklin Templeton Investment Counsel, Inc., the Fund's subadvisor.
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.
FRANKLIN TEMPLETON
INTERNATIONAL
CURRENCY FUNDS
Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income
Currency Fund
PROSPECTUS March 1, 1996
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
This Prospectus relates to the Franklin Templeton Global Currency Fund ("Global
Currency Fund"), the Franklin Templeton Hard Currency Fund (the "Hard Currency
Fund"), and the Franklin Templeton High Income Currency Fund (the "High Income
Fund") (individually or collectively the "Fund," "Funds" or the "Currency
Funds"), each a separate non-diversified series of the Franklin Templeton Global
Trust (the "Trust"), formerly known as the Huntington Funds, an open-end
management investment company consisting of four separate series. The Trust and
its series are also referred to in this document and from time to time in other
communications as the Franklin Templeton International Currency Funds. None of
the Currency Funds should be considered a money market fund.
The Global Currency Fund invests in high-quality money market instruments
denominated in three or more of the world's Major Currencies (as defined below
under "How Do the Funds Invest Their Assets?"), with the objective of maximizing
total return.
The Hard Currency Fund invests in high-quality money market instruments (and
forward contracts) denominated in foreign Major Currencies which historically
have experienced low rates of inflation and which, in the view of the Trust's
Investment Managers, are pursuing economic policies conducive to continued low
rates of inflation in the future and currency appreciation versus the U.S.
dollar over the long-term, with the objective of protection against depreciation
of the U.S. dollar relative to other currencies. The Hard Currency Fund
endeavors, to the maximum extent practicable, to maintain foreign currency
(non-U.S. dollar) exposure with respect to 100% of its net assets at all times.
The High Income Fund invests primarily in high-quality money market instruments
denominated in three or more of the ten highest yielding Major Currencies, with
the objective of high current income at a level significantly above that
available on U.S. dollar money market funds. Consistent with this objective, the
High Income Fund may invest up to 25% of its total assets in instruments
denominated in Non-Major Currencies (as defined below under "How Do the Funds
Invest Their Assets?").
Each of the Funds may invest without limitation in U.S. dollar-denominated money
market instruments in combination with forward currency contracts for the
purpose of obtaining an investment result that is substantially equivalent to a
direct investment in a foreign currency-denominated instrument. (See "How Do the
Funds Invest Their Assets? - Other Investment Policies of the Funds - Currency
Exchange Transactions and Forward Contracts.")
This Prospectus is intended to set forth in a clear and concise manner
information about the Funds that you should know before investing. After reading
the Prospectus, you should retain it for future reference; it contains
information about the purchase and sale of shares and other items which you will
find useful.
An SAI concerning the Funds, dated March 1, 1996, as may be amended from time to
time, provides a further discussion of certain areas in this Prospectus and
other matters which may be of interest to you. It has been filed with the SEC
and is incorporated herein by reference. A copy is available without charge from
the Funds or from Distributors, at the address or telephone number shown above.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. SHARES OF THE FUNDS INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus is not an offering of the securities herein described in any
state in which the offering is not authorized. No sales representative, dealer,
or other person is authorized to give any information or make any
representations other than those contained in this Prospectus. Further
information may be obtained from the underwriter.
Contents Page
Expense Table............................................ 3
Financial Highlights -
How Have the Funds Performed?........................... 4
What Is the Franklin Templeton
Global Trust?........................................... 6
How Do the Funds Invest Their Assets?.................... 6
What Are the Funds' Potential Risks?..................... 15
How You Participate in the Results
of the Funds' Activities................................ 18
Who Manages the Funds?................................... 18
What Distributions Might I
Receive from the Funds?................................. 21
How Taxation Affects You and the Funds................... 22
How Do I Buy Shares?..................................... 23
What Programs and Privileges
Are Available to Me As a Shareholder?................... 29
What If My Investment Outlook Changes? -
Exchange Privilege...................................... 31
How Do I Sell Shares?.................................... 33
Telephone Transactions................................... 37
How Are the Funds' Shares Valued?........................ 38
How Do I Get More Information
About My Investment?.................................... 38
How Do the Funds Measure Performance?.................... 39
General Information...................................... 40
Registering Your Account................................. 41
Important Notice Regarding
Taxpayer IRS Certifications............................. 41
Useful Terms and Definitions............................. 42
Expense Table
The purpose of this table is to assist you in understanding the various costs
and expenses that you will bear directly or indirectly in connection with an
investment in the Funds. These figures are based on the aggregate operating
expenses of the Funds for the fiscal year ended October 31, 1995.
Global Hard High
Currency Currency Income
Fund Fund Fund
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price).......... 3.00% 3.00% 3.00%
Deferred Sales Charge+........................ NONE NONE NONE
Exchange Fee (per transaction)*............... $5.00 $5.00 $5.00
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees............................... 0.65% 0.65% 0.45%**
Rule 12b-1 Fees***............................ 0.23% 0.35% 0.27%
Other Expenses:
Reports to Shareholders....................... 0.03% 0.04% 0.20%
Shareholder Services Costs.................... 0.04% 0.05% 0.07%
Other......................................... 0.04% 0.06% 0.26%
Total Other Expenses.......................... 0.11% 0.15% 0.53%
Total Fund Operating Expenses................. 0.99% 1.15% 1.25%**
+Investments of $1 million or more are not subject to a front-end sales charge;
however, a contingent deferred sales charge of 1% is generally imposed on
certain redemptions within a "contingency period" of 12 months of the calendar
month of such investments. See "How Do I Sell Shares?
- - Contingent Deferred Sales Charge."
*$5.00 fee imposed only on Market Timers as described under "What If My
Investment Outlook Changes? - Exchange Privilege." All other exchanges are
processed without a fee.
**The Manager has agreed in advance to waive a portion of its management fee and
to make certain payments to reduce expenses of the High Income Fund so that the
Fund's aggregate annual operating expenses do not exceed 1.25% of the Fund's
average net assets for the current fiscal year. Absent this reduction,
management fees and total operating expenses for the Fund would have represented
0.65% and 1.45% of the Fund's average net assets. After October 31, 1996,
Advisers may terminate this arrangement at any time.
***The maximum amount of Rule 12b-1 fees allowed for each Fund pursuant to their
distribution plan is 0.45%. See "Who Manages the Funds? - Plan of Distribution."
Consistent with National Association of Securities Dealers, Inc.'s rules, it is
possible that the combination of front-end sales charges and Rule 12b-1 fees
could cause long-term shareholders to pay more than the economic equivalent of
the maximum front-end sales charges permitted under those same rules.
You should be aware that the above table is not intended to reflect in precise
detail the fees and expenses associated with an investment in the Fund. Rather,
the table has been provided only to assist you in gaining a more complete
understanding of fees, charges and expenses. For a more detailed discussion of
these matters, you should refer to the appropriate sections of this Prospectus.
Example
As required by SEC regulations, the following example illustrates the expenses,
including the maximum front-end sales charge, that apply to a $1,000 investment
in the Fund over various time periods assuming (1) a 5% annual rate of return
and (2) redemption at the end of each time period.
Global Hard High
Currency Currency Income
Fund Fund Fund
One Year*..................... $ 40 $ 41 $ 42
Three Years................... 61 65 68
Five Years.................... 83 91 97
Ten Years..................... 148 166 177
*Assumes that a contingent deferred sales charge will not apply.
THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES OF EACH FUND
SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. The operating expenses are
borne by each Fund and only indirectly by you as a result of your investment in
that Fund. In addition, federal securities regulations require the example to
assume an annual return of 5%, but a Fund's actual return may be more or less
than 5%.
Financial Highlights - How Have the Funds Performed?
Set forth below is a table containing the financial highlights for a share of
each Fund for the periods indicated. The information for the fiscal year ended
October 31, 1995, the six month period ended October 31, 1994, and the fiscal
year ended April 30, 1994 has been audited by Coopers & Lybrand L.L.P.,
independent auditors, whose audit report appears in the financial statements in
the Trust's Annual Report to Shareholders dated October 31, 1995. The remaining
figures were audited by other independent auditors. See "Reports to
Shareholders" under "General Information" in this Prospectus.
<TABLE>
<CAPTION>
Per Share Operating Performance+ Ratios/Supplemental Data
Ratio of Net
Distri- Distri- Distri- Investment
Net Asset Net Net butions butions butions Net Asset Net Assets Ratio of Income to
Period Value atInvest-Realized & Total From From Net From From Total Value at End Expenses Average Portfolio
Ended Beginning ment Unrealized Investment InvestmentCapital Return of Distri- at End Total of Year to Average Net Turnover
April of Year Income Gain (Loss)Operations Income Gains Capital+++ butions of Year Return++(in000's)Net Assets**Assets Rate
30
Global Currency Fund
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19871 $12.50 $ .46 $1.29 $1.75 $ (.39) - - $ (.39) $13.86 16.94% $ 23,837 2.10%* 3.88%* 71.01%*
1988 13.86 .52 1.10 1.62 (.57) (.15) - (.72) 14.76 12.12 138,609 2.00 3.70 -
1989 14.76 .85 (.54) .31 (.89) (.47) - (1.36) 13.71 1.97 112,009 2.10 6.10 -
1990 13.71 .97 .07 1.04 (.99) (.10) - (1.09) 13.66 8.19 71,615 2.09 7.16 -
1991 13.66 1.07 .57 1.64 (1.07) - - (1.07) 14.23 12.21 72,186 1.82 7.36 -
1992 14.23 .80 (.22) .58 (.80) - - (.80) 14.01 4.29 63,589 1.82 5.77 -
1993 14.01 .67 1.01 1.68 (.69) (1.04) - (1.73) 13.96 13.28 62,355 1.67 4.64 10.39
19943 13.96 .57 (.11) .46 (.57) - - (.57) 13.85 3.41 51,539 1.41 2.78 37.16
19944 13.85 .25 .32 .57 (.28) - - (.28) 14.14 4.14 56,098 1.04* 3.55* 50.82*
19955 14.14 1.29 (.49) .80 (1.27) - - (1.27) 13.67 6.05 59,942 0.99 5.29 46.05
Hard Currency Fund
19902 12.50 .42 .69 1.11 (.35) (.08) - (.43) 13.18 8.88 26,280 1.65* 6.21* -
1991 13.18 .92 .64 1.56 (.95) (.96) - (1.91) 12.83 11.04 33,599 1.66 6.46 -
1992 12.83 .77 .28 1.05 (.76) - - (.76) 13.12 8.40 31,757 1.86 5.85 -
1993 13.12 .71 1.20 1.91 (.69) (1.34) - (2.03) 13.00 17.11 49,569 1.75 5.23 4.88
19943 13.00 .50 (.05) .45 (.13) - (.37) (.50) 12.95 3.62 35,739 1.47 3.83 -
19944 12.95 .26 .99 1.26 (.25) - - (.25) 13.95 9.74 61,228 1.05* 3.80* 55.91*
19955 13.95 1.84 (1.02) .82 (1.68) - - (1.68) 13.09 6.68 132,089 1.15 4.68 15.72
High Income Fund
19902 12.50 .73 .24 .97 (.62) (.01) - (.63) 12.84 7.82 11,808 1.73* 11.01* -
1991 12.84 1.34 .43 1.77 (1.38) (.31) - (1.69) 12.92 14.09 52,364 1.59 9.85 -
1992 12.92 1.09 (.03) 1.06 (1.08) - - (1.08) 12.90 8.51 46,575 1.83 8.38 -
1993 12.90 .90 (.40) .50 (.94) (.33) - (1.27) 12.13 4.49 32,341 1.81 6.86 -
19943 12.13 .59 (.85) (.26) - - (.59) (.59) 11.28 (2.03) 16,706 1.59 4.80 -
19944 11.28 .31 .31 .62 (.31) - - (.31) 11.59 5.60 16,878 1.04* 5.44* 1,588.38*
19955 11.59 1.47 (.51) .96 (.99) - - (.99) 11.56 8.90 10,902 1.25 5.56 115.05
</TABLE>
+Selected data for a share of beneficial interest outstanding throughout the
periods indicated.
++Total return measures the change in value of an investment over the periods
indicated. It does not include the maximum front-end sales charge and assumes
reinvestment of dividends and capital gains at net asset value.
+++Certain distributions have been reclassed to conform with SOP 93-2.
*Annualized
**The Manager has agreed in advance to waive a portion of its management fee and
to make certain payments to reduce expenses of the Funds. Had such action not
been taken, the ratios of expenses to average net assets would have been as
follows:
Ratio of Expenses
to Average
Net Assets
Global Currency Fund
1994..................... 1.61%
19944.................... 1.12*
Ratio of Expenses
to Average
Net Assets
Hard Currency Fund
1994..................... 1.71%
19944.................... 1.28*
Ratio of Expenses
to Average
Net Assets
High Income Fund
19902.................... 2.04%
1994..................... 1.82
19944.................... 1.45*
19955.................... 1.45
1For the period June 27, 1986 (inception) to April 30, 1987.
2For the period November 17, 1989 (effective date of registration) to April 30,
1990.
3On November 12, 1993, the investment advisor changed to Advisers.
4For the six months ended October 31, 1994, reflecting a change in fiscal year
from April 30.
5For the year ended October 31, 1995.
What Is the Franklin Templeton
Global Trust?
The Funds are non-diversified series of the Trust, an open-end management
investment company commonly called a "mutual fund." The Trust was organized as a
Massachusetts business trust on November 6, 1985, and registered with the SEC
under 1940 Act. Shares of the Funds may be considered Class I shares, as
described under "Useful Terms and Definitions," for redemption, exchange and
other purposes.
How Do the Funds Invest Their Assets?
The investment objective of each Fund is a fundamental policy of that Fund and
may not be changed without shareholder approval. Of course there is no assurance
that the investment objective of any Fund will be achieved.
Global Currency Fund
The investment objective of the Global Currency Fund is to maximize the
investor's total return through a combination of interest income and changes in
the Fund's net asset value due to changes in currency exchange rates. The Fund
seeks to achieve its objective by investing in interest-earning money market
instruments denominated in three or more Major Currencies. Under normal market
conditions, at least 65% of the Fund's total assets will be invested in
instruments denominated in three or more Major Currencies, including the U.S.
dollar.
Hard Currency Fund
The investment objective of the Hard Currency Fund is to protect against
depreciation of the U.S. dollar relative to other currencies. The Fund seeks to
achieve its objective by investing in high-quality money market instruments (and
forward contracts) denominated in foreign Major Currencies which historically
have experienced low rates of inflation and which, in the view of the Trust's
Investment Managers, are pursuing economic policies conducive to continued low
rates of inflation in the future and currency appreciation versus the U.S.
dollar over the long-term. Such currencies are often referred to as "hard
currencies" and such economic policies are often referred to as "sound money"
policies.
The Hard Currency Fund endeavors, to the maximum extent practicable, to maintain
foreign currency (non-U.S. dollar) exposure with respect to 100% of its net
assets at all times. As described below, this Fund may invest without limitation
in U.S. dollar-denominated money market instruments in combination with forward
contracts (calling for the future acquisition of foreign currencies in exchange
for U.S. dollars) for the purpose of obtaining an investment result that is
substantially equivalent to a direct investment in a foreign
currency-denominated instrument.
Under normal market conditions, this Fund will not maintain exposure to a single
foreign currency in excess of 50% of its total assets. For temporary defensive
purposes, however, this Fund may invest without limitation in Swiss
franc-denominated instruments.
The Trust's Investment Managers actively manage the Hard Currency Fund and will
allocate the Fund's investments based on current social, economic, financial and
political developments which, in the opinion of the Trust's Investment Managers,
may affect the value of such currencies.
High Income Fund
The investment objective of the High Income Fund is to achieve high current
income at a level significantly above that available on U.S. dollar money market
funds. Subject to this investment objective, a secondary consideration of the
Fund is preservation of capital. This Fund seeks to achieve its objective by
investing in interest-bearing money market instruments denominated in Major and
Non-Major Currencies. Under normal market conditions, at least 65% of this
Fund's total assets will be invested in instruments denominated in three or more
of the ten highest yielding Major Currencies (see below) (excluding the ECU) and
the U.S. dollar (whether or not the U.S. dollar is one of those ten highest
yielding Major Currencies). Under normal market conditions, this Fund may not
(i) invest more than 25% of its total assets in instruments denominated in any
one Major Currency, other than the U.S. dollar, (ii) invest more than 5% of its
total assets in instruments denominated in any one Non-Major Currency, or (iii)
invest more than 25% of its total assets in instruments denominated in Non-Major
Currencies. In addition, this Fund may at anytime temporarily invest its assets
without percentage limitation in instruments denominated in U.S. dollars for
purposes of preservation of capital or for defensive purposes.
The yield of each of the Major Currencies is determined quarterly from data
published by Datastream, The Wall Street Journal, The Financial Times, Salomon
Brothers International Bond and Money Market Performance and other independent
bona fide publications which, in the opinion of the Trust's Investment Managers,
routinely publish reliable yield data on instruments denominated in the Major
Currencies. Subject to the restrictions described above, the Fund's investments
may be denominated in any of the Major Currencies. The yield on a Major Currency
is defined as the yield for the prior calendar quarter on the highest quality
three-month Euro-time deposits denominated in that Major Currency. The Trust's
Investment Managers will obtain yield measures as soon as practicable following
the end of each calendar quarter.
The ten highest yielding Major Currencies and their respective average yields
for each year from 1989 through 1995 are listed below:
<TABLE>
<CAPTION>
1995* 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C>
Sweden**.................................. 8.81% 7.64% 8.62% 11.96% - - -
Italy..................................... 10.29% 8.48% 10.22% 13.86% 11.83% 11.98% 12.41%
Spain..................................... 9.37% 8.04% 11.77% 13.21% 12.60% - -
Denmark................................... 6.22% 6.21% 10.89% 11.12% 9.78% 10.96% 9.65%
France.................................... 6.60% 5.79% 8.44% 10.22% 9.55% 10.24% 9.33%
United Kingdom............................ 6.69% 5.50% 5.92% 9.60% 11.50% 14.76% 13.88%
Germany................................... - 5.29% 7.21% 9.42% 9.21% - -
Belgium................................... - 5.65% 8.12% 9.32% 9.32% 9.69% 8.51%
Netherlands............................... - - 6.81% 9.31% 9.25% 8.59% 7.29%
Switzerland............................... - - - 7.82% - 8.89% -
Australia**............................... 7.76% - - - 9.84% 13.71% 16.59%
New Zealand............................... 9.04% 6.41% 6.14% - 9.49% 13.17% 12.64%
Canada**.................................. 7.08% 5.35% - - - 12.54% 11.79%
U.S....................................... 5.99% - - - - - 9.21%
</TABLE>
*Average for January - November.
**Domestic interbank rates.
Source: Datastream - 3 month Euro-deposit rates
Subject to specific Fund restrictions described more fully below, the Funds may
invest in money market instruments denominated in the following currencies (the
"Major Currencies"): Australian dollar, Belgian franc, British pound sterling,
Canadian dollar, Danish krone, Netherlands guilder, European Currency Unit
("ECU"), French franc, German mark, Italian lira, Japanese yen, New Zealand
dollar, Spanish peseta, Swedish krona, Swiss franc and U.S. dollar. The
currencies of various countries may be added to or deleted from the foregoing
list of Major Currencies when, in the opinion of the Trust's Investment
Managers, world social, economic, financial or political conditions so warrant.
The Currency Funds will revise the Prospectus to reflect any such change.
Subject to further restrictions described more fully below, the High Income Fund
may also invest in money market instruments denominated in currencies other than
the Major Currencies that are freely convertible into one or more of the Major
Currencies (the "Non-Major Currencies").
The International Money Market
The international money market, including spot and forward currency exchange
transactions, is among the largest and most liquid financial markets in the
world. Various estimates place the market's average turnover at approximately $1
trillion per day. Originally created to facilitate trade between countries, the
international money market has become a major conduit of world capital flows. It
is estimated that capital-related transactions now account for over 90% of all
volume in the international money market.
International money market instruments, like their U.S. counterparts, are
short-term, high-quality debt obligations issued by governments, banks,
corporations and supranational organizations. Because of their high quality and
short maturities or frequent interest rate adjustments (one-year maximum
effective maturity), international money market instruments enable investors to
minimize credit risk and interest rate risk to principal and are considered to
be among the most conservative of international investments.
Like the returns on all non-U.S. dollar denominated investments, international
money market returns, when expressed in U.S. dollars, are significantly affected
by changes in exchange rates between the U.S. dollar and the currencies in which
such instruments are denominated. Interest income represents the other primary
component of the total return derived from international money market
instruments.
International Money Market Investing
Investors may consider international money market investing for a variety of
purposes.
Global Diversification. One of the primary reasons for adding international
securities to a portfolio of U.S. securities is to achieve broader portfolio
diversification. Diversification can reduce the overall volatility of portfolio
returns to the extent that returns on the international securities are
independent of returns on the U.S. portfolio component.
Returns on international money market instruments historically have exhibited a
low degree of correlation with returns on U.S. stocks and bonds and may,
therefore, offer U.S. dollar-based investors a conservative means for achieving
effective global diversification.
Protection of Global Purchasing Power. Currency exchange rate fluctuations can
have a significant effect on the global purchasing power of investments
denominated in a single currency. For example, depreciation of the U.S. dollar
relative to other currencies generally increases the cost to U.S. consumers of
most imported goods and many domestically produced goods, as well as the cost of
traveling outside the U.S.
In this situation, non-U.S. dollar denominated money market instruments may
provide a degree of global purchasing power protection since dollar depreciation
will tend to enhance the U.S. dollar return on such instruments.
Potential for Higher Current Yields and Higher Total Returns. Investors may
consider international money market instruments for the potentially higher
current yields and/or potentially higher total returns than those that may be
available on comparable U.S. dollar-denominated instruments. An investor
contemplating general depreciation of the U.S. dollar relative to other
currencies may, for example, invest in non-U.S. dollar denominated instruments
in an attempt to participate in currency gains that are expected to result.
Alternatively, an investor expecting general exchange rate stability might
invest in higher yielding international money market instruments in order to
seek to earn a higher rate of interest than may be available on comparable U.S.
dollar denominated instruments.
In either case, the realized total return on international money market
instruments may be higher or lower than that realized on comparable U.S. dollar
denominated instruments.
Selecting the Appropriate Fund
Each Fund offers a degree of global diversification, as well as the opportunity
for protecting global purchasing power and achieving higher total returns than
may be available on U.S. money market funds. Selecting the appropriate Fund
depends on your particular priorities.
The Global Currency Fund employs the most flexible investment strategy of the
Funds and is designed for investors seeking the greatest degree of active
management among the Major Currencies. This Fund invests in money market
instruments denominated in any combination of three or more Major Currencies,
including the U.S. dollar, with the objective of maximizing total return. The
Trust's Investment Managers may, therefore, vary their emphasis between currency
appreciation and interest income from time to time. The Fund's ability to
achieve its objective may be limited by its restrictive universe of investments
as well as the high quality of such investments. In addition, during periods of
actual or anticipated appreciation of the U.S. dollar relative to other
currencies, the Trust's Investment Managers may invest a substantial portion of
this Fund's assets in U.S. dollar-denominated instruments. For temporary
defensive purposes, all of this Fund's assets may be so invested.
The Hard Currency Fund invests in high-quality money market instruments (and
forward contracts) denominated in foreign Major Currencies which historically
have experienced low rates of inflation and which, in the view of the Trust's
Investment Managers, are pursuing economic policies conducive to continued low
rates of inflation in the future and currency appreciation versus the U.S.
dollar over the long-term.
The High Income Fund invests in Major and Non-Major Currencies. Under normal
market conditions, this Fund invests at least 65% of its total assets in money
market instruments denominated in three or more of the ten highest yielding
Major Currencies (excluding the ECU) and the U.S. dollar (whether or not the
U.S. dollar is one of those ten highest yielding Major Currencies). Under normal
market conditions, this Fund may not (i) invest more than 25% of its total
assets in instruments denominated in any one Major Currency, other than the U.S.
dollar, (ii) invest more than 5% of its total assets in instruments denominated
in any one Non-Major Currency, or (iii) invest more than 25% of its total assets
in instruments denominated in Non-Major Currencies. Notwithstanding the above
restrictions, this Fund may temporarily invest its assets without percentage
limitation in instruments denominated in the U.S. dollar for purposes of
preservation of capital or for defensive purposes. This Fund is designed for
investors seeking high current income at a level significantly above that
available on U.S. dollar money market funds. Because the Trust's Investment
Managers emphasize interest income rather than currency appreciation, investors
in this Fund should expect income to constitute the primary component of total
return in the long run.
Each Fund seeks to minimize credit risk and interest rate risk to principal by
investing only in high-quality money market instruments and by maintaining a
weighted average portfolio maturity of 120 days or less.
General
Each Fund will attempt to maintain a weighted average effective maturity of 120
days or less and will acquire only money market instruments that have an
effective maturity, at the time of purchase, of one year or less. These
securities include floating or variable rate obligations that may have actual
maturities of over one year but that have interest rates which adjust at
periodic intervals. The effective maturity of each floating or variable rate
obligation within each Fund's portfolio will be based upon these periodic
adjustments. Because each of the Funds invest primarily in short-term securities
which are excluded from the calculation of portfolio turnover rate, the
portfolio turnover rate for each Fund is usually minimal. (See "Financial
Highlights - How Have the Funds Performed?")
More Information Regarding the Types
of Securities the Funds May Purchase
The issuers of money market instruments in which the Funds may invest may
include governments of, and financial institutions, corporations or other
entities located in or organized under the laws of, any country. The Funds may
also invest in money market securities issued by supranational organizations
such as: The World Bank, which was chartered to finance development projects in
member countries; the European Economic Community, which is a twelve-nation
organization engaged in cooperative economic activities; the European Coal and
Steel Community, which is an economic union of various European nations' steel
and coal industries; and the Asian Development Bank, which is an international
development bank established to lend funds, promote investment and provide
technical assistance to member nations in the Asian and Pacific regions.
The Funds invest only in instruments which are considered by the Trust's
Investment Managers to be of high quality, comparable to those (1) rated AAA or
AA (A-1 for commercial paper) by Standard & Poor's Corporation ("S&P") or Aaa or
Aa (P-1 for commercial paper) by Moody's Investors Service ("Moody's"); or (2)
issued by companies having an outstanding unsecured debt issue currently rated
within the above rating categories by S&P or Moody's. Each Fund's investments
will be reviewed by the Trust's Board at least quarterly.
To hedge (protect) against currency exchange rate fluctuations that might
adversely affect the value of a portfolio position, each Fund may enter into
forward contracts for the future acquisition or delivery of foreign currencies.
To hedge against these fluctuations between the date of purchase or sale and the
settlement date of a transaction, the Funds may enter into these forward
contracts without limitation. Also, the Funds may, solely for hedging purposes,
enter into futures contracts for the purchase or sale of currencies or purchase
options on such futures contracts or on currencies. These hedging techniques are
described more fully below.
Money Market Instruments. Money market instruments include short-term U.S.
government securities (discussed below), bank certificates of deposit, time
deposits, bankers' acceptances, commercial paper, floating and variable rate
notes, repurchase agreements secured by U.S. government securities, and
short-term liquid instruments issued by foreign governments and supranational
organizations.
Government Securities. Securities issued by the U.S. government include a
variety of U.S. Treasury securities, which differ in their interest rates,
maturities and dates of issuance. Some obligations issued or guaranteed by U.S.
government agencies and instrumentalities, such as Treasury bills with
maturities up to one year, are supported by the full faith and credit of the
U.S. government; others, such as those of the Federal Home Loan Banks, by the
right of the issuer to borrow from the U.S. Treasury; others, such as those
issued by the Farmers Home Administration, by discretionary authority of the
U.S. government to purchase certain obligations of the agency or
instrumentality; and others, such as those issued by the Federal Farm Credit
Banks, only by the credit of the instrumentality. While the U.S. government
provides financial support to these U.S. government-sponsored agencies or
instrumentalities, no assurance can be given that it will always do so, since it
is not so obligated by law. Each Fund will invest in government securities only
when the Trust's Investment Managers are satisfied that the credit risk with
respect to the issuer is minimal.
Securities issued by the governments of foreign countries may include direct
obligations and obligations guaranteed by the governments of the foreign
countries. These obligations may have fixed, floating or variable rates of
interest.
Currency Futures Transactions. Each Fund may enter into futures contracts and
purchase options on such contracts in order to hedge against changes in currency
exchange rates. A futures contract on currency is an agreement to buy or sell
currency at a specified price during a designated month. A Fund does not make
payment or deliver currency on entering into a futures contract. Instead, it
makes a margin deposit, which is adjusted to reflect changes in the value of the
contract and which continues until the contract is terminated.
A Fund sells currency futures contracts in order to offset a possible decline in
the value of the currency in which its securities are denominated. When a
futures contract is sold by a Fund, the value of the contract will tend to rise
when the value of such currency (and the hedged securities) declines and to fall
when the value of such currency (and the hedged securities) increases. A Fund
buys currency futures contracts in order to fix a favorable currency exchange
rate for securities denominated in that currency which a Fund intends to buy. If
a futures contract is purchased by a Fund, the value of the contract will tend
to change with changes in the value of such currency and securities.
Each Fund may also buy put and call options on currency futures contracts for
hedging purposes. A put option purchased by a Fund would give it the right to
assume a position as the seller of a futures contract. A call option purchased
by a Fund would give it the right to assume a position as the buyer of a futures
contract. A Fund is required to pay a premium for a put or call option on a
futures contract, but is not required to take any actions under the contract. If
the option cannot be profitably exercised before it expires, a Fund's loss will
be limited to the amount of the premium and any transaction costs.
Each Fund may enter into closing purchase or sale transactions in order to
terminate a futures contract. A Fund may close out an option which it has
purchased by selling an offsetting option of the same series. There is no
guarantee that closing transactions can be effected. The Funds' ability to enter
into closing transactions depends on the development and maintenance of a liquid
market, which may not be available at all times.
Currency Options Transactions. Each Fund may, for hedging purposes, buy put and
call options on any currency in which a Fund's investments are denominated. Each
Fund is also authorized to enter into closing sale transactions in order to
realize gains or minimize losses on currency options purchased by a Fund.
A Fund would normally buy currency call options to fix a favorable currency
exchange rate for securities denominated in that currency which a Fund intends
to acquire. The purchase of a call option would entitle a Fund, in return for
the premium paid, to purchase specified currency at a specified price, upon
exercise of the option, during the option period. A Fund would ordinarily
realize a gain if, during the option period, the value of such currency exceeds
the sum of the exercise price, the premium paid and transaction cost; otherwise,
a Fund would realize a loss on the purchase of the call option.
A Fund would normally buy currency put options to hedge against a decline in the
value of the currency in which its securities are denominated. The purchase of a
put option would entitle a Fund, in exchange for the premium paid, to sell
specified currency at a specified price, upon exercise of the option, during the
option period. Gains and losses on the purchase of such put options would tend
to be offset by countervailing changes in the value of the underlying currency
and the hedged securities. A Fund would ordinarily realize a gain if, during the
option period, the value of the underlying currency decreases below the exercise
price sufficiently to cover the premium and transaction costs; otherwise a Fund
would realize a loss on the purchase of the put option.
If a Fund is unable to effect a closing sale transaction with respect to options
it has purchased, it would have to exercise the options in order to realize any
profit and may incur transaction costs upon the purchase or sale of underlying
currencies.
Options on currencies are traded on exchanges and in the over-the-counter market
and will be purchased only when the Trust's Investment Managers believe a liquid
secondary market exists for such options, although there can be no assurances
that a liquid secondary market will exist for a particular option at any
specific time. In general, over-the-counter options differ from exchange-traded
options in that they are two-party contracts with price and terms negotiated
between buyer and seller, and such options are endorsed and/or guaranteed by
third parties (such as a member of the Exchange). A Fund will purchase
over-the-counter options only from dealers and institutions which the Trust's
Investment Managers believe present a minimal credit risk.
For more information about currency futures and options, see "What Are the
Funds' Potential Risks?" below.
Concentration in Financial Services Obligations. Under normal market conditions,
each Fund will have at least 25% of its assets invested in companies engaged in
the financial services industry, including banks (U.S. and non-U.S. banks and
their branches), savings and loan associations, insurance companies, and their
holding companies, provided such companies have total assets in excess of U.S.
$1 billion (or the equivalent thereof expressed in a foreign currency). These
investments may include bank obligations, such as certificates of deposit, time
deposits and bankers' acceptances. During periods when the Trust's Investment
Managers determine that a Fund should be in a temporary defensive position, such
Fund may have less than 25% of its assets concentrated in the financial services
industry. See "What Are the Funds' Potential Risks?" for more information.
Other Investment Policies of the Funds
Except as otherwise noted, each Fund may engage, without limit, in the following
investment transactions:
Repurchase Agreements. Each Fund may engage in repurchase transactions in which
a Fund purchases a U.S. government security subject to resale to a bank or
dealer at an agreed-upon price and date. At no time will a Fund invest in
repurchase agreements for more than one year. The transaction requires the
collateralization of the seller's obligation by the transfer of securities with
an initial market value, including accrued interest, equal to at least 102% of
the dollar amount invested by a Fund in each agreement, with the value of the
underlying security marked-to-market daily to maintain coverage of at least
100%. A default by the seller might cause a Fund to experience a loss or delay
in the liquidation of the collateral securing the repurchase agreement. A Fund
might also incur disposition costs in liquidating the collateral. The Funds,
however, intend to enter into repurchase agreements only with financial
institutions such as broker-dealers and banks which are deemed creditworthy by
the Trust's Investment Managers. A repurchase agreement is deemed to be a loan
by a Fund under the 1940 Act. The U.S. government security subject to resale
(the collateral) will be held on behalf of a Fund by a custodian approved by the
Board and will be held pursuant to a written agreement. See "Investment
Restrictions" in the SAI for more information.
Loans of Portfolio Securities. Consistent with procedures approved by the Board
and subject to the following conditions, each Fund may lend its portfolio
securities to qualified securities dealers or other institutional investors,
provided that such loans do not exceed 30% of the value of the Fund's total
assets at the time of the most recent loan. The borrower must deposit with a
Fund's custodian bank, collateral with an initial market value of at least 102%
of the initial market value of the securities loaned, including any accrued
interest, with the value of the collateral and loaned securities
marked-to-market daily to maintain collateral coverage of at least 100%. Such
collateral shall consist of cash, securities issued by the U.S. Government, its
agencies or instrumentalities, or irrevocable letters of credit. The lending of
securities is a common practice in the securities industry. A Fund may engage in
security loan arrangements with the primary objective of increasing a Fund's
income either through investing the cash collateral in short-term interest
bearing obligations or by receiving a loan premium from the borrower. Under the
securities loan agreement, a Fund continues to be entitled to all dividends or
interest on any loaned securities. As with any extension of credit, there are
risks of delay in recovery and loss of rights in the collateral should the
borrower of the security fail financially.
Currency Exchange Transactions and Forward Contracts. The Funds may use forward
contracts in conjunction with money market instruments (including U.S. dollar
denominated instruments) for the purpose of obtaining an investment result that
is substantially equivalent to a direct investment in a foreign currency
denominated instrument. The Funds may also engage in currency transactions to
hedge (protect) against uncertainty in the level of future currency exchange
rates. Hedging transactions will be limited to either specific transactions (for
example, in respect of settlement of securities purchased or sold by the Funds)
or portfolio positions (for example, in respect of security positions already
held by the Funds). The Hard Currency Fund, however, endeavors, to the maximum
extent practicable, to maintain foreign currency (non-U.S. dollar) exposure with
respect to 100% of its net assets at all times and, therefore, any portfolio
position hedging activities of such Fund are expected to be consistent with this
policy. The Global Currency and High Income Funds may hedge up to 100% of their
portfolio positions and each of the Funds may engage in currency exchange
transactions without limitation for hedging purposes in respect of specific
transactions, such as the settlement of securities purchased or sold by the
Funds.
The Funds conduct currency exchange transactions either on a spot (i.e., cash)
basis at the rate prevailing in the currency market, or by entering into forward
contracts to purchase or sell currencies. A forward currency contract involves
an obligation to purchase or sell a specific currency at a future date, which
may be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These contracts are entered
into in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. When used for hedging,
such contracts tend to minimize the risk of loss due to a change in the value of
the subject currency; they also tend to limit any potential currency gain which
might result and do not protect against fluctuations in the value of the
underlying security or position.
Non-diversification. Although the Funds are non-diversified series of the Trust
under the 1940 Act, no Fund will invest more than 5% of its total assets in the
securities of a single foreign bank. This limitation does not apply to other
issuers. See "What Are the Funds' Potential Risks?" below for more information.
Illiquid Investments. It is the policy of the Funds that illiquid securities
(securities that cannot be disposed of within seven days in the normal course of
business at approximately the amount at which a Fund has valued the securities)
may not constitute, at the time of purchase, more than 10% of the value of the
net assets of each Fund.
Portfolio Turnover. The High Income Fund's portfolio turnover rate for the
fiscal year ended April 30, 1994, the six-month period ended October 31, 1994
and the fiscal year ended October 31, 1995, was 0%, 1,588.38% (annualized) and
115.05%, respectively. The high portfolio turnover for the High Income Fund for
the six-month period ended October 31, 1994 was due to the timing of long-term
security purchases throughout the year as well as the required annualization of
the calculation. Had the Fund's transactions in long-term securities taken place
earlier in the period ended October 31 or had the calculation not been
annualized, the portfolio turnover rate would have been significantly lower. The
high portfolio turnover rate for the fiscal year ended October 31, 1995 was due
to certain long-term securities held by the High Income Fund. Only long-term
securities are considered when calculating the portfolio turnover rate. Although
the High Income Fund generally does not invest in long-term securities, its few
transactions involving such securities resulted in a higher portfolio turnover
rate for the fiscal year ended October 31, 1995 than might otherwise be
expected. High portfolio turnover may increase transaction costs which must be
paid by a Fund.
Certain Fundamental Policies. The following are fundamental policies of each
Fund which cannot be changed, as to any of the Funds described in this
Prospectus, without approval by a majority of the outstanding voting securities
of such Fund.
Each Fund may not: (1) borrow money, except from banks for temporary or
emergency purposes in amounts not exceeding 331/3% of the value of its total
assets, or pledge, hypothecate, or mortgage more than 331/3% of the value of its
total assets in connection with any such borrowings (no additional investments
may be made while any such borrowings exceed 5% of the Fund's total assets; a
Fund may incur interest charges in connection with such borrowings); (2) in the
aggregate, invest more than 10% of its net assets in restricted securities,
repurchase agreements maturing in more than seven days, options which are traded
in the over-the-counter market and the investments hedged by such options, or
securities which are not readily marketable; (3) invest less than 25% of its
assets in the securities of companies engaged in the financial services industry
or more than 25% of its assets in the securities of issuers in any other
industry; (4) lend more than 30% of its total assets, except to the extent that
entering into repurchase agreements or purchasing debt securities may be
considered a loan; and (5) invest more than 5% of its total assets in securities
of issuers (including predecessors) with less than three years' continuous
operations. Restrictions (3) and (5) do not apply to investments in U.S.
government securities.
The Funds are subject to a number of additional investment restrictions, some of
which may be changed only with the approval of shareholders, which limit their
activities to some extent. For a list of these restrictions and more information
about the policies discussed herein, please see "How Do the Funds Invest Their
Assets?" and "Investment Restrictions" in the SAI.
What Are the Funds' Potential Risks?
Generally. An investment in shares of a Fund may not be appropriate for all
investors and should not be considered a complete investment program. You should
take into account your investment objectives as well as your other investments
when considering the purchase of shares of any of the Funds. The value of the
investments held by each Fund and, therefore, each of their respective net asset
values, generally will vary inversely with changes in prevailing interest rates,
although this variance will depend upon the effective maturities of the
instruments held. Each of the Funds intend to invest exclusively in short-term
money market instruments to minimize this effect.
Because the Hard Currency Fund invests in instruments denominated in Major
Currencies issued by countries which have recently experienced, and which are
expected to continue to experience, relatively low inflation, it is likely that
the instruments in which this Fund invests may pay interest rates that are lower
than instruments denominated in other Major Currencies, including the U.S.
dollar. Due to the economic strength of the countries which issue the currencies
in which such instruments are denominated, or other factors, however, the Major
Currencies in which this Fund's instruments are denominated may appreciate
relative to other Major Currencies, including the U.S. dollar. If the currency
appreciation more than offsets any negative interest-rate differential, this
Fund could provide a higher total return to investors than similar investments
denominated in other Major Currencies, including the U.S. dollar.
Because the High Income Fund invests primarily in instruments denominated in the
Major Currencies that have the highest yield, there is a significant possibility
that the countries represented by the high-yield Major Currencies may have
recently experienced or may be expected to experience relatively high rates of
inflation, which may cause such Major Currencies to depreciate relative to other
Major Currencies, including the U.S. dollar. It is possible, however, that the
higher yields of the instruments in which this Fund invests will more than
offset any such depreciation, in which case this Fund could provide a higher
total return to investors than similar investments denominated in other Major
Currencies, including the U.S. dollar.
The price of the shares of each of the Funds, expressed in U.S. dollar terms,
will fluctuate and, unlike a money market fund, the Funds do not seek to
maintain a stable net asset value. In addition, the total return on each of the
Funds may be higher or lower than the total return on a U.S. dollar money market
fund. You, therefore, should not consider any of the Funds to be a substitute
for a U.S. dollar money market fund.
The value of the investments held by each Fund is calculated in U.S. dollars on
each day that the Exchange is open for business. As a result, to the extent that
each Fund's assets are invested in instruments denominated in currencies other
than the U.S. dollar and the currencies appreciate relative to the U.S. dollar,
that Fund's net asset value per share as expressed in U.S. dollars (and,
therefore, the value of your investment in that Fund as expressed in U.S.
dollars) should increase. If the U.S. dollar appreciates relative to such other
currencies, the converse should occur, except to the extent that losses are
offset by net investment income generated by the money market instruments in
which that particular Fund invests.
The currency-related gains and losses experienced by each Fund will be based on
changes in the value of portfolio securities attributable to currency
fluctuations only in relation to the original purchase price of such securities
as stated in U.S. dollars. Your gains or losses on shares of a Fund will be
based on changes attributable to fluctuations in the net asset value of such
shares, expressed in U.S. dollars, in relation to the original U.S. dollar
purchase price of such shares. The relative amount of appreciation or
depreciation in a Fund's assets also will be affected by changes in the value of
the securities that are unrelated to changes in currency exchange rates.
Interest rates paid on instruments denominated in foreign currencies may be
higher or lower than those paid on comparable U.S. dollar instruments.
Consequently, the Funds may have a higher or lower yield than a portfolio which
invests strictly in U.S. dollar-denominated instruments.
Non-U.S. Securities. The Funds invest in non-U.S. securities. Investing in
non-U.S. money market instruments and other securities of non-U.S. issuers
involves considerations and possible risks and opportunities not typically
associated with investing in U.S. securities. Such investments may be favorably
or unfavorably affected by changes in interest rates, currency exchange rates
and exchange control regulations, and costs may be incurred in connection with
conversions between various currencies. In addition, investments in countries
other than the U.S. could be affected by other factors generally not thought by
the Trust's Investment Managers to be present in the U.S., including less liquid
and efficient securities markets, greater price volatility, less publicly
available information, the possibility of normal foreign withholding taxes or
heavier taxation, political or social instability, limitations on the removal of
funds or other assets of a Fund, expropriation of assets, adverse diplomatic
developments, higher transaction and custody costs, delays attendant in
settlement procedures, and difficulties in enforcing contractual obligations.
Non-diversification. As non-diversified Funds, there is no restriction under the
1940 Act on the percentage of assets that may be invested at any time in the
securities of any one issuer. Each Fund, however, intends to comply with the
diversification requirements applicable to regulated investment companies under
the Code. As of the last day of each fiscal quarter, each Fund intends that its
investments in securities of any one issuer (other than the U.S. government)
will be limited to 25% of its total assets, and that, with respect to at least
50% of its total assets, no Fund may have invested more than 5% of its total
assets in the securities of any one issuer or hold more than 10% of the
outstanding voting securities of any one issuer. To the extent the Funds are not
fully diversified under the 1940 Act, they may be more susceptible to adverse
economic, political or regulatory developments affecting a single issuer than
would be the case if they were more broadly diversified.
Currency Futures and Options Transactions. Although currency futures and options
transactions are intended to enable the Funds to manage currency exchange risks,
unanticipated changes in currency exchange rates could result in poorer
performance than if they had not entered into these transactions. Even if the
Trust's Investment Managers correctly predict currency exchange rate movements,
a hedge could be unsuccessful if changes in the value of a Fund's futures
position do not correspond to changes in the value of the currency in which its
investments are denominated. This lack of correlation between a Fund's futures
and currency positions may be caused by differences between the futures and
currency markets.
The Trust's Investment Managers will attempt to minimize these risks through
careful selection and monitoring of each Fund's futures and options positions.
The ability to predict the direction of currency exchange rates involves skills
different from those used in selecting securities.
The Funds will not use futures transactions for speculation. A Fund may not
purchase or sell futures contracts or options on futures, except for closing
purchase or sale transactions, if immediately thereafter the sum of margin
deposits on a Fund's outstanding futures positions and premiums paid for
outstanding options on futures would exceed 5% of the market value of a Fund's
total assets. These transactions involve brokerage costs, require margin
deposits and, in the case of contracts obligating a Fund to purchase securities,
require a Fund to segregate assets to cover such contracts.
These transactions also involve risks to the Funds of the possible loss of
margin deposits or collateral in the event of bankruptcy of a broker with whom a
Fund has an open position in a futures or options contract. A Fund's ability to
enter into certain futures, forward contracts and options is also limited by the
requirements of the Code for qualification of a Fund as a regulated investment
company. These securities may also require the application of complex and
special tax rules and elections which may affect the amount, timing and
character of distributions to shareholders. These investments and transactions
are discussed further in the SAI.
The purchase of currency options is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. A Fund pays brokerage commissions or spreads
in connection with its options and any related currency transactions.
Transactions in options and futures are generally considered "derivative
securities."
A Fund's investments in options, futures contracts and forward contracts may
give rise to taxable income, gain or loss, and may be subject to special tax
treatment under certain mark-to-market and straddle rules, the effect of which
may be to accelerate income to a Fund, defer Fund losses, cause adjustments in
the holding periods of Fund securities, convert capital gains and losses into
ordinary income and losses, convert long-term capital gains into short-term
capital gains, and convert short-term capital losses into long-term capital
losses. These rules could, therefore, affect the amount, timing and character of
distributions to shareholders. Certain elections may be available to a Fund to
mitigate some of the unfavorable consequences of the provisions described in
this paragraph. These investments and transactions are discussed in the SAI.
Concentration in Financial Services Obligations. Concentration may result in
increased exposure to the specific risks (e.g., credit risk and interest rate
risk) pertaining to the financial services industry and may subject each Fund to
greater risk and price fluctuation due to the more limited number of industries
or issuers potentially represented in a Fund. In addition, each Fund may have
its assets concentrated in instruments of foreign financial institutions and
foreign branches of U.S. banks which are not subject to the supervision and
regulation of U.S. state and federal banking agencies and other U.S. supervisory
authorities.
How You Participate in the
Results of the Funds' Activities
The assets of the Funds are invested in portfolio securities. If the securities
owned by the Funds increase in value, either because their price appreciates in
local currency terms or because the currency in which they are denominated
appreciated relative to the U.S. dollar, the value of the shares of the Funds
which you own will generally increase. Conversely, if the securities owned by
the Funds decrease in value, the value of your shares will generally decrease.
In this way, you participate in changes in the value of the securities owned by
the Funds.
Under normal market conditions, each of the Funds invests at least a significant
portion of its assets in instruments denominated in foreign currencies.
Therefore, your gains or losses on shares of a Fund will in large part be based
on changes in the net asset value of such shares, expressed in U.S. dollars,
attributable to fluctuations in the exchange rates between the U.S. dollar and
the foreign currencies in which such instruments are denominated. Unlike a U.S.
dollar money market fund, which seeks to maintain a stable net asset value, the
net asset value of the shares of each of the Funds will fluctuate. In addition,
total return on each of the Funds may be higher or lower than the total return
on a U.S. dollar money market fund. You, therefore, should not consider any of
the Funds to be a substitute for a U.S. dollar money market fund.
Who Manages the Funds?
The Board has the primary responsibility for the overall management of the Trust
and for electing the officers of the Trust who are responsible for administering
its day-to-day operations.
Advisers serves as the Trust's investment manager. Advisers is a wholly-owned
subsidiary of Resources, a publicly owned holding company, the principal
shareholders of which are Charles B. Johnson and Rupert H. Johnson, Jr., who own
approximately 20% and 16%, respectively, of Resources' outstanding shares.
Resources is engaged in various aspects of the financial services industry
through its subsidiaries. Advisers acts as investment manager or administrator
to 36 U.S. registered investment companies (118 separate series) with aggregate
assets of over $80 billion.
TICI serves as the subadvisor for the Funds under a contract with the Manager.
TICI is an indirect subsidiary of Templeton Worldwide, Inc., which is a direct
wholly-owned subsidiary of Resources. Templeton Worldwide, Inc., operating
through its subsidiaries, is a major investment management organization with
approximately $53.5 billion of assets currently under management and a long
history of global investing.
The team responsible for the day-to-day management of the Currency Funds'
portfolios is: Mr. Neil S. Devlin since 1993 and Mr. Thomas J. Dickson since
1995.
Neil S. Devlin
Executive Vice President
and Portfolio Manager of TICI
Mr. Devlin is a Chartered Financial Analyst and holds a Bachelor of Arts degree
in economics and philosophy from Brandeis University. Mr. Devlin joined
Templeton in 1987.
Thomas J. Dickson
Portfolio Manager of TICI
Mr. Dickson received his Bachelor of Science degree in managerial economics from
the University of California at Davis. Mr. Dickson joined Franklin in 1992 and
Templeton in 1994.
Donald P. Gould, a Portfolio Manager with Advisers, is founder and president of
the Trust. Mr. Gould supervises the implementation of the Funds' portfolio
investment policies. He holds a Master of Business Administration degree from
the Harvard Business School and a Bachelor of Arts degree in economics from
Pomona College. He joined the Franklin Templeton Group in November 1993 upon its
acquisition of certain assets of Huntington Advisers, Inc. He has been in the
securities industry since 1981.
Pursuant to the management agreement and the subadvisory agreement, the Trust's
Investment Managers supervise and implement each Fund's investment policies and
provide certain administrative services and facilities which are necessary to
conduct the Funds' business. The Manager and TICI, together and individually,
perform similar services for other funds and there may be times when the actions
taken with respect to the Funds' portfolios will differ from those taken by the
Trust's Investment Managers on behalf of other funds. Neither the Trust's
Investment Managers (including their affiliates) nor their officers, directors
or employees nor the officers and trustees of the Trust are prohibited from
investing in securities held by the Funds or other funds which are managed or
administered by the Trust's Investment Managers to the extent such transactions
comply with the Trust's Code of Ethics. Please see "Investment Advisory and
Other Services" and "General Information" in the SAI for further information on
securities transactions and a summary of the Trust's Code of Ethics.
Pursuant to the subadvisory agreement between the Manager and TICI, and subject
to the overall policies, control, direction and review of the Board and to the
instructions and supervision of the Manager, TICI will provide day-to-day
portfolio management for the Funds.
Under a subcontract with the Manager, the Business Manager provides certain
administrative facilities and services for the Funds that are not provided by
the Trust's Investment Managers, including the payment of the salaries of
officers, preparation and maintenance of books and records, preparation of tax
and financial reports, and monitoring compliance with regulatory requirements.
The fees paid to the Business Manager, which are 0.15% or less of the average
daily net assets of each Fund, are not separate expenses of the Funds but are
paid by the Manager from the management fees it receives from the Funds. The
subcontract is not renewed on any schedule, but upon termination of the Funds'
contract with the Manager, the subcontract will also terminate.
The Manager has agreed in advance to waive a portion of its management fees and
to make certain payments to reduce expenses so that each Fund's aggregate annual
operating expenses do not exceed 1.25% of each Fund's average net assets for the
current fiscal year. After October 31, 1996, the Manager may terminate this
arrangement at any time.
During the fiscal year ended October 31, 1995, management fees for the High
Income Fund, before any advance waiver, totaled 0.65% of the average daily net
assets of the Fund. Total operating expenses, including management fees before
any advance waiver, totaled 1.45% of the average daily net assets of the Fund.
Pursuant to an agreement by Advisers to limit its fees, the High Income Fund
paid management fees totaling 0.45% of the average daily net assets of the Fund
and operating expenses totaling 1.25%.
During the fiscal year ended October 31, 1995, management fees for the Global
Currency and Hard Currency Funds totaling 0.65% of the average daily net assets
of each Fund were paid to Advisers. During that same period, expenses borne by
the Funds, including fees paid to Advisers and to Investor Services, totaled
0.99% of the average daily net assets of the Global Currency Fund and 1.15% of
the average daily net assets of the Hard Currency Fund.
Among the responsibilities of the Manager under the management agreement is the
selection of brokers and dealers through whom transactions in the Funds'
portfolio securities will be effected. The Manager tries to obtain the best
execution on all such transactions. If it is felt that more than one broker is
able to provide the best execution, the Manager will consider the furnishing of
quotations and of other market services, research, statistical and other data
for the Manager and its affiliates, as well as the sale of shares of the Fund,
as factors in selecting a broker. Further information is included under "How Do
the Funds Purchase Securities For Their Portfolio?" in the SAI.
Shareholder accounting and many of the clerical functions for the Funds are
performed by Investor Services, in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly owned subsidiary of
Resources.
Plan of Distribution
A plan of distribution (the "Plan") has been approved and adopted for the Funds
pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Funds may
reimburse Distributors or others for all expenses incurred by Distributors or
others in the promotion and distribution of a Fund's shares. Such expenses may
include, but are not limited to, the printing of prospectuses and reports used
for sales purposes, expenses of preparing and distributing sales literature and
related expenses, advertisements, and other distribution-related expenses,
including a prorated portion of Distributors' overhead expenses attributable to
the distribution of Fund shares, as well as any distribution or service fees
paid to securities dealers or their firms or others who have executed a
servicing agreement with a Fund, Distributors or its affiliates.
The amount which each Fund may reimburse to Distributors or others for such
distribution expenses is 0.25% per annum of its average daily net assets,
payable on a quarterly basis. Each Fund is also permitted to pay Distributors up
to an additional 0.20% per annum of its daily net assets for reimbursement of
distribution expenses. All expenses of distribution in excess of 0.45% per annum
will be borne by Distributors, or others who have incurred them, without
reimbursement from the Funds.
The Plan also covers any payments to or by the Funds, Advisers, Distributors, or
other parties on behalf of the Funds, Advisers or Distributors, to the extent
such payments are deemed to be for the financing of any activity primarily
intended to result in the sale of shares issued by a Fund within the context of
Rule 12b-1. The payments under the Plan are included in the maximum operating
expenses which may be borne by each Fund. For more information, please see "The
Funds' Underwriter" in the SAI.
What Distributions Might I
Receive from the Funds?
You may receive two types of distributions from the Funds:
1. Income dividends. The Funds receive income generally in the form of
dividends, interest and other income derived from their investments. This
income, less the expenses incurred in the Funds' operations, is their 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 Funds may derive capital gains or losses in
connection with sales or other dispositions of their portfolio securities.
Distributions by the Funds derived from net short-term and net long-term capital
gains (after taking into account any net capital loss carryovers) may generally
be made once a year in December to reflect any net short-term and net long-term
capital gains realized by the Funds as of October 31 of the current fiscal year
and any undistributed capital gains from the prior fiscal year. The Funds 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.
Distribution Date
Although subject to change by the Board without prior notice to or approval by
shareholders, the Funds' current policy is to declare income dividends monthly
for shareholders of record on the first business day preceding the 15th of the
month, payable on or about the last business day of that month.
The amount of income dividend payments by the Funds is dependent upon the amount
of net income received by each Fund from its portfolio holdings, is not
guaranteed and is subject to the discretion of the Board. A Fund's shares are
quoted ex-dividend on the first business day following the record date
(generally the 15th day of the month or prior business day depending on the
record date). The Funds do not pay "interest" or guarantee any fixed rate of
return on an investment in their shares.
In order to be entitled to a dividend, you must have acquired Fund shares prior
to the close of business on the record date. If you are considering purchasing
Fund shares shortly before the record date of a distribution, you should be
aware that because the value of a Fund's shares is based directly on the amount
of its net assets, rather than on the principle of supply and demand, any
distribution of income or capital gain will result in a decrease in the value of
a Fund's shares equal to the amount of the distribution. While a dividend or
capital gain distribution received shortly after purchasing shares represents,
in effect, a return of a portion of your investment, it may be taxable as
dividend income or capital gain.
Distribution Options
You may choose to receive your distributions from a Fund in any of these ways:
1. Purchase additional shares of a Fund - You may purchase additional shares of
a Fund (without a sales charge or imposition of a contingent deferred sales
charge) by reinvesting capital gain distributions, or both dividend and capital
gain distributions. This is a convenient way to accumulate additional shares and
maintain or increase your earnings base.
2. Purchase shares of other Franklin Templeton Funds - You may direct your
distributions to purchase the same class of shares of another Franklin Templeton
Fund (without a sales charge or imposition of a contingent deferred sales
charge). Many shareholders find this a convenient way to diversify their
investments.
3. Receive distributions in cash - You may choose to receive dividends, or both
dividend and capital gain distributions in cash. You may have the money sent
directly to you, to another person, or to a checking account. If you choose to
send the money to a checking account, please see "Electronic Fund Transfers"
under "What Programs and Privileges Are Available to Me as a Shareholder?"
To select one of these options, please complete sections 6 and 7 of the
Shareholder Application included with this Prospectus or tell your investment
representative which option you prefer. If no option is selected, dividend and
capital gain distributions will be automatically reinvested in the original
Fund. You may change the distribution option selected at any time by notifying
the respective Fund by mail or by telephone. Please allow at least seven days
prior to the record date for the Fund to process the new option.
How Taxation Affects You and the Funds
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For additional information on tax matters
relating to the Funds and their shareholders, see "Additional Information
Regarding Taxation" in the SAI.
Each Fund intends to continue to qualify as a regulated investment company under
Subchapter M of the Code. By distributing all of its income and meeting certain
other requirements relating to the sources of its income and diversification of
its assets, a Fund will not be liable for federal income or excise taxes.
Regular income dividends (which are generally distributed monthly) will be
determined from each Fund's net investment income, excluding any realized net
foreign currency gains and losses. Under U.S. Treasury regulations, net realized
foreign currency gains and losses are required to be reported as ordinary income
or loss to each Fund. Therefore, if in the course of a fiscal year, a Fund
realizes net foreign currency losses, that Fund may be required to reclassify
all or a portion of its income dividend distributions made during such fiscal
year as a return-of-capital for federal income tax purposes. Net foreign
currency gains, if any, will generally be distributed as a supplemental income
dividend once each year in December to reflect any net foreign currency gain
realized by a Fund as of October 31 for the current fiscal year, and may also
reflect any undistributed foreign currency gains for the prior fiscal year. You
will be informed of the tax status of all distributions shortly after the close
of each calendar year.
For federal income tax purposes, any income dividends which you receive from a
Fund, as well as any distributions derived from the excess of net short-term
capital gain over net long-term capital loss, are treated as ordinary income
whether you have elected to receive them in cash or in additional shares.
Distributions derived from the excess of net long-term capital gain over net
short-term capital loss are treated as long-term capital gain regardless of the
length of time you have owned Fund shares and regardless of whether such
distributions are received in cash or in additional shares.
Pursuant to the Code, certain distributions which are declared in October,
November or December but which, for operational reasons, may not be paid to you
until the following January, will be treated for tax purposes as if paid by a
Fund and received by you on December 31 of the calendar year in which they are
declared.
Redemptions and exchanges of a Fund's shares are taxable events on which you may
realize a gain or a loss. Any loss incurred on sale or exchange of each Fund's
shares, held for six months or less, will be treated as a long-term capital loss
to the extent of capital gain dividends received with respect to such shares.
If you are not a U.S. person for purposes of federal income taxation, you should
consult with your financial or tax advisors regarding the applicability of U.S.
withholding or other taxes on distributions you received from the Funds and the
application of foreign tax laws to these distributions.
You should consult your tax advisors with respect to the applicability of state
and local intangible property or income taxes to your shares in the Funds and to
distributions and redemption proceeds received from the Funds.
How Do I Buy Shares?
You may buy shares to open a Fund account with as little as $100 and make
additional investments at any time with as little as $25. These minimums may be
waived when shares are purchased by retirement plans. To open your account,
contact your investment representative or complete and sign the enclosed
Shareholder Application and return it to a Fund with your check.
Purchase Price of Fund Shares
You may buy shares at the public offering price, unless you qualify to purchase
shares at a discount or without a sales charge as discussed below. The offering
price will be calculated to two decimal places using standard rounding criteria.
Quantity Discounts in Sales Charges
The sales charge you pay when you buy shares may be reduced based upon the size
of your purchase, as shown in the table below.
<TABLE>
<CAPTION>
Total Sales Charge
As a Percentage of
Amount Allowed to
Net Amount Dealer as a Percentage
Size of Transaction at Offering Price Offering Price Invested of Offering Price*
<S> <C> <C> <C>
Less than $50,000....................... 3.00% 3.09% 2.60%
$50,000 but less than $100,000.......... 2.50% 2.56% 2.25%
$100,000 but less than $250,000......... 2.00% 2.04% 1.85%
$250,000 but less than $500,000......... 1.50% 1.52% 1.40%
$500,000 but less than $750,000......... 1.00% 1.01% 1.00%
$750,000 but less than $1,000,000....... 0.75% 0.76% 0.75%
$1,000,000 or more...................... None** None None***
</TABLE>
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages indicated. Distributors may at times reallow
the entire sales charge to the securities dealer. A securities dealer who
receives 90% or more of the sales commission may be deemed an underwriter under
the Securities Act of 1933, as amended.
**A contingent deferred sales charge of 1% may be imposed on certain redemptions
of all or a part of an investment of $1 million or more. See "How Do I Sell
Shares? - Contingent Deferred Sales Charge."
***Please see "General - Other Payments to Securities Dealers" below for a
discussion of payments Distributors may make to securities dealers out of its
own resources.
Rights of Accumulation. To determine if you may pay a reduced sales charge, you
may add the cost or current value, whichever is higher, of your Class I and
Class II shares in other Franklin Templeton Funds, as well as those of your
spouse, children under the age of 21 and grandchildren under the age of 21, to
the amount of your current purchase. To receive the reduction, you or your
investment representative must notify Distributors that your investment
qualifies for a discount.
Letter of Intent. You may purchase shares at a reduced sales charge by
completing the Letter of Intent section of the Shareholder Application. A Letter
of Intent is a commitment by you to invest a specified dollar amount during a 13
month period. The amount you agree to invest determines the sales charge you
pay. You or your investment representative must inform us that the Letter is in
effect each time you purchase shares.
By completing the Letter of Intent section of the Shareholder Application, you
acknowledge and agree to the following:
o You authorize Distributors to reserve five percent (5%) of the amount of the
total intended purchase in Fund shares registered in your name.
o You grant Distributors a security interest in these shares and appoint
Distributors as attorney-in-fact with full power of substitution to redeem any
or all of these reserved shares to pay any unpaid sales charge if you do not
fulfill the terms of the Letter.
o We will include the reserved shares in the total shares you own as reflected
on your periodic statements.
o You will receive dividend and capital gain distributions on the reserved
shares; we will pay or reinvest these distributions as you direct.
o Although you may exchange your shares, you may not liquidate reserved shares
until you complete the Letter or pay the higher sales charge.
o Our policy of reserving shares does not apply to certain benefit plans
described under "Purchases at Net Asset Value."
If you would like more information about the Letter of Intent privilege, please
see "How Do I Buy and Sell Shares? - Letter of Intent" in the SAI or call our
Shareholder Services Department.
Group Purchases. If you are a member of a qualified group, you may purchase a
Fund's shares at the reduced sales charge applicable to the group as a whole.
The sales charge is based on the combined dollar value of the group members'
existing investments, plus the amount of the current purchase. For example, if
group members previously invested and still hold $80,000 of a Fund's shares and
invest $25,000, the sales charge will be 2.0%.
We define a qualified group as one which (i) has been in existence for more than
six months, (ii) has a purpose other than acquiring the Funds' shares at a
discount and (iii) satisfies uniform criteria which enable Distributors to
realize economies of scale in its costs of distributing shares.
In addition, a qualified group must have more than 10 members, and be available
to arrange for meetings between our representatives and group members. It must
also agree to include sales and other materials related to the Franklin
Templeton Funds in publications and mailings to its members at reduced or no
cost to Distributors, and arrange for payroll deduction or other bulk
transmission of investments to the respective Fund.
If you select a payroll deduction plan, your investments will continue
automatically until you notify the respective Fund and your employer to
discontinue further investments. Due to the varying procedures used by employers
to handle payroll deductions, there may be a delay between the time of the
payroll deduction and the time the money reaches a Fund. We invest your purchase
at the applicable offering price per share determined on the day that the
respective Fund receives both the check and the payroll deduction data in
required form.
Purchases at Net Asset Value
You may invest money from the following sources in shares of a Fund without
paying front-end or contingent deferred sales charges:
(i) a distribution that you have received from a Franklin Templeton Fund or a
real estate investment trust ("REIT") sponsored or advised by Franklin
Properties, Inc., if the distribution is returned within 365 days of its payment
date. You may reinvest Class II distributions in either Class I or Class II
shares, but Class I distributions may only be invested in Class I shares under
this privilege. For more information, see "Distribution Options" under "What
Distributions Might I Receive from the Funds?" or call Shareholder Services at
1-800/632-2301;
(ii) a redemption from a mutual fund with investment objectives similar to those
of a Fund, if (a) your investment in that fund was subject to either a front-end
or contingent deferred sales charge at the time of purchase, (b) the fund is not
part of the Franklin Templeton Funds, and (c) your redemption occurred within
the past 60 days;
(iii) a distribution from an existing retirement plan already invested in the
Franklin Templeton Funds (including the Franklin Templeton Profit Sharing 401(k)
plan), up to the total amount of the distribution. The distribution must be
returned to a Fund within 365 days of the distribution date; or
(iv) a redemption from Templeton Institutional Funds, Inc., if you then reinvest
the redemption proceeds under an employee benefit plan qualified under Section
401 of the Code, in shares of a Fund.
You may also reinvest the proceeds from a redemption of any of the Franklin
Templeton Funds at net asset value. To do so, you must (a) have paid a sales
charge on the purchase or sale of the original shares, (b) reinvest the
redemption money in the same class of shares, and (c) request the reinvestment
of the money within 365 days of the redemption date. You may reinvest up to the
total amount of the redemption proceeds under this privilege. If a different
class of shares is purchased, the full front-end sales charge must be paid at
the time of purchase of the new shares. While you will receive credit for any
contingent deferred sales charge paid on the shares redeemed, a new contingency
period will begin. Shares that were no longer subject to a contingent deferred
sales charge will be reinvested at net asset value and will not be subject to a
new contingent deferred sales charge. Shares exchanged into other Franklin
Templeton Funds are not considered "redeemed" for this privilege (see "What If
My Investment Outlook Changes? - Exchange Privilege").
If you immediately reinvested your redemption proceeds in a Franklin Bank
Certificate of Deposit ("CD") but you would like to reinvest them back into the
Franklin Templeton Funds as described above, you will have 365 days from the
date the CD (including any rollover) matures to do so.
If your securities dealer or another financial institution reinvests your money
in a Fund at net asset value for you, that person or institution may charge you
a fee for this service.
A redemption is a taxable transaction, but reinvestment without a sales charge
may affect the amount of gain or loss you recognize and the tax basis of the
shares reinvested. If you have a loss on the redemption, the loss may be
disallowed if you reinvest in the same fund within a 30-day period. If you would
like more information regarding the possible tax consequences of such a
reinvestment, please see the tax section of this Prospectus and the SAI.
Certain categories of investors also qualify to purchase shares of a Fund at net
asset value regardless of the source of the investment proceeds. If you are or
your account is included in one of the categories below, none of the shares of
the Fund or Funds you purchase will be subject to front-end or contingent
deferred sales charges:
(i) companies exchanging shares or selling assets pursuant to a merger,
acquisition or exchange offer;
(ii) accounts managed by the Franklin Templeton Group;
(iii) certain unit investment trusts and unit holders of these trusts
reinvesting distributions from the trusts in a Fund;
(iv) registered securities dealers and their affiliates, for their investment
accounts only;
(v) current employees of securities dealers and their affiliates and their
family members, in accordance with the internal policies and procedures of the
employing securities dealer and affiliate;
(vi) broker-dealers who have entered into a supplemental agreement with
Distributors, or registered investment advisors affiliated with such
broker-dealers, on behalf of their clients who are participating in a
comprehensive fee program (sometimes known as a wrap fee program);
(vii) any state, county, or city, or any instrumentality, department, authority
or agency thereof which has determined that a Fund is a legally permissible
investment and which is prohibited by applicable investment laws from paying a
sales charge or commission in connection with the purchase of shares of any
registered management investment company ("an eligible governmental authority").
IF YOU ARE SUCH AN INVESTOR, PLEASE CONSULT YOUR OWN LEGAL ADVISORS TO DETERMINE
WHETHER AND TO WHAT EXTENT THE SHARES OF EACH FUND CONSTITUTE LEGAL INVESTMENTS.
Municipal investors considering investment of proceeds of bond offerings into a
Fund should consult with expert counsel to determine the effect, if any, of
various payments made by that Fund or the Manager on arbitrage rebate
calculations. If you are a securities dealer who has executed a dealer agreement
with Distributors and, through your services, an eligible governmental authority
invests in a Fund at net asset value, Distributors or one of its affiliates may
make a payment, out of its own resources, to you in an amount not to exceed
0.25% of the amount invested. Please contact the Franklin Templeton
Institutional Services Department for additional information;
(viii) officers, trustees, directors and full-time employees of the Franklin
Templeton Funds, or of the Franklin Templeton Group, and their family members.
Although you may pay sales charges on investments in accounts opened after your
association with us has ended, you may continue to invest in accounts opened
while you were with us without paying sales charges;
(ix) trust companies and bank trust departments that exercise exclusive
discretionary investment authority over funds held in a fiduciary, agency,
advisory, custodial or similar capacity and agree to invest at least $1 million
in Franklin Templeton Funds over a 13-month period. We will accept orders for
such accounts by mail accompanied by a check or by telephone or other means of
electronic data transfer directly from the bank or trust company, with payment
by federal funds received by the close of business on the next business day
following such order;
(x) group annuity separate accounts offered to retirement plans;
(xi) trustees or other fiduciaries purchasing securities for certain retirement
plans of organizations with collective retirement plan assets of $1 million or
more, without regard to where such assets are currently invested;
(xii) Designated Retirement Plans. Non-Designated Retirement Plans may also
qualify to purchase shares of a Fund under this privilege if they meet the
requirements described for Designated Retirement Plans and those under "Group
Purchases," above; or
(xiii) registered investment advisors buying on behalf of a client, provided
that the registered investment advisor has a pre-existing investment advisory
relationship with the investor under which the investor compensates the
registered investment advisor through payment of an investment advisory fee and
the qualifying investment in such Fund is made within the context of that
investment advisory relationship. Shares acquired pursuant to this provision are
not eligible for exchange at net asset value into another Franklin Templeton
Fund.
If you qualify to buy shares at net asset value as discussed in this section,
please specify in writing the privilege that applies to your purchase and
include that written statement with your purchase order. We will not be
responsible for purchases that are not made at net asset value if this written
statement is not included with your order.
If you would like more information, please see "How Do I Buy and Sell Shares?"
in the SAI.
How Do I Buy Shares in Connection
with Tax-Deferred Retirement Plans?
Your individual or employer-sponsored tax-deferred retirement plans may invest
in a Fund. You may use the Funds for an existing retirement plan, or, because
Trust Company can serve as custodian or trustee for retirement plans, you may
ask Trust Company to provide the plan documents and serve as custodian or
trustee. A plan document must be adopted in order for a retirement plan to be in
existence.
Brochures for Trust Company plans contain important information regarding
eligibility, contribution and deferral limits and distribution requirements.
Please note that you must use an application other than the one contained in
this Prospectus to establish a retirement plan account with Trust Company. To
obtain a retirement plan brochure or application, please call 1-800/DIAL BEN
(1-800/342-5236).
Please see "How Do I Sell Shares?" for information regarding redemptions from
retirement plan accounts. You must complete specific forms in order to receive
distributions from Trust Company retirement plans.
Individuals and plan sponsors should consult with legal, tax or benefits and
pension plan consultants before choosing a retirement plan. In addition, if you
are a retirement plan investor, you should consider consulting your investment
representatives or advisors about investment decisions within your plans.
General
The Funds continuously offer their shares through securities dealers who have an
agreement with Distributors. The Funds and Distributors may refuse any order for
the purchase of shares.
Securities laws of states in which the Funds offers their shares may differ from
federal law. Banks and financial institutions that sell shares of the Funds may
be required to register as securities dealers pursuant to state law.
Other Payments to Securities Dealers. Distributors will pay the following
commissions, out of its own resources, to securities dealers who initiate and
are responsible for purchases of $1 million or more: 0.75% on sales of $1
million but less than $2 million, plus 0.60% on sales of $2 million but less
than $3 million, plus 0.50% on sales of $3 million but less than $50 million,
plus 0.25% on sales of $50 million but less than $100 million, plus 0.15% on
sales of $100 million or more. These breakpoints are reset every 12 months for
purposes of additional purchases.
Distributors or one of its affiliates may also pay up to 1% of the purchase
price to securities dealers who initiate and are responsible for purchases made
at net asset value by any of the entities described in paragraphs (ix), (xi) or
(xii) under "Purchases at Net Asset Value" above and up to 0.75% of the purchase
price to securities dealers who initiate and are responsible for purchases made
at net asset value by Non-Designated Retirement Plans. These payments may not be
made to securities dealers or others in connection with the sale of Fund shares
if the payments might be used to offset administration or recordkeeping costs
for retirement plans or circumstances suggest that plan sponsors or
administrators might use or otherwise allow the use of Rule 12b-1 fees to offset
such costs. Please see "How Do I Buy and Sell Shares?" in the SAI for the
breakpoints applicable to these purchases.
Either Distributors or one of its affiliates, out of its own resources, may also
provide additional compensation to securities dealers in connection with the
sale of shares of the Franklin Templeton Funds. In some cases, this compensation
may be available only to securities dealers whose representatives have sold or
are expected to sell significant amounts of shares of the Franklin Templeton
Funds. Compensation may include financial assistance and payments made in
connection with conferences, sales or training programs for employees of the
securities dealer, seminars for the public, advertising, sales campaigns and/or
shareholder services, programs regarding one or more of the Franklin Templeton
Funds and other programs or events sponsored by securities dealers, and payment
for travel expenses of invited registered representatives and their families,
including lodging, in connection with business meetings or seminars located
within or outside the U.S. Securities dealers may not use sales of the Funds'
shares to qualify for this compensation if prohibited by the laws of any state
or self-regulatory agency, such as the National Association of Securities
Dealers, Inc. None of this compensation is paid for by the Funds or their
shareholders.
For additional information about shares of the Funds, please see "How Do I Buy
and Sell Shares?" in the SAI. The SAI also includes a listing of the officers
and trustees of the Trust who are affiliated with Distributors. See "Officers
and Trustees."
What Programs and Privileges
Are Available to Me As a Shareholder?
Certain of the programs and privileges described in this section may not be
available directly from the Funds if your shares are held, of record, by a
financial institution or in a "street name" account or networked account through
the National Securities Clearing Corporation ("NSCC") (see "Registering Your
Account" in this Prospectus).
Share Certificates
Shares from an initial investment, as well as subsequent investments, including
the reinvestment of dividends and capital gain distributions, are generally
credited to an account in the name of an investor on the books of a Fund,
without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss or
theft of a share certificate. A lost, stolen or destroyed certificate cannot be
replaced without obtaining a sufficient indemnity bond. The cost of such a bond,
which is generally borne by you, can be 2% or more of the value of the lost,
stolen or destroyed certificate. A certificate will be issued if requested by
you or your securities dealer.
Confirmations
A confirmation statement will be sent to you quarterly to reflect the dividends
reinvested during that period and after each other transaction which affects
your account. This statement will also show the total number of shares you own,
including the number of shares in "plan balance" for your account.
Automatic Investment Plan
The Automatic Investment Plan offers a convenient way to invest in the Funds.
Under the plan, you can arrange to have money transferred automatically from
your checking account to a Fund each month to buy additional shares. If you are
interested in this program, please refer to the Automatic Investment Plan
Application at the back of this Prospectus for the requirements of the program
or contact your investment representative. Of course, the market value of a
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 terminate the program at
any time by notifying Investor Services by mail or by phone.
Systematic Withdrawal Plan
The Systematic Withdrawal Plan allows you to receive regular payments from your
account on a monthly, quarterly, semiannual or annual basis. To establish a
Systematic Withdrawal Plan, the value of your account must be at least $5,000
and the minimum payment amount for each withdrawal must be at least $50. Please
keep in mind that $50 is merely the minimum amount and is not a recommended
amount. 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 receive your payments in any of the following ways:
1. Purchase shares of other Franklin Templeton Funds - You may direct your
payments to purchase the same class of shares of another Franklin Templeton
Fund.
2. Receive payments in cash - You may choose to receive your payments in cash.
You may have the money sent directly to you, to another person, or to a checking
account. If you choose to have the money sent to a checking account, please see
"Electronic Fund Transfers" below.
There are no service charges for establishing or maintaining a Systematic
Withdrawal Plan. Once your plan is established, any distributions paid by that
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 first business day of the month in which a payment is
scheduled. You will generally receive your payments within three to five days
after the shares are redeemed.
Redeeming shares through a Systematic Withdrawal Plan may reduce or exhaust the
shares in your account if payments exceed distributions received from that 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. Redemptions under a
Systematic Withdrawal Plan are considered a sale for federal income tax
purposes. 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.
While a Systematic Withdrawal Plan is in effect, shares must be held either in
plan balance or, where share certificates are outstanding, deposited with the
respective Fund. You should ordinarily not make additional investments in a Fund
of less than $5,000 or three times the amount of annual withdrawals under the
plan because of the sales charge on additional purchases. Shares redeemed under
the plan may also be subject to a contingent deferred sales charge. Please see
"Contingent Deferred Sales Charge" under "How Do I Sell Shares?"
You may terminate a Systematic Withdrawal Plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying Investor Services in
writing at least seven business days prior to the end of the month preceding a
scheduled payment. A Fund may also terminate a Systematic Withdrawal Plan by
notifying you in writing and will automatically terminate a Systematic
Withdrawal Plan if all shares in your account are withdrawn or if a Fund
receives notification of the shareholder's death or incapacity.
Electronic Fund Transfers
You may choose to have distributions from a Fund or payments under a Systematic
Withdrawal Plan sent directly to a checking account. If the checking account is
maintained at a bank that is a member of the Automated Clearing House, the
payments may be made automatically by electronic funds transfer. If you choose
this option, please allow at least fifteen days for initial processing. Any
payments made during that time will be sent to the address of record on your
account.
Institutional Accounts
There may be additional methods of buying, selling or exchanging shares of a
Fund available to institutional accounts. For further information, contact the
Franklin Templeton Institutional Services Department at 1-800/321-8563.
What If My Investment Outlook Changes? - Exchange Privilege
The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives and policies. The shares of most of these funds are
offered to the public with a sales charge. If your investment objective or
outlook for the securities markets changes, a Fund's shares may be exchanged for
the same class of shares of another Franklin Templeton Fund eligible for sale in
your state of residence and in conformity with that fund's stated eligibility
requirements and investment minimums.
No exchanges between different classes of shares will be allowed. You may choose
to sell your shares of a Fund and buy Class II shares of another Franklin
Templeton Fund but such purchase will be subject to that fund's Class II
front-end and contingent deferred sales charges. Although there are no exchanges
between different classes of shares, Class II shareholders of a Franklin
Templeton Fund may elect to direct their dividends and capital gain
distributions to a Fund at net asset value.
A contingent deferred sales charge will not be imposed on exchanges. If,
however, the exchanged shares were subject to a contingent deferred sales charge
in the original fund purchased and shares are subsequently redeemed within the
contingency period, a contingent deferred sales charge will be imposed.
Before making an exchange, you should review the prospectus of the fund you wish
to exchange from and the fund you wish to exchange into for all specific
requirements or limitations on exercising the exchange privilege, for example,
limitations on a fund's sale of its shares, minimum holding periods for
exchanges at net asset value, or applicable sales charges.
You may exchange shares in any of the following ways:
By Mail
Send written instructions signed by all account owners and accompanied by any
outstanding share certificates properly endorsed. The transaction will be
effective upon receipt of the written instructions together with any outstanding
share certificates.
By Telephone
You or your investment representative of record, if any, may exchange shares of
the Funds by calling Investor Services at 1-800/632-2301 or the automated
TeleFACTS(R) system (day or night) at 1-800/247-1753. If you do not wish this
privilege extended to a particular account, you should notify that Fund or
Investor Services.
The telephone exchange privilege allows you to effect exchanges from each Fund
into an identically registered account of the same class of shares in one of the
other available Franklin Templeton Funds. The telephone exchange privilege is
available only for uncertificated shares or those which have previously been
deposited in your account. The Funds and Investor Services will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. Please see "Telephone Transactions - Verification Procedures."
During periods of drastic economic or market changes, it is possible that the
telephone exchange privilege may be difficult to implement and the TeleFACTS
option may not be available. In this event, you should follow the other exchange
procedures discussed in this section, including the procedures for processing
exchanges through securities dealers.
Through Securities Dealers
As is the case with all purchases and redemptions of a Fund's shares, Investor
Services will accept exchange orders from securities dealers who execute a
dealer or similar agreement with Distributors. See also "By Telephone" above.
Such a dealer-ordered exchange will be effective only for uncertificated shares
on deposit in your account or for which certificates have previously been
deposited. A securities dealer may charge a fee for handling an exchange.
Additional Information Regarding Exchanges
Exchanges are made on the basis of the net asset values of the funds involved,
except as set forth below. Exchanges of shares of a Fund which were purchased
without a sales charge will be charged a sales charge in accordance with the
terms of the prospectus of the fund being purchased, unless the original
investment in the Franklin Templeton Funds was made pursuant to the privilege
permitting purchases at net asset value, as discussed under "How Do I Buy
Shares?" Exchanges of shares of a Fund which were purchased with a lower sales
charge into a fund which has a higher sales charge will be charged the
difference, unless the shares were held in a Fund for at least six months prior
to executing the exchange.
The contingency period during which a contingent deferred sales charge may be
assessed will be tolled (or stopped) for the period shares are exchanged into
and held in a Franklin or Templeton money market fund. If your account has
shares subject to a contingent deferred sales charge, shares will be exchanged
into the new account on a "first-in, first-out" basis. See "How Do I Sell
Shares? - Contingent Deferred Sales Charge" for a discussion of investments
subject to a contingent deferred sales charge.
If you request the exchange of the total value of your account, declared but
unpaid income dividends and capital gain distributions will be transferred to
the fund being exchanged into and will be invested at net asset value. Because
the exchange is considered a redemption and purchase of shares, you may realize
a gain or loss for federal income tax purposes. Backup withholding and
information reporting may also apply. Information regarding the possible tax
consequences of such an exchange is included in the tax section in this
Prospectus and under "Additional Information Regarding Taxation" in the SAI.
If a substantial portion of a Fund's shareholders should, within a short period,
elect to redeem their shares of the Fund pursuant to the exchange privilege, the
Fund might have to liquidate portfolio securities it might otherwise hold and
incur the additional costs related to such transactions. On the other hand,
increased use of the exchange privilege may result in periodic large inflows of
money. If this should occur, it is the general policy of each Fund to initially
invest this money in short-term, interest-bearing money market instruments,
unless it is felt that attractive investment opportunities consistent with the
Fund's investment objective exist immediately. Subsequently, this money will be
withdrawn from such short-term money market instruments and invested in
portfolio securities in as orderly a manner as is possible when attractive
investment opportunities arise.
The exchange privilege may be modified or discontinued by each Fund at any time
upon 60 days' written notice to shareholders.
Retirement Plan Accounts
Franklin Templeton IRA and 403(b) retirement plan accounts may exchange shares
directly. Certain restrictions may apply, however, to other types of retirement
plans. See "Restricted Accounts" under "Telephone Transactions."
Market Timers
Market Timers will be charged a $5.00 administrative service fee for each
exchange. All other exchanges are without charge.
Restrictions on Exchanges
In accordance with the terms of their respective prospectuses, certain funds do
not accept or may place differing limitations than those below on exchanges by
Market Timers.
Each Fund reserves the right to temporarily or permanently terminate the
exchange privilege or reject any specific purchase order for any Market Timer or
any person whose transactions seem to follow a timing pattern who: (i) makes an
exchange request out of a Fund within two weeks of an earlier exchange request
out of the Fund, (ii) makes more than two exchanges out of a Fund per calendar
quarter, or (iii) exchanges shares equal in value to at least $5 million, or
more than 1% of a Fund's net assets. Accounts under common ownership or control,
including accounts administered by Market Timers, will be aggregated for
purposes of the exchange limits.
Each Fund also reserves the right to refuse the purchase side of an exchange
request by any Market Timer, person, or group if, in the Manager's judgment,
that Fund would be unable to invest effectively in accordance with its
investment objective and policies, or would otherwise potentially be adversely
affected. The purchase side of an exchange may be restricted or refused if a
Fund receives or anticipates simultaneous orders affecting significant portions
of a Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to a Fund and therefore may be
refused.
The Funds and Distributors, as indicated in "How Do I Buy Shares?", reserve the
right to refuse any order for the purchase of shares.
How Do I Sell Shares?
You may sell (redeem) your shares at any time and receive from that Fund the
value of the shares. You may sell shares in any of the following ways:
By Mail
Send a written request signed by all registered owners to Investor Services, at
the address shown on the back cover of this Prospectus, and any share
certificates which have been issued for the shares being redeemed, properly
endorsed and in order for transfer. You will then receive from the Fund the
value of the shares redeemed based upon the net asset value per share (less a
contingent deferred sales charge, if applicable) next computed after the written
request in proper form is received by Investor Services. Redemption requests
received after the time at which the net asset value is calculated will receive
the price calculated on the following business day. The net asset value per
share is determined as of the scheduled close of the Exchange (generally 1:00
p.m. Pacific time) each day that the Exchange is open for trading. You are
requested to provide a telephone number where you may be reached during business
hours, or in the evening if preferred. Investor Services' ability to contact you
promptly when necessary will speed the processing of the redemption.
To be considered in proper form, signatures must be guaranteed if the redemption
request involves any of the following:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other than the
registered owners of the account;
(3) the proceeds (in any amount) are to be sent to any address other than the
address of record, preauthorized bank account or brokerage firm account;
(4) share certificates, if the redemption proceeds are in excess of $50,000; or
(5) a Fund or Investor Services believes that a signature guarantee would
protect against potential claims based on the transfer instructions, including,
for example, when (a) the current address of one or more joint owners of an
account cannot be confirmed, (b) multiple owners have a dispute or give
inconsistent instructions to a Fund, (c) a Fund has been notified of an adverse
claim, (d) the instructions received by a Fund are given by an agent, not the
actual registered owner, (e) a Fund determines that joint owners who are married
to each other are separated or may be the subject of divorce proceedings, or (f)
the authority of a representative of a corporation, partnership, association, or
other entity has not been established to the satisfaction of a Fund.
Signatures must be guaranteed by an "eligible guarantor institution" as defined
under Rule 17Ad-15 under the Securities Exchange Act of 1934. Generally,
eligible guarantor institutions include (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities exchanges,
registered securities associations and clearing agencies; (3) securities dealers
that are members of a national securities exchange or a clearing agency or that
have minimum net capital of $100,000; or (4) institutions that participate in
the Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature guarantee medallion program. A notarized signature will not be
sufficient for the request to be in proper form.
When shares to be redeemed are represented by share certificates, the request
for redemption must be accompanied by the share certificate and a share
assignment form signed by the registered owners exactly as the account is
registered, with the signatures guaranteed as referenced above. You are advised,
for your protection, to send the share certificate and assignment form in
separate envelopes if they are being mailed in for redemption.
Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction require the following
documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from the authorized
officers of the corporation, and (2) a corporate resolution.
Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent pages from the partnership agreement identifying the
general partners or a certification for a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the trustees and (2)
a copy of the pertinent pages of the trust document listing the trustees or a
Certification for Trust if the trustees are not listed on the account
registration.
Custodial (other than a retirement account) - Signature guaranteed letter of
instruction from the custodian.
Accounts under court jurisdiction - Check court documents and applicable state
law since these accounts have varying requirements, depending upon the state of
residence.
Payment for redeemed shares will be sent to you within seven days after receipt
of the request in proper form.
By Telephone
If you complete the Franklin Templeton Telephone Redemption Authorization
Agreement (the "Agreement"), included with this Prospectus, you may redeem
shares of a Fund by telephone, subject to the Restricted Account exception noted
under "Telephone Transactions - Restricted Accounts." You may obtain additional
information about telephone redemptions by writing to the Funds or Investor
Services at the address shown on the cover or by calling 1-800/632-2301. The
Funds and Investor Services will employ reasonable procedures to confirm that
instructions given by telephone are genuine. You, however, bear the risk of loss
in certain cases as described under "Telephone Transactions - Verification
Procedures."
If your account has a completed Agreement on file, redemptions of uncertificated
shares or shares which have previously been deposited with a Fund or Investor
Services may be made for up to $50,000 per day per Fund account. Telephone
redemption requests received before the scheduled close of the Exchange
(generally 1:00 p.m. Pacific time) on any business day will be processed that
same day. The redemption check will be sent within seven days, made payable to
all the registered owners on the account, and will be sent only to the address
of record.
Redemption requests by telephone will not be accepted within 30 days following
an address change by telephone. In that case, you should follow the other
redemption procedures set forth in this Prospectus. Institutional accounts
(certain corporations, bank trust departments, qualified retirement plans and
government entities that qualify to purchase shares at net asset value pursuant
to the terms of this Prospectus) that wish to execute redemptions in excess of
$50,000 must complete an Institutional Telephone Privileges Agreement which is
available from the Franklin Templeton Institutional Services Department by
calling 1-800/321-8563.
Through Securities Dealers
Each Fund will accept redemption orders from securities dealers who have entered
into an agreement with Distributors. This is known as a repurchase. The only
difference between a normal redemption and a repurchase is that if you redeem
shares through a dealer, the redemption price will be the net asset value next
calculated after your dealer receives the order which is promptly transmitted to
a Fund, rather than on the day a Fund receives your written request in proper
form. The documents described under "By Mail" above, as well as a signed letter
of instruction, are required regardless of whether you redeem shares directly or
submit such shares to a securities dealer for repurchase. Your letter should
reference a Fund, the account number, the fact that the repurchase was ordered
by a dealer and the dealer's name. Details of the dealer-ordered trade, such as
trade date, confirmation number, and the amount of shares or dollars, will help
speed processing of the redemption. The seven-day period within which the
proceeds of your redemption will be sent will begin when a Fund receives all
documents required to complete ("settle") the repurchase in proper form. The
redemption proceeds will not earn dividends or interest during the time between
receipt of the dealer's repurchase order and the date the redemption is
processed upon receipt of all documents necessary to settle the repurchase.
Thus, it is in your best interest to have the required documentation completed
and forwarded to a Fund as soon as possible. Your dealer may charge a fee for
handling the order. See "How Do I Buy and Sell Shares?" in the SAI for more
information on the redemption of shares.
Contingent Deferred Sales Charge
In order to recover commissions paid to securities dealers, all or a portion of
investments of $1 million or more redeemed within the contingency period of 12
months of the calendar month of such investment will be assessed a contingent
deferred sales charge, unless one of the exceptions described below applies. The
charge is 1% of the lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the net asset value at
the time of purchase of such shares, and is retained by Distributors. The
contingent deferred sales charge is waived in certain instances.
In determining whether a contingent deferred sales charge applies, shares not
subject to a contingent deferred sales charge are deemed to be redeemed first,
in the following order: (i) a calculated number of shares representing amounts
attributable to capital appreciation on shares held less than the contingency
period; (ii) shares purchased with reinvested dividends and capital gain
distributions; and (iii) other shares held longer than the contingency period.
Shares subject to a contingent deferred sales charge will then be redeemed on a
"first-in, first-out" basis. For tax purposes, a contingent deferred sales
charge is treated as either a reduction in redemption proceeds or an adjustment
to the cost basis of the shares redeemed.
The contingent deferred sales charge is waived, as applicable, for: specified
net asset value purchases discussed under "How Do I Buy Shares? Purchases at Net
Asset Value;" exchanges; any account fees; distributions from an individual
retirement plan account due to death or disability or upon periodic
distributions based on life expectancy; tax-free returns of excess contributions
from employee benefit plans; distributions from employee benefit plans,
including those due to termination or plan transfer; redemptions initiated by a
Fund due to an account falling below the minimum specified account size;
redemptions following the death of the shareholder or beneficial owner; and
redemptions through a Systematic Withdrawal Plan set up for shares prior to
February 1, 1995, and for Systematic Withdrawal Plans set up thereafter,
redemptions of up to 1% monthly of an account's net asset value (3% quarterly,
6% semiannually or 12% annually). For example, if an account maintained an
annual balance of $1,000,000, only $120,000 could be withdrawn through a
once-yearly Systematic Withdrawal Plan free of charge. Any amount over that
$120,000 would be assessed a 1% contingent deferred sales charge.
All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that month
and each subsequent month.
Unless otherwise specified, requests for redemptions of a specified dollar
amount will result in additional shares being redeemed to cover any applicable
contingent deferred sales charge, while requests for redemption of a specific
number of shares will result in the applicable contingent deferred sales charge
being deducted from the total dollar amount redeemed.
Additional Information Regarding Redemptions
A Fund may delay the mailing of the redemption check, or a portion thereof,
until the clearance of the check used to purchase that Fund's shares, which may
take up to 15 days or more. Although the use of a certified or cashier's check
will generally reduce this delay, shares purchased with these checks will also
be held pending clearance. Shares purchased by federal funds wire are available
for immediate redemption.
The right of redemption may be suspended or the date of payment postponed if the
Exchange is closed (other than customary closing) or upon the determination of
the SEC that trading on the Exchange is restricted or an emergency exists, or if
the SEC permits it, by order, for the protection of shareholders. Of course, the
amount received may be more or less than the amount you invested, depending on
fluctuations in the market value of securities owned by a Fund.
Retirement Plan Accounts
Retirement plan account liquidations require the completion of certain
additional forms to ensure compliance with IRS regulations. To liquidate a
retirement plan account, you or your securities dealer may call Franklin's
Retirement Plans Department to obtain the necessary forms.
Tax penalties will generally apply to any distribution from such plans to a
participant under age 591/2, unless the distribution meets one of the exceptions
set forth in the Code.
Other Information
Distribution or redemption checks sent to you do not earn interest or any other
income during the time such checks remain uncashed and neither the Funds nor
their affiliates will be liable for any loss caused by your failure to cash such
checks.
"Cash" payments to or from a Fund may be made by check, draft or wire. The Trust
has no facility to receive or pay out cash in the form of currency.
For any information required about a proposed liquidation, you may call
Franklin's Shareholder Services Department. Securities dealers may call
Franklin's Dealer Services Department.
Telephone Transactions
By calling Investor Services at 1-800/632-2301, you or your investment
representative of record, if any, may be able to execute various telephone
transactions, including to: (i) effect a change in address, (ii) change a
dividend option (see "Restricted Accounts" below), (iii) transfer a Fund's
shares in one account to another identically registered account in that Fund,
(iv) request the issuance of certificates (to be sent to the address of record
only) and (v) exchange a Fund's shares as described in this Prospectus by
telephone. In addition, if you complete and file an Agreement as described under
"How Do I Sell Shares? - By Telephone" you will be able to redeem shares of a
Fund.
Verification Procedures
Each Fund and Investor Services will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the purpose
of establishing the caller's identification, and sending a confirmation
statement on redemptions to the address of record each time account activity is
initiated by telephone. So long as the Funds and Investor Services follow
instructions communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their affiliates will be
liable for any loss to you caused by an unauthorized transaction. The Funds and
Investor Services may be liable for any losses due to unauthorized or fraudulent
instructions in the event such reasonable procedures are not followed. You are,
of course, under no obligation to apply for or accept telephone transaction
privileges. In any instance where the Funds or Investor Services is not
reasonably satisfied that instructions received by telephone are genuine, the
requested transaction will not be executed, and neither a Fund nor Investor
Services will be liable for any losses which may occur because of a delay in
implementing a transaction.
Restricted Accounts
Telephone redemptions and dividend option changes may not be accepted on
Franklin Templeton retirement accounts. To assure compliance with all applicable
regulations, special forms are required for any redemption, distribution or
dividend payment changes. While the telephone exchange privilege is extended to
Franklin Templeton IRA and 403(b) retirement accounts, certain restrictions may
apply to other types of retirement plans.
To obtain further information regarding distribution or transfer procedures,
including any required forms, retirement account shareholders may call to speak
to a Retirement Plan Specialist at 1-800/527-2020.
General
During periods of drastic economic or market changes, it is possible that the
telephone transaction privilege will be difficult to execute because of heavy
telephone volume. In these situations, you may wish to contact your investment
representative for assistance or send written instructions to a Fund as detailed
elsewhere in this Prospectus.
Neither the Funds nor Investor Services will be liable for any losses resulting
from your inability to execute a telephone transaction.
How Are the Funds' Shares Valued?
The net asset value per share of each Fund is determined as of the scheduled
close of the Exchange (generally 1:00 p.m. Pacific time) each day that the
Exchange is open for trading. Many newspapers carry daily quotations of the
prior trading day's closing "bid" (net asset value) and "ask" (offering price).
The net asset value per share of each Fund is determined by deducting the
aggregate gross value of all liabilities from the aggregate gross value of all
assets, and then dividing the difference by the number of shares outstanding.
Assets in each Fund's portfolio are valued as described under "How Are the
Funds' Shares Valued?" in the SAI.
How Do I Get More Information
About My Investment?
Any questions or communications regarding your account should be directed to
Investor Services at the address shown on the back cover of this Prospectus.
From a touch-tone phone, you may access TeleFACTS(R). By calling the TeleFACTS
system (day or night) at 1-800/247-1753, you may obtain account information,
current price and, if available, yield or other performance information specific
to each Fund or any Franklin Templeton Fund. In addition, you may process an
exchange, within the same class, into an identically registered Franklin account
and request duplicate confirmation or year-end statements and deposit slips.
The Funds' codes, which will be needed to access system information, are 211 for
the Global Currency Fund, 213 for the High Income Fund, and 212 for the Hard
Currency Fund. The system's automated operator will prompt you with easy to
follow step-by-step instructions from the main menu. Other features may be added
in the future.
To assist you and securities dealers wishing to speak directly with a
representative, the following list of Franklin departments, telephone numbers
and hours of operation is provided.
Hours of Operation (Pacific time)
Department Name Telephone No. (Monday through Friday)
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m. (Saturday)
Retirement Plans 1-800/527-2020 5:30 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
In order to ensure that the highest quality of service is being provided,
telephone calls placed to or by representatives in Franklin's service
departments may be accessed, recorded and monitored. These calls can be
determined by the presence of a regular beeping tone.
How Do the Funds Measure Performance?
Advertisements, sales literature and communications to you may contain several
measures of each Fund's performance, including current yield, various
expressions of total return and current distribution rate. They may also
occasionally cite statistics to reflect a Fund's volatility or risk.
Average annual total return figures as prescribed by the SEC represent the
average annual percentage change in value of $1,000 invested at the maximum
public offering price for one-, five- and ten-year periods, or portion thereof,
to the extent applicable, through the end of the most recent calendar quarter,
assuming reinvestment of all distributions. A Fund may also furnish total return
quotations for other periods or based on investments at various sales charge
levels or at net asset value. For such purposes, total return equals the total
of all income and capital gain paid to shareholders, assuming reinvestment of
all distributions, plus (or minus) the change in the value of the original
investment, expressed as a percentage of the purchase price.
Current yield reflects the income per share earned by each Fund's portfolio
investments. It is calculated by dividing a Fund's net investment income per
share during a recent 30-day period by the maximum public offering price on the
last day of that period and annualizing the result.
Current yield for each Fund, which is calculated according to a formula
prescribed by the SEC (see "General Information" in the SAI) is not indicative
of the dividends or distributions which were or will be paid to a Fund's
shareholders. Dividends or distributions paid to shareholders are reflected in
the current distribution rate, which may be quoted to you. The current
distribution rate is computed by dividing the total amount of dividends per
share paid by a Fund during the past 12 months by a current maximum offering
price. Under certain circumstances, such as when there has been a change in the
amount of dividend payout, or a fundamental change in investment policies, it
might be appropriate to annualize the dividends paid during the period such
policies were in effect, rather than using the dividends during the past 12
months. The current distribution rate differs from the current yield computation
because it may include distributions to shareholders from sources other than
dividends and interest, such as premium income from option writing and
short-term capital gain, and is calculated over a different period of time.
In each case, performance figures are based upon past performance, reflect all
recurring charges against Fund income and will assume the payment of the maximum
sales charge on the purchase of shares. When there has been a change in the
sales charge structure, the historical performance figures will be restated to
reflect the new rate. The investment results of a Fund, like all other
investment companies, will fluctuate over time; thus, performance figures should
not be considered to represent what an investment may earn in the future or what
a Fund's performance may be in any future period.
General Information
Reports to Shareholders
Each Fund's fiscal year ends October 31. Annual Reports containing audited
financial statements of the Trust, including the auditors' report, and
Semi-Annual Reports containing unaudited financial statements are automatically
sent to shareholders. To reduce the volume of mail sent to each household, as
well as to reduce a Fund's expenses, Investor Services will attempt to identify
related shareholders within a household and send only one copy of the report.
Additional copies may be obtained, without charge, upon request to the Trust at
the telephone number or address set forth on the cover page of this Prospectus.
Additional information on Fund performance is included in the Trust's Annual
Report to Shareholders and under "General Information" in the SAI.
Organization and Voting Rights
The Agreement and Declaration of Trust permits the trustees to issue an
unlimited number of full and fractional shares of beneficial interest, which may
be issued in any number of series and classes. Shares issued will have no
preemptive, conversion or sinking rights. Shares of each series have equal and
exclusive rights as to dividends and distributions as declared by such series
and the net assets of such series upon liquidation or dissolution. Additional
series or classes may be added in the future by the Board.
Voting rights are noncumulative, so that in any election of trustees, the
holders of more than 50% of the shares voting can elect all of the trustees, if
they choose to do so, and in such event the holders of the remaining shares
voting will not be able to elect any person or persons to the Board.
The Trust does not intend to hold annual shareholder meetings. The Trust may,
however, hold a special shareholders' meeting of a series for such purposes as
changing fundamental investment restrictions, approving a new management
agreement or any other matters which are required to be acted on by shareholders
under the 1940 Act. A meeting may also be called by the trustees in their
discretion or by shareholders holding at least ten percent of the outstanding
shares of the Trust. Shareholders will receive assistance in communicating with
other shareholders in connection with the election or removal of trustees such
as that provided in Section 16(c) of the 1940 Act.
Redemptions by the Funds
Each Fund reserves the right to redeem your shares, at net asset value, if your
account has a value of less than $50, but only where the value of your account
has been reduced by the prior voluntary redemption of shares and has been
inactive (except for the reinvestment of distributions) for a period of at least
six months, provided you are given advance notice. For more information, see
"How Do I Buy and Sell Shares?" in the SAI.
Registering Your Account
An account registration should reflect your intentions as to ownership. Where
there are two co-owners on the account, the account will be registered as "Owner
1" and "Owner 2"; the "or" designation is not used except for money market fund
accounts. If co-owners wish to have the ability to redeem or convert on the
signature of only one owner, a limited power of attorney may be used.
Accounts should not be registered in the name of a minor, either as sole or
co-owner of the account. Transfer or redemption for such an account may require
court action to obtain release of the funds until the minor reaches the legal
age of majority. The account should be registered in the name of one "Adult" as
custodian for the benefit of the "Minor" under the Uniform Transfer or Gifts to
Minors Act.
A trust designation such as "trustee" or "in trust for" should only be used if
the account is being established pursuant to a legal, valid trust document. Use
of such a designation in the absence of a legal trust document may cause
difficulties and require court action for transfer or redemption of the funds.
Shares, whether in certificate form or not, registered as joint tenants or "Jt
Ten" shall mean "as joint tenants with rights of survivorship" and not "as
tenants in common."
Except as indicated, you may transfer an account in a Fund carried in "street"
or "nominee" name by your securities dealer to a comparably registered Fund
account maintained by another securities dealer. Both the delivering and
receiving securities dealers must have executed dealer agreements on file with
Distributors. Unless a dealer agreement has been executed and is on file with
Distributors, a Fund will not process the transfer and will so inform your
delivering securities dealer. To effect the transfer, you should instruct the
securities dealer to transfer the account to a receiving securities dealer and
sign any documents required by the securities dealers to evidence consent to the
transfer. Under current procedures, the account transfer may be processed by the
delivering securities dealer and a Fund after a Fund receives authorization in
proper form from your delivering securities dealer. Account transfers may be
effected electronically through the services of the NSCC.
The Funds may conclusively accept instructions from you or your nominee listed
in publicly available nominee lists, regardless of whether the account was
initially registered in the name of or by you, your nominee, or both. If a
securities dealer or other representative is of record on your account, you will
be deemed to have authorized the use of electronic instructions on the account,
including, without limitation, those initiated through the services of the NSCC,
to have adopted as instruction and signature any such electronic instructions
received by a Fund and Investor Services, and to have authorized them to execute
the instructions without further inquiry. At the present time, such services
which are available include the NSCC's "Networking," "Fund/SERV," and "ACATS"
systems.
Any questions regarding an intended registration should be answered by the
securities dealer handling the investment, or by calling Franklin's Fund
Information Department.
Important Notice Regarding
Taxpayer IRS Certifications
Pursuant to the Code and U.S. Treasury regulations, the Funds may be required to
report to the IRS any taxable dividend, capital gain distribution, or other
reportable payment (including share redemption proceeds) and withhold 31% of any
such payments made to individuals and other non-exempt shareholders who have not
provided a correct taxpayer identification number ("TIN") and made certain
required certifications that appear in the Shareholder Application. You may also
be subject to backup withholding if the IRS or a securities dealer notifies a
Fund that the number furnished by you is incorrect or that you are subject to
backup withholding for previous under-reporting of interest or dividend income.
The Funds reserve the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then-current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by you is in
fact incorrect or upon the failure of a shareholder who has completed an
"awaiting TIN" certification to provide a Fund with a certified TIN within 60
days after opening the account.
Useful Terms and Definitions
1940 Act - Investment Company Act of 1940, as amended.
Advisers - Franklin Advisers, Inc., the Funds' investment manager.
Board - The Board of Trustees of the Trust.
Business Manager - Templeton Global Investors, Inc.
Class I and Class II - "Classes" of shares represent proportionate interests in
the same portfolio of investment securities but with different rights,
privileges and attributes, as determined by the trustees. Certain funds in the
Franklin Templeton Funds currently offer their shares in two classes, designated
"Class I" and "Class II." Because the Funds' sales charge structure and plan of
distribution are similar to those of Class I shares, shares of the Fund may be
considered Class I shares for redemption, exchange and other purposes.
Code - Internal Revenue Code of 1986, as amended.
Designated Retirement Plans - certain retirement plans, including
profit-sharing, pension, 401(k) and simplified employee pension plans, that: (i)
are sponsored by an employer with at least 200 employees; (ii) have aggregate
plan assets of at least $1 million; or (iii) agree to invest at least $1 million
in any of the Franklin Templeton Funds over a 13-month period. Distributors
determines the qualifications for Designated Retirement Plans.
Distributors - Franklin/Templeton Distributors, Inc., the Funds' principal
underwriter.
Exchange - New York Stock Exchange.
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.
Investor Services - Franklin/Templeton Investor Services, Inc.
Letter - Letter of Intent.
Manager - Franklin Advisers, Inc., the Fund's investment manager.
Market Timers - Market Timers generally include accounts administered by
allocation or market timing services so as to buy, sell or exchange shares based
upon certain predetermined market indicators.
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. When you buy, sell or exchange shares, we will use
the NAV per share next calculated after we receive your request in proper form.
Non-Designated Retirement Plans - employee benefit plans not included as
"Designated Retirement Plans" and not qualified under Section 401 of the Code.
Offering price - The public offering price is equal to the net asset value per
share plus the 3.0% sales charge.
Proper Form (Purchases) - generally, the Fund must receive a completed
Shareholder Application accompanied by a negotiable check.
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information.
SEC - Securities and Exchange Commission.
Securities Dealer - financial institutions which, either directly or through
affiliates, have 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.
Subadvisor - Templeton Investment Counsel, Inc. (TICI)
TeleFACTS(R) - Franklin Templeton's automated customer servicing system.
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.
TICI - Templeton Investment Counsel, Inc., the Subadvisor to the Funds
Trust Company - Franklin Templeton Trust Company. Trust Company is an affiliate
of Distributors and both are wholly-owned subsidiaries of Resources.
Trust's Investment Managers - Franklin Advisers, Inc., the Funds' investment
manager, and Templeton Investment Counsel, Inc., the Funds' subadvisor
U.S. - United States.
FRANKLIN TEMPLETON
GERMAN GOVERNMENT
BOND FUND
STATEMENT OF
ADDITIONAL INFORMATION
777 Mariners Island Blvd., P.O. Box 7777 MARCH 1, 1996
San Mateo, CA 94403-7777 1-800/DIAL BEN
Contents Page
How Does the Fund Invest Its Assets? 2
Investment Restrictions........... 4
Potential Benefits of Investing
in German Government Obligations. 5
Officers and Trustees............. 6
Investment Advisory and Other Services 10
How Does the Fund Purchase Securities
For Its Portfolio?............... 12
How Do I Buy and Sell Shares?..... 13
How Are Fund Shares Valued?....... 16
Additional Information
Regarding Taxation............... 17
The Fund's Underwriter............ 19
General Information............... 20
Financial Statements.............. 24
210 SAI 03/96
The Franklin Templeton German Government Bond Fund (the "Fund"), is a
non-diversified series of the Franklin Templeton Global Trust (the "Trust"),
formerly known as the Huntington Funds, an open-end management investment
company. The Fund seeks, over the long term, total return through investment in
a managed portfolio of German government bonds. Total return consists of a
combination of interest income, capital appreciation and currency gains.
A Prospectus for the Fund dated March 1, 1996, as may be amended from time to
time, provides the basic information you should know before investing in the
Fund and may be obtained without charge from the Fund or the Fund's principal
underwriter, Franklin/Templeton Distributors, Inc. ("Distributors"), at the
address or telephone number shown above.
THIS STATEMENT OF ADDITIONAL INFORMATION ("SAI") IS NOT A PROSPECTUS. IT
CONTAINS INFORMATION IN ADDITION TO AND IN MORE DETAIL THAN SET FORTH IN THE
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 FUND'S PROSPECTUS.
How Does the Fund Invest Its Assets?
The following information supplements and should be read in conjunction with the
section in the Fund's Prospectus entitled "How Does the Fund Invest Its Assets?"
Investing in Foreign Securities
Foreign securities markets generally are not as developed or efficient as those
in the United States ("U.S."). Securities of some foreign issuers are less
liquid and more volatile than securities of comparable U.S. issuers. Similarly,
volume and liquidity in most foreign securities markets are less than in the
U.S. and, at times, volatility of prices can be greater than in the U.S. In
addition, there may be less publicly available information about a non-U.S.
issuer, and non-U.S. issuers are not generally subject to uniform accounting and
financial reporting standards, practices and requirements comparable to those
applicable to U.S.
issuers.
Because foreign securities are purchased with and payable in currencies of
foreign countries, the value of these assets as measured in U.S. dollars will be
affected favorably or unfavorably by changes in currency exchange rates and
exchange control regulations. Currency exchange costs may be incurred when the
Fund sells instruments denominated in one currency and purchases instruments
denominated in another.
Furthermore, some of these securities may be subject to transaction taxes levied
by foreign governments, which would have the effect of increasing the cost of
such investments and which would reduce the realized gain or increase the
realized loss on such securities at the time of sale. Transaction costs and
custodial expenses for a portfolio of non-U.S. securities generally are higher
than for a portfolio of U.S. securities. Interest payments from certain foreign
securities may be subject to foreign withholding taxes on interest income
payable on the securities.
U.S. government policies have in the past, through taxation and other
restrictions, discouraged certain investments abroad by U.S. investors. While no
such restrictions are currently in effect, they could be reinstituted. In such
event, it may be necessary for the Fund to invest temporarily all or
substantially all of its assets in U.S. money market instruments, or it may
become necessary to liquidate the Fund.
The German government obligations in which the Fund invests are denominated in
the German mark and are rated at the time of purchase triple A by a U.S.
nationally recognized rating service, such as Standard & Poor's Corporation
("S&P") or Moody's Investors Service ("Moody's"), or, if unrated, are considered
by the Fund's Investment Managers to be of comparable quality to a triple A
rated instrument.
Consistent with its investment objective, the Fund may also invest up to 35% of
its total assets in (i) German mark-denominated bonds and other debt instruments
issued by sovereign governments other than the Federal Republic of Germany and
by supranational organizations (such as the World Bank) which are rated at time
of purchase triple A by a U.S. nationally recognized rating service, such as S&P
or Moody's, or which, if unrated, are considered by the Fund's Advisers to be of
comparable quality to a triple A rated instrument; and (ii) cash and money
market instruments denominated in the German mark which are rated at time of
purchase A-1+ by S&P and/or P-1 by Moody's, or which, if unrated, are considered
by the Fund's Investment Managers to be of comparable high quality.
Currency Transactions
Generally, the currency exchange transactions of the Fund are conducted on a
spot (i.e., cash) basis at the spot rate prevailing in the currency exchange
market for purchasing or selling currency. The Fund does not engage in hedging
strategies to protect against possible variations in the exchange rates between
the U.S. dollar and the German mark. However, the Fund may enter into forward
currency contracts in conjunction with money market instruments for the purpose
of obtaining an investment result that is substantially equivalent to a direct
investment in a foreign currency-denominated instrument. A forward currency
contract is an agreement to purchase or sell a specified currency at a specified
future date and price set at the time of the contract. The Fund may not enter
into a forward contract with a term of more than one year.
When using forward contracts for hedging purposes, the Fund may enter into
forward contracts with respect to specific transactions ("transaction hedging").
Transaction hedging is the purchase or sale of forward contracts with respect to
specific receivables or payables of the Fund generally owing in connection with
the purchase and sale of portfolio securities. The Fund will not speculate in
forward contracts; the Fund will, however, utilize forward contracts in
conjunction with money market instruments in a manner which is unrelated to the
Fund's normal transaction hedging activities as described above (i.e., to obtain
an investment result that is substantially equivalent to a direct investment in
a foreign currency-denominated instrument).
When the Fund enters into a hedging transaction, its custodian bank will place
cash or high-quality readily marketable liquid debt securities in a segregated
account of the Fund in an amount equal to the value of its total assets
committed to the consummation of the forward contract. If the value of the
securities placed in the segregated account declines, additional cash or
securities will be placed in the account so that the value of the account will
equal the amount of the Fund's commitment with respect to such contracts.
It may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. It is possible that,
under certain circumstances, the Fund may have to limit currency transactions to
qualify as a regulated investment company under the Internal Revenue Code of
1986, as amended (the "Code").
At or before the maturity of a forward contract, the Fund may either sell a
portfolio security and make delivery of the currency, or it may retain the
security and terminate its contractual obligation to deliver the currency by
purchasing an "offsetting" contract obligating it to purchase, on the same
maturity date, the same amount of the currency.
If the Fund enters into a forward contract, retains the portfolio security and
engages in an offsetting transaction, the Fund will incur a gain or loss (as
described below) to the extent that there has been movement in forward contract
prices. If the Fund engages in an offsetting transaction, it may subsequently
enter into a new forward contract to sell the currency. Should forward prices
decline during the period between the Fund's entering into a forward contract
for the sale of a currency and the date it enters into an offsetting contract
for the purchase of the currency, the Fund will realize a gain to the extent
that the price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the Fund
will suffer a loss to the extent the price of the currency it has agreed to
purchase exceeds the price of the currency it has agreed to sell.
Transactions in forward contracts by the Fund will be limited to the
transactions described above. Of course, the Fund is not required to enter into
such contracts, and will not do so unless deemed appropriate by the Fund's
Advisers. You should realize that the use of forward contracts does not
eliminate fluctuations in the underlying prices of the securities. Forward
contracts simply establish a rate of exchange that the Fund can achieve at some
future point in time. Additionally, although forward contracts tend to minimize
the risk of loss due to fluctuations in the value of the hedged currency, at the
same time they tend to limit any potential gain which might result from the
change in the value of such currency.
Because the Fund invests primarily in debt securities denominated in German
marks, it may hold German marks pending their investment in such instruments or
their conversion into U.S. dollars. Although the Fund values its assets daily
(as described in its Prospectus) in terms of U.S. dollars, the Fund does not
convert its holdings of German marks into U.S. dollars on a daily basis. It will
do so from time to time, however, and you should be aware of the costs of
currency conversion. Foreign exchange dealers do not charge a fee for
conversion, but they do realize a profit based on the difference, which is known
as the spread, between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell the currency to the dealer.
Currency Movements
Exchange rates fluctuate for a number of reasons. Depending on the currency in
question and the point in time, some factors may outweigh others in determining
the course of exchange rate movements.
1. Inflation. The most fundamental reason exchange rates change is to reflect
changes in currencies' purchasing power. Different countries experience
different inflation rates due to different monetary and fiscal policies,
different product and labor market conditions and a host of other factors.
2. Trade Deficits. Countries with trade deficits tend to experience a
depreciating currency. Often, inflation is the cause of a trade deficit, making
a country's goods more expensive and less competitive and so reducing demand for
its currency.
3. Interest Rates. High interest rates tend to boost currency values in the
short run by making such currencies more attractive to investors. Since high
interest rates are often the result of high inflation, however, long-term
results may be the opposite.
4. Budget Deficits and Low Savings Rates. Countries that run large budget
deficits and save little of their national income tend to suffer a depreciating
currency because they are forced to borrow abroad to finance their deficits.
Payments of interest on this debt can "flood" the currency markets with the
currency of the debtor nation.
Also, budget deficits can indirectly contribute to currency depreciation if a
government chooses to cope with its deficits and debt by means of inflation.
5. Political Factors. Political instability in a country can cause a currency to
depreciate. If the country appears a less desirable place in which to invest and
do business, demand for the currency is likely to fall.
6. Government Control. Through their own buying and selling of currencies, the
world's central banks sometimes manipulate exchange rate movements. In addition,
governments occasionally issue statements to influence people's expectations
about the direction of exchange rates, or they may instigate policies with an
exchange rate target as the goal.
Investment Restrictions
The Fund has adopted the following restrictions as fundamental policies, which
means that they may not be changed without the approval of a majority of the
outstanding voting securities of the Fund. Under the Investment Company Act of
1940, as amended (the "1940 Act"), a "vote of a majority of the outstanding
voting securities" of the Fund means the affirmative vote of the lesser 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. The Fund may not:
1. Purchase common stocks, preferred stocks, warrants or other equity
securities.
2. Borrow money, except from banks for temporary or emergency (not leveraging)
purposes in an amount up to 331/3% of the value of the Fund's total assets
(including the amount borrowed) based on the lesser of cost or market, less
liabilities (not including the amount borrowed) at the time the borrowing is
made. While borrowings exceed 5% of the Fund's total assets, the Fund will not
make any additional investments.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except in an
amount up to 331/3% of the value of its total assets, but only to secure
borrowing for temporary or emergency purposes provided that the deposit or
payment of initial or variation margin in connection with transactions in
options and futures shall not be treated as a pledge of assets hereunder.
4. Sell securities short or purchase securities on margin, provided that the
deposit or payment of initial or variation margin in connection with
transactions in options and futures shall not be treated as the purchase of
securities on margin thereunder, provided such transactions are effected in
compliance with investment restriction no. 6 below.
5. Underwrite the securities of other issuers, purchase interests in oil, gas
or other mineral exploration or development programs, including mineral leases,
or purchase or sell real estate or securities issued by real estate limited
partnerships, real estate investment trusts, or by companies that invest in real
estate or interests therein.
6. Invest more than 10% of its net assets in (i) securities subject to
restrictions on disposition under the Securities Act of 1933 ("restricted
securities") or other illiquid securities, (ii) repurchase agreements providing
for settlement in more than seven days, (iii) options which are traded in the
over-the-counter market and investments hedged by such options, and (iv) other
securities which are not readily marketable, provided that the Fund may invest
up to 15% of its net assets in time deposits of over seven days duration. The
Fund may not write put or call options on securities, but the Fund may buy and
sell put and call options on securities, financial futures contracts and options
thereon, provided that (A) the aggregate premiums paid on all such options which
are held at any time by the Fund do not exceed 20% of the Fund's net assets, and
(B) the aggregate margin deposits required on all such futures contracts or
options thereon do not exceed 5% of the Fund's total assets.
7. Purchase or sell commodities, except that the Fund may purchase or sell
currencies, may enter into futures contracts on securities, currencies,
securities and other indices or any other financial instruments, and may
purchase and sell options on such futures contracts.
8. Make loans to others except through the purchase of debt obligations
referred to in its Prospectus and the entry into repurchase agreements and
portfolio lending agreements, provided that the value of securities subject to
such lending agreements may not exceed 30% of the value of the Fund's total
assets. Any loans of portfolio securities will be made according to guidelines
established by the SEC and the Trust's Board of Trustees, including maintenance
of collateral of the borrower equal at all times to at least the current market
value of the securities loaned.
9. Invest more than 25% of its assets in the securities of issuers in any
single industry (or in the securities of any single governmental issuer),
provided that (i) there shall be no limitation on the purchase of securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities
and (ii) the Fund will invest more than 25% of its assets in debt obligations
issued or guaranteed by the Federal Republic of Germany, its agencies,
instrumentalities or political subdivisions.
10. Have invested as of the last day of any fiscal quarter (or other measuring
period used for purposes of determining compliance with Subchapter M of the
Code) (i) more than 25% of its total assets in the securities of any one issuer,
or (ii) with respect to 50% of the Fund's total assets, more than 5% of its
total assets in the obligations of any one issuer, except for cash and cash
items and securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, provided that for purposes of this restriction debt
securities issued by different agencies, instrumentalities or political
subdivisions of a national government other than the U.S. Government that are
not guaranteed by the full faith and credit of such national government may be
deemed to have been issued by different issuers.
11. Invest in companies for the purpose of exercising control.
12. Invest in securities of other investment companies.
13. Purchase the securities of any issuer having less than three years'
continuous operations (or any predecessors) if such purchase would cause the
value of the Fund's investments in all such issuers to exceed 5% of the value of
its total assets.
14. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (i) making any
otherwise permitted borrowing, mortgages or pledges, or (ii) entering into
option contracts, futures contracts, forward contracts or repurchase
transactions.
15. Purchase or retain securities of any issuer if the officers, directors or
trustees of the Fund, its investment manager or investment adviser who own
beneficially more than 1/2 of 1% of such securities outstanding together own
beneficially more than 5% of such securities.
If a percentage restriction contained herein is adhered to at the time of
investment, a later increase or decrease in the percentage resulting from a
change in value of portfolio securities or the amount of net assets will not be
considered a violation of any of the foregoing restrictions.
Potential Benefits of Investing
in German Government Obligations
The following information supplements and should be read in conjunction with the
sections in the Fund's Prospectus entitled "How Does the Fund Invest Its
Assets?"
As a general principle, the Fund's Advisers believe that investing outside of
the U.S. may be beneficial for any investor over a long term. Through
diversification into German government obligations, U.S. dollar-based investors
may seek to achieve a number of different potential benefits, as discussed
below.
Higher Current Yields. German government obligations may, from time to time, pay
higher current yields than U.S. government bonds of comparable maturity. U.S.
investors may wish to take advantage of these higher yields when available by
investing in the Fund. Primarily because of interest rate and currency risk, the
total return on German government obligations may be higher or lower than the
total return on U.S. government bonds, regardless of which market offers higher
yields at the time of investment. However, when available, the higher current
yields on German government obligations will provide a margin of protection
against adverse movements of currency exchange rates and/or relative interest
rates.
Capital Appreciation. When German market interest rates decline, German
government obligation prices (expressed in German marks) generally will
increase. If you are anticipating a general decline in German interest rates,
you may wish to invest in the Fund for the opportunity to participate in such
capital gains, should interest rates eventually decline. U.S. investors should
recognize, however, that adverse movements in currency exchange rates could
partially or completely offset any such price appreciation.
Currency Gains. When the German mark appreciates relative to the U.S. dollar
(i.e., the dollar declines), the U.S. dollar price of securities denominated in
German marks, such as German government obligations, will appreciate, other
things being equal. If you are anticipating appreciation of the German mark
against the U.S. dollar, you may wish to invest in the Fund for the opportunity
to participate in such currency gains, should such favorable exchange rate
movement materialize. U.S. investors should recognize, however, that an increase
in German interest rates would cause depreciation in German government
obligation prices (expressed in German marks) with a similar effect on the
Fund's net asset value, which could partially or completely offset any such
currency gains.
Safety of Principal. U.S. investors may wish to invest in the Fund for safety of
principal due to the high credit quality of German government obligations. Of
course, the total return on German government obligations and on the Fund will
also be affected positively or negatively by German interest rate and currency
exchange rate movements.
U.S. investors may also wish to broaden the degree of credit diversification in
their portfolios by including obligations of foreign issuers, such as German
government obligations, through an investment in the Fund. In general, by
increasing credit diversification within a portfolio of fixed-income securities,
you may lessen portfolio exposure to adverse developments affecting any one
particular issuer.
Portfolio Diversification. Returns on non-U.S. investments such as German
government obligations tend not to reflect a high degree of correlation with
returns on U.S. financial assets such as U.S. stocks and bonds. This lack of
correlation arises from the fact that at any particular point in time, countries
are likely to differ with respect to: a) the status of their economy within the
overall business cycle; b) the level and direction of inflation and interest
rates; c) the mix of fiscal and monetary policy; d) the strength or weakness of
their domestic currency on foreign exchange markets; and e) the degree to which
one-time events (such as German unification) may have a material impact on the
economy.
In general, combining assets the returns on which are not highly correlated can
be expected to reduce the variability of portfolio returns over time, as weak
performance in one asset class is, from time to time, offset by the strong
performance of another asset class. In general, it can be shown that, up to a
point, international diversification of a U.S. portfolio has reduced overall
portfolio volatility in the past. There can be no assurance, however, that this
will be the case in the future.
Protection of Global Purchasing Power. Depreciation of the U.S. dollar relative
to other major foreign currencies over time reduces the global purchasing power
of U.S. investors, i.e., it increases the amount of dollars required to buy any
given basket of goods and services from around the world. U.S. dollar
depreciation may cause the dollar price to rise both on imports as well as on
domestic output for which there is foreign competition, such as automobiles.
Given the increasing role of imports in U.S. consumption patterns in recent
years, finding ways to protect global purchasing power may be of increasing
importance to Americans now and in the future.
Investments in foreign currency-denominated securities, such as German
government obligations, through an investment in the Fund may help maintain the
global purchasing power of a U.S. investor's portfolio, in the event that the
U.S. dollar depreciates relative to the German mark in the future. Of course,
currency diversification of your portfolio can work to your benefit or
detriment, depending on the future movement of currency exchange rates, among
other things.
Officers and Trustees
The Board of Trustees (the "Board") has the responsibility for the overall
management of the Trust and the Fund, including general supervision and review
of its investment activities. The trustees, in turn, elect the officers of the
Trust who are responsible for administering day-to-day operations of the Trust.
The affiliations of the officers and trustees and their principal occupations
for the past five years are listed below. Trustees who are deemed to be
"interested persons" of the Trust, as defined in the 1940 Act, are indicated by
an asterisk (*).
Positions and Offices
Name, Age and Address with the Trust Principal Occupations During Past Five
Years
Frank H. Abbott, III (74) Trustee
1045 Sansome St.
San Francisco, CA 94111
President and Director, Abbott Corporation (an investment company); and
director, trustee or managing general partner, as the case may be, of 31 of the
investment companies in the Franklin Group of Funds.
Harris J. Ashton (63) Trustee
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers); Director, RBC Holdings, Inc. (a bank
holding company) and Bar-S Foods; and director, trustee or managing general
partner, as the case may be, of 56 of the investment companies in the Franklin
Templeton Group of Funds.
David K. Eiteman (66) Trustee
HC2, Box 8076
Frazier Park, CA 93225
Since 1959, Professor of Finance in the John E. Anderson Graduate School of
Management, University of California, Los Angeles. From 1988 to June 1993, a
Trustee of the Huntington Investment Trust.
S. Joseph Fortunato (63) Trustee
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director of General Host
Corporation; director, trustee or managing general partner, as the case may be,
of 58 of the investment companies in the Franklin Templeton Group of Funds.
David W. Garbellano (81) Trustee
111 New Montgomery St., #402
San Francisco, CA 94105
Private Investor; Assistant Secretary/Treasurer and Director, Berkeley Science
Corporation (a venture capital company); and director, trustee or managing
general partner, as the case may be, of 30 of the investment companies in the
Franklin Group of Funds.
* Donald P. Gould (37) President
777 Mariners Island Blvd. and Trustee
San Mateo, CA 94404
Managing Director, Templeton Worldwide, Inc; from November 1993 to present,
Executive Vice President, Frankin Institutional Services Corporation; from
January 1995 to present, Senior Vice President of Templeton Franklin Investment
Services, Inc.; from February 1992 to November 1993, independent consultant to
the Trust; and from February 1992 to June 1993, independent consultant to
Huntington Investment Trust. From December 1985 to February 1992, Chairman of
the Board of the Trust. From 1988 to June 1993, President and Trustee, from 1988
to February 1992, Chairman of the Board, Huntington Investment Trust. From
October 1985 to February 1992, President and Director of Huntington Advisers,
Inc., a mutual fund investment adviser, and President of Huntington Investments,
Inc., a mutual fund underwriter.
Gerald R. Healy (54) Trustee
5917 Cleveland Street
Morton Grove, IL 60053
Since April 1994, a private consultant. From July 1993 to March 1994, Director
of Corporate Management Resources of Alliance Imaging, Inc. From 1989, Executive
Vice President of Capital Health Services Corp. Prior to that time, a private
investor. From 1988 to June 1993, a Trustee of the Huntington Investment Trust.
*Charles B. Johnson (63) Chairman
777 Mariners Island Blvd. of the Board
San Mateo, CA 94404 and Trustee
President and Director, Franklin Resources, Inc.; Chairman of the Board and
Director, Franklin Advisers, Inc. and Franklin Templeton Distributors, Inc.;
Director, Franklin/Templeton Investor Services, Inc. and General Host
Corporation; and officer and/or director, trustee or managing general partner,
as the case may be, of most other subsidiaries of Franklin Resources, Inc. and
of 57 of the investment companies in the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (55) Vice President
777 Mariners Island Blvd. and Trustee
San Mateo, CA 94404
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.;
Director, Franklin/Templeton Investor 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 of 43 of the investment companies
in the Franklin Templeton Group of Funds.
David P. Kraus (38) Trustee
Bet Tzedek Legal Services
145 South Fairfax Ave., Suite 200
Los Angeles, CA 90036-2166
Since 1981, an attorney with various private law firms in Los Angeles. Also,
since October 1995, an attorney with Bet Tzedek Legal Services.
Frank W. T. LaHaye (66) Trustee
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
General Partner, Peregrine Associates and Miller & LaHaye, which are General
Partners of Peregrine Ventures and Peregrine Ventures II (venture capital
firms); Chairman of the Board and Director, Quarterdeck Office Systems, Inc.;
Director, FischerImaging Corporation; and director or trustee, as the case may
be, of 26 of the investment companies in the Franklin Group of Funds.
Gordon S. Macklin (67) Trustee
8212 Burning Tree Road
Bethesda, MD 20817
Chairman, White River Corporation (information services); Director, Fund
American Enterprises Holdings, Inc., Lockheed Martin Corporation, MCI
Communications Corporation, MedImmune, Inc. (biotechnology), InfoVest
Corporation (information services), and Fusion Systems Corporation (industrial
technology); and director, trustee or managing general partner, as the case may
be, of 53 of the investment companies in the Franklin Templeton Group of Funds;
and formerly held the following positions: Chairman, Hambrecht and Quist Group;
Director, H & Q Healthcare Investors; and President, National Association of
Securities Dealers, Inc.
Harmon E. Burns (51) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
Executive Vice President, Secretary and Director, Franklin Resources, Inc.;
Executive Vice President and Director, Franklin Templeton Distributors, Inc.;
Executive Vice President, Franklin Advisers, Inc.; Director, Franklin/Templeton
Investor Services, 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 43 of the investment companies in the Franklin Templeton Group of Funds.
Kenneth V. Domingues (63) Vice President -
777 Mariners Island Blvd. Financial Reporting
San Mateo, CA 94404 and Accounting Standards
Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc., and
Franklin Templeton Distributors, Inc.; officer and/or director, as the case may
be, of other subsidiaries of Franklin Resources, Inc.; and officer and/or
managing general partner, as the case may be, of 37 of the investment companies
in the Franklin Group of Funds.
Martin L. Flanagan (35) Vice President
777 Mariners Island Blvd. and Chief
San Mateo, CA 94404 Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, Franklin
Resources, Inc.; Executive Vice President, Templeton Worldwide, Inc.; Senior
Vice President and Treasurer, Franklin Advisers, Inc. and Franklin Templeton
Distributors, Inc.; Senior Vice President, Franklin/Templeton Investor Services,
Inc.; officer of most other subsidiaries of Franklin Resources, Inc.; and
officer of 61 of the investment companies in the Franklin Templeton Group of
Funds.
Deborah R. Gatzek (47) Vice President
777 Mariners Island Blvd. and Secretary
San Mateo, CA 94404
Senior Vice President & General Counsel, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; Vice President, Franklin Advisers, Inc. and
officer of 37 of the investment companies in the Franklin Group of Funds.
Charles E. Johnson (39) Vice President
777 Mariners Island Blvd.
San Mateo CA 94404
Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc. and Franklin Institutional Services Corporation;
officer and/or director, as the case may be, of some of the subsidiaries of
Franklin Resources, Inc. and officer and/or director or trustee, as the case may
be, of 26 of the investment companies in the Franklin Templeton Group of Funds.
Diomedes Loo-Tam (57) Treasurer and
777 Mariners Island Blvd. Principal
San Mateo, CA 94404 Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.
Edward V. McVey (58) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
Senior Vice President/National Sales Manager, Franklin Templeton Distributors,
Inc.; and officer of 32 of the investment companies in the Franklin Group of
Funds.
The preceding table indicates those officers and trustees who are also
affiliated persons of Distributors and the investment manager. Trustees not
affiliated with the investment manager ("nonaffiliated trustees") are currently
paid fees of $800 per month plus $800 per meeting attended. As indicated above,
certain of the Fund's nonaffiliated trustees also serve as directors, trustees
or managing general partners of other investment companies in the Franklin Group
of Funds" and the Templeton Group of Funds (the "Franklin Templeton Group of
Funds(R)) from which they may receive fees for their services. The following
table indicates the total fees paid to nonaffiliated trustees by the Trust and
by other funds in the Franklin Templeton Group of Funds.
Number of
Total Fees Boards in the
Total Fees Received from the Franklin Templeton
Received Franklin Templeton Group of Funds on
Name from the Trust* Group of Funds** Which Each Serves***
Frank H. Abbott, III....... 5,000 $162,420 31
Harris J. Ashton........... 5,000 327,925 56
David K. Eiteman........... 3,400 2,400 1
S. Joseph Fortunato........ 5,000 344,745 58
David Garbellano........... 5,000 146,100 30
Gerald R. Healy............ 4,200 4,000 1
David P. Kraus............. 5,000 4,800 1
Frank W.T. LaHaye.......... 5,000 143,200 26
Gordon S. Macklin.......... 5,000 321,525 53
*For the fiscal year ended October 31, 1995.
**For the calendar year ended December 31, 1995.
***The number of boards is based on the number of registered investment
companies in the Franklin Templeton Group of Funds and does not include the
total number of series or funds within each investment company for which the
trustees are responsible. The Franklin Templeton Group of Funds currently
includes 61 registered investment companies, consisting of approximately 162
U.S. based funds or series.
Nonaffiliated trustees are reimbursed for expenses incurred in connection with
attending board meetings, 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 trustee received any other compensation directly from the
Fund. Certain officers or trustees who are shareholders of Franklin Resources,
Inc. ("Resources") may be deemed to receive indirect remuneration by virtue of
their participation, if any, in the fees paid to its subsidiaries.
As of December 7, 1995 the officers and trustees, as a group, owned of record
and beneficially approximately 59.505 shares, or less than 1% of the total
outstanding shares of the Fund. Many of the Fund's trustees also own shares in
various of the 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.
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 shares.
Investment Advisory and Other Services
The investment manager of the Fund is Franklin Advisers, Inc. ("Advisers" or
"Manager"). Advisers is a wholly-owned subsidiary of Resources, a publicly owned
holding company whose shares are listed on the New York Stock Exchange (the
"Exchange"). Resources owns several other subsidiaries that are involved in
investment management and shareholder services.
Advisers serves as the Fund's investment adviser pursuant to a management
agreement dated November 12, 1993, which was approved by the trustees of the
Trust and by majority vote of the Fund's shares at a special meeting of
shareholders held on November 5, 1993. Pursuant to the management agreement, the
Fund is obligated to pay Adviser a fee computed at the close of business on the
first business day of each month equal to an annual rate of 0.55% of the value
of the average daily net assets of the Fund.
Templeton Investment Counsel, Inc. ("TICI" or "Subadvisor") acts as subadvisor
to the Fund pursuant to a contract between TICI and the Manager on behalf of the
Fund. Pursuant to the subadvisory agreement between the Manager and Subadviser,
and subject to the overall policies, control, direction and review of the Board
of Trustees and to the instructions and supervision of the Manager, Subadviser
will provide the day-to-day portfolio management of the Fund, including
investment research and advice with respect to securities and investments and
cash equivalents in the Fund.
Pursuant to the management agreement, the Manager provides investment research
and portfolio management services, including the selection of securities for the
Fund to purchase, hold or sell and the selection of brokers through whom the
Fund's portfolio transactions are executed. The Manager's activities are subject
to the review and supervision of the Board to whom the Manager renders periodic
reports of the Fund's investment activities. Under the terms of the management
agreement, the Manager provides office space and office furnishings, facilities
and equipment required for managing the business affairs of the Fund; maintains
all internal bookkeeping, clerical, secretarial and administrative personnel and
services; and provides certain telephone and other mechanical services. The
Manager is covered by fidelity insurance on its officers, directors and
employees for the protection of the Trust. Please see the Statement of
Operations in the financial statements included in the Trust's Annual Report to
Shareholders for the year ended October 31, 1995.
The Manager also provides management services to numerous other investment
companies or funds pursuant to management agreements with each fund. The Manager
may give advice and take action with respect to any of the other funds it
manages, or for its own account, which may differ from action taken by the
Manager on behalf of the Fund. Similarly, with respect to the Fund, the Manager
is not obligated to recommend, purchase or sell, or to refrain from
recommending, purchasing or selling any security that the Manager and access
persons, as defined by the 1940 Act, may purchase or sell for its or their own
account or for the accounts of any other fund. Furthermore, the Manager is not
obligated to refrain from investing in securities held by the Fund or other
funds which it manages or administers. Of course, any transactions for the
accounts of the Manager and other access persons will be made in compliance with
the Fund's Code of Ethics.
The management agreement specifies that the management fee will be reduced to
the extent necessary to comply with the most stringent limits on the expenses
which may be borne by the Fund as prescribed by any state in which the Fund's
shares are offered for sale. The most stringent current limit requires the
Manager to reduce or eliminate its fee to the extent that aggregate operating
expenses of the Fund (excluding interest, taxes, brokerage commissions and
extraordinary expenses such as litigation costs) would otherwise exceed in any
fiscal year 2.5% of the first $30 million of average net assets of the Fund,
2.0% of the next $70 million of average net assets of the Fund and 1.5% of
average net assets of the Fund in excess of $100 million. Expense reductions
have not been necessary based on state requirements.
The Manager has agreed in advance to waive a portion of its management fees and
make certain payments to reduce expenses. For the fiscal year ended April 30,
1994, the period ended October 31, 1994 and the fiscal year ended October 31,
1995, management fees, before any advance waiver, were $35,400, $35,908, and
$97,759, respectively. Management fees paid by the Fund for the same periods
were $0, $0 and $91,422, respectively.
The management agreement is in effect until February 28, 1997. Thereafter, it
may continue in effect for successive annual periods providing such 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 Trust's trustees who are not parties to
the management agreement or interested persons of any such party (other than as
trustees of the Trust), cast in person at a meeting called for that purpose. The
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 the Manager on 60 days' written notice and will automatically
terminate in the event of its assignment, as defined in the 1940 Act.
Prior to November 12, 1993, Huntington Advisers, Inc., 251 South Lake Avenue,
Suite 600, Pasadena, California 91101, an indirect wholly-owned subsidiary of
Long Beach Bank, served as the Trust's manager and Bankers Trust Company, 280
Park Avenue, New York, New York 10015, a wholly-owned subsidiary of Bankers
Trust New York Corporation, served as the Fund's investment advisor. Under its
separate agreements, the Fund was obligated to pay its manager and investment
advisor fees totaling $6,560 and $5,467, respectively, for the Fund's initial
period ended April 30, 1993 and $21,167 and $17,639, respectively, for the
period May 1, 1993 to November 15, 1993. However, after allowances by the
manager and investment advisor, the Fund paid no management fees or advisory
fees.
Under the subadvisory agreement with the Manager, Subadviser will receive a fee
from the Manager equal to an annual rate of 0.25% of the value of the average
daily net assets of the Fund. TICI's fee will not be paid by the Fund.
Franklin/Templeton Investor Services, Inc. ("Investor Services"), a wholly-owned
subsidiary of Resources, is the shareholder servicing agent for the Fund and
acts as the Fund's transfer agent and dividend-paying agent. Investor Services
is compensated on the basis of a fixed fee per account.
Bank of New York, Mutual Funds Division, 90 Washington Street, New York, New
York 10286, acts as custodian of the securities and other assets of the Fund.
Bank of America NT & SA, 555 California Street, 4th Floor, San Francisco,
California 94104, acts as custodian for cash received in connection with the
purchase of Fund shares. Chase Manhattan Bank, Global Securities Service, Chase
MetroTech Center, Brooklyn, New York 11245, also acts as custodian of certain
securities and other assets of the Fund. Citibank Delaware, One Penn's Way, New
Castle, Delaware 19720, acts as custodian in connection with transfer services
through bank automated clearing houses. The custodians do not participate in
decisions relating to the purchase and sale of portfolio securities.
Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California 94105,
are the Fund's independent auditors. During the fiscal year ended October 31,
1995, their auditing services consisted of rendering an opinion on the financial
statements of the Fund included in the Trust's Annual Report to shareholders for
the year ended October 31, 1995. Prior to the fiscal year ended April 30, 1994,
the Fund was audited by other independent auditors.
How Does the Fund Purchase
Securities For Its Portfolio?
Under the current management agreement, the selection of brokers and dealers to
execute transactions in the Fund's portfolio is made by the Manager in
accordance with criteria set forth in the management agreement and any
directions which the Board may give. Under the subadvisory agreement, Advisers
may delegate to TICI the authority to select securities dealers to execute
portfolio transactions for the Fund.
When placing a portfolio transaction, the Fund's Advisers attempt to obtain the
best net price and execution of the transaction. On portfolio transactions done
on a securities exchange, the amount of commission paid by the Fund is
negotiated between the Fund's Advisers and the broker executing the transaction.
The Fund's Advisers seek to obtain the lowest commission rate available from
brokers that are felt to be capable of efficient execution of the transactions.
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 such transactions. These opinions are formed on the basis of,
among other things, the experience of these individuals in the securities
industry and information available to them concerning the level of commissions
being paid by other institutional investors of comparable size. The Fund's
Advisers will ordinarily place orders for the purchase and sale of
over-the-counter securities on a principal rather than agency basis with a
principal market maker unless, in the opinion of the Fund's Advisers, 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 Fund seeks to obtain prompt execution of orders at the
most favorable net price.
The amount of commission is not the only relevant factor to be considered in the
selection of a broker to execute a trade. If it is felt to be in the Fund's best
interest, the Fund's Advisers 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 the Fund's
Advisers, 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 the Fund's Advisers in carrying out their
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 the Fund's
Advisers in advising other clients.
When it is felt that several brokers are equally able to provide the best net
price and execution, the Fund's Advisers may decide to execute transactions
through brokers who provide quotations and other services to the Fund,
specifically including the quotations necessary to determine the value of the
Fund's net assets, in such amount of total brokerage as may reasonably be
required in light of such services, and through brokers who supply research,
statistical and other data to the Fund and the Fund's Advisers in such amount of
total brokerage as may reasonably be required.
It is not possible to place a dollar value on the special executions or on the
research services received by the Fund's Advisers from dealers effecting
transactions in portfolio securities. The allocation of transactions in order to
obtain additional research services permits the Fund's Advisers 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, the Fund's Advisers and their
affiliates may use this research and data in their investment advisory
capacities with other clients. Provided that the Trust's officers are satisfied
that the best execution is obtained, the sale of Fund shares may also be
considered as a factor in the selection of broker-dealers to execute the Fund's
portfolio transactions.
Because Distributors is a member of the National Association of Securities
Dealers, it is sometimes entitled to obtain 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 management fee payable to Advisers under
the management agreement will be reduced by the amount of any fees received by
Distributors in cash, less any costs and expenses incurred in connection
therewith.
If purchases or sales of securities of the Fund and one or more other investment
companies or clients supervised by the Fund's Advisers are considered at or
about the same time, transactions in such securities will be allocated among the
several investment companies and clients in a manner deemed equitable to all by
the Fund's Advisers, taking into account the respective sizes of the funds and
the amount of securities to be purchased or sold. It is recognized that in some
cases this procedure could possibly 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.
During the fiscal year ended April 30, 1994, the period ended October 31, 1994,
and the fiscal year ended October 31, 1995 the Fund paid no brokerage
commissions. As of October 31, 1995, the Fund did not own securities of its
regular broker-dealers.
How Do I Buy and Sell Shares?
All checks, drafts, wires and other payment mediums used for purchasing or
redeeming shares of the Fund must be denominated in U.S. dollars. The Fund
reserves the right, in its sole discretion, to either (a) reject any order for
the purchase or sale of 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.
In connection with exchanges, it should be noted that since the proceeds from
the sale of shares of an investment company are generally not available until
the fifth business day following the redemption, the funds into which you are
seeking to exchange reserve the right to delay issuing shares pursuant to an
exchange until said fifth business day. The redemption of shares of the Fund to
complete an exchange will be effected at the close of business on the day the
request for exchange is received in proper form at the net asset value then
effective. Please see "What If My Investment Outlook Changes?- Exchange
Privilege" in the Prospectus.
If, in connection with the purchase of Fund shares, you submit a check or a
draft that is returned unpaid to the Fund, the Fund may impose a $10 charge
against your account for each returned item.
Dividend checks returned to the Fund marked "unable to forward" by the postal
service will be deemed to be a request to change your dividend option to
reinvest all distributions and the proceeds will be reinvested in additional
shares at net asset value until new instructions are received.
The Fund may deduct from your account the costs of its efforts to locate you if
mail is returned as undeliverable or the Fund is otherwise unable to locate you
or verify your current mailing address. These costs may include a percentage of
the account when a search company charges a percentage fee in exchange for its
location services.
Under agreements with certain banks in Taiwan, Republic of China, the Fund's
shares are available to such banks' discretionary trust funds at net asset
value. The banks may charge service fees to their customers who participate in
the discretionary trusts. Pursuant to agreements, a portion of such service fees
may be paid to Distributors or one of its affiliates to help defray expenses of
maintaining a service office in Taiwan, including expenses related to local
literature fulfillment and communication facilities.
Shares of the Fund may be offered to investors in Taiwan through securities
firms known locally as Securities Investment Consulting Enterprises. In
conformity with local business practices in Taiwan, shares of the Fund will be
offered with the following schedule of sales charges:
Sales
Size of Purchase - U.S. dollars Charge
Up to $100,000.................. 3%
$100,000 to $1,000,000.......... 2%
Over $1,000,000................. 1%
Purchases and Redemptions
through Securities Dealers
Orders for the purchase of shares of the Fund received in proper form prior to
the scheduled close of the Exchange (generally 1:00 p.m. Pacific time) any
business day that the Exchange is open for trading and promptly transmitted to
the Fund will be based upon the public offering price determined that day.
Purchase orders received by securities dealers or other financial institutions
after the scheduled close of the Exchange will be effected at the Fund's public
offering price on the day it is next calculated. The use of the term "securities
dealer" herein shall include other financial institutions which, either directly
or through affiliates, have an agreement with Distributors to handle customer
orders and accounts with the Fund. Such reference, however, is for convenience
only and does not indicate a legal conclusion of capacity.
Orders for the redemption of shares are effected at net asset value subject to
the same conditions concerning time of receipt in proper form. It is the
securities dealer's responsibility to transmit the order in a timely fashion and
any loss to you resulting from the failure to do so must be settled between you
and the securities dealer.
Other Payments to Securities Dealers
As discussed in the Prospectus under "How Do I Buy Shares? - General," either
Distributors or one of its affiliates may make payments, out of its own
resources, to securities dealers who initiate and are responsible for purchases
made at net asset value by certain trust companies and trust departments of
banks, certain designated retirement plans (excluding IRA and IRA Rollovers),
certain non-designated plans, and certain retirement plans of organizations with
collective retirement plan assets of $1 million or more, as described below.
Distributors may make these payments in the form of contingent advance payments,
which may be recovered from the securities dealer or set off against other
payments due to the securities dealer in the event shares are redeemed within 12
months of the calendar month of purchase. Other conditions may apply. All terms
and conditions may be imposed by an agreement between Distributors, or one of
its affiliates, and the securities dealer.
Either Distributors or one of its affiliates may pay the following amounts, out
of its own resources, to securities dealers who initiate and are responsible for
purchases made at net asset value by certain designated retirement plans
(excluding IRA and IRA rollovers): 1% on sales of $1 million but less than $2
million, plus 0.80% on sales of $2 million but less than $3 million, plus 0.50%
on sales of $3 million but less than $50 million, plus 0.25% on sales of $50
million but less than $100 million, plus 0.15% on sales of $100 million or more;
and for purchases made at net asset value by certain non-designated retirement
plans: 0.75% on sales of $1 million but less than $2 million, plus 0.60% on
sales of $2 million but less than $3 million, plus 0.50% on sales of $3 million
but less than $50 million, plus 0.25% on sales of $50 million but less than $100
million, plus 0.15% on sales of $100 million or more. These payment breakpoints
are reset every 12 months for purposes of additional purchases. With respect to
purchases made at net asset value by certain trust companies and trust
departments of banks and certain retirement plans of organizations with
collective retirement plan assets of $1 million or more, either Distributors, or
one of its affiliates, out of its own resources, may pay up to 1% of the amount
invested.
Letter of Intent
You may qualify for a reduced sales charge on the purchase of shares of the
Fund, as described in the Prospectus. At any time within 90 days after the first
investment which you want to qualify for a reduced sales charge, you may file
with the Fund a signed Shareholder Application with the Letter of Intent (the
"Letter") section completed. After the Letter is filed, each additional
investment will be entitled to the sales charge applicable to the level of
investment indicated on the Letter. Sales charge reductions based upon purchases
in more than one of the Franklin Templeton Funds will be effective only after
notification to Distributors that the investment qualifies for a discount. Your
holdings in the Franklin Templeton Funds, including Class II shares, acquired
more than 90 days before the Letter is filed will be counted towards completion
of the Letter but will not be entitled to a retroactive downward adjustment in
the sales charge. Any redemptions you make, unless by a designated retirement
plan, during the 13-month period will be subtracted from the amount of the
purchases for purposes of determining whether the terms of the Letter have been
completed. If the Letter is not completed within the 13-month period, there will
be an upward adjustment of the sales charge, depending upon the amount actually
purchased (less redemptions) during the period. The upward adjustment does not
apply to designated retirement plans. If you execute a Letter prior to a change
in the sales charge structure for the Fund, you will be entitled to complete the
Letter at the lower of the new sales charge structure or the sales charge
structure in effect at the time the Letter was filed.
As mentioned in the Prospectus, five percent (5%) of the amount of the total
intended purchase will be reserved in shares of the Fund registered in your
name. This policy of reserving shares does not apply to a designated retirement
plan. If the total purchases, less redemptions, equal the amount specified under
the Letter, the reserved shares will be deposited to an account in your name or
delivered to you or as you direct. If the total purchases, less redemptions,
exceed the amount specified under the Letter and is an amount which would
qualify for a further quantity discount, a retroactive price adjustment will be
made by Distributors and the securities dealer through whom purchases were made
pursuant to the Letter (to reflect such further quantity discount) on purchases
made within 90 days before and on those made after filing the Letter. The
resulting difference in offering price will be applied to the purchase of
additional shares at the offering price applicable to a single purchase or the
dollar amount of the total purchases. If the total purchases, less redemptions,
are less than the amount specified under the Letter, you will remit to
Distributors an amount equal to the difference in the dollar amount of sales
charge actually paid and the amount of sales charge that would have applied to
the aggregate purchases if the total of such purchases had been made at a single
time. Upon such remittance, the reserved shares held for your account will be
deposited to an account in your name or delivered to you or as you direct. If
within 20 days after written request the difference in sales charge is not paid,
the redemption of an appropriate number of reserved shares to realize the
difference will be made. In the event of a total redemption of the account prior
to fulfillment of the Letter, the additional sales charge due will be deducted
from the proceeds of the redemption, and the balance will be forwarded to you.
If a Letter is executed on behalf of a designated retirement plan, the level and
any reduction in sales charge for these plans will be based on actual plan
participation and the projected investments in the Franklin Templeton Funds
under the Letter. These plans are not subject to the requirement to reserve 5%
of the total intended purchase, or to any penalty as a result of the early
termination of a plan, nor are these plans entitled to receive retroactive
adjustments in price for investments made before executing the Letter.
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 Securities and Exchange Commission ("SEC"). In
the case of redemption requests in excess of these amounts, the trustees reserve
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 such
circumstances, the securities distributed would be valued at the price used to
compute the Fund's net assets. Should the Fund do so, you may incur brokerage
fees in converting the securities to cash. The Fund does not intend to redeem
illiquid securities in kind. Should it happen, however, you may not be able to
recover your investment in a timely manner and you may incur brokerage costs in
selling the securities.
Redemptions by the Fund
Due to the relatively high cost of handling small investments, the Fund reserves
the right to involuntarily redeem your shares at net asset value if your account
has a value of less than one-half of your initial required minimum investment,
but only where the value of your account has been reduced by the prior voluntary
redemption of shares. Until further notice, it is the present policy of the Fund
not to exercise this right if your account has a value of $50 or more. In any
event, before the Fund redeems your shares and sends you the proceeds, it will
notify you that the value of the shares in your account is less than the minimum
amount and allow you 30 days to make an additional investment in an amount which
will increase the value of your account to at least $100.
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 from month to month and does not affect the
amount or value of the shares acquired.
Reports to Shareholders
The Fund sends annual and semiannual reports regarding its performance and
portfolio holdings to shareholders. If you would like to receive an interim
quarterly report, you may phone Fund Information at 1-800/DIAL BEN.
Special Services
The Franklin Templeton Institutional Services Department provides specialized
services, including recordkeeping, for institutional investors of the Fund. 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 which the Fund normally pays Investor Services. These
financial institutions may also charge a fee for their services directly to
their clients.
How Are Fund Shares Valued?
As noted in the Prospectus, the Fund calculates net asset value as of the
scheduled close of the Exchange (generally 1:00 p.m. Pacific time) each day that
the Exchange is open for trading. As of the date of this SAI, the Fund is
informed that the Exchange 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. Over-the-counter portfolio securities are
valued within the range of the most recent quoted bid and ask prices. Portfolio
securities which 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 the Manager.
Portfolio securities underlying actively traded call options are valued at their
market price as determined above. The current market value of any option held by
the Fund is its last sale price on the relevant exchange prior to the time when
assets are valued. Lacking any sales that day or if the last sale price is
outside the bid and ask prices, the options are valued within the range of the
current closing bid and ask prices if such valuation is believed to fairly
reflect the contract's market value.
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 Exchange on each day on which the Exchange is open. Trading in European
or Far Eastern securities generally, or in a particular country or countries,
may not take place on every Exchange business day. Furthermore, trading takes
place in various foreign markets on days that are not business days for the
Exchange and on which the Fund's net asset value is not calculated. The Fund
calculates net asset value per share, and therefore effects sales and
redemptions of its shares, as of the scheduled close of the Exchange each day
that the Exchange is open for trading. This calculation does not take place
contemporaneously with the determination of the prices of many of the portfolio
securities used in the calculation and, if events occur which materially affect
the values of these foreign securities, they 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 prior to
the scheduled close of the Exchange. The value of these securities used in
computing the net asset value of the Fund's shares is determined as of such
times. Occasionally, events affecting the values of such securities may occur
between the times at which they are determined and the scheduled close of the
Exchange which will not be reflected in the computation of the Fund's net asset
value. If events materially affecting the values of these securities occur
during such period, then 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 trustees, the
Fund may utilize a pricing service, bank or securities dealer to perform any of
the above described functions.
Additional Information Regarding Taxation
As stated in the Prospectus, the Fund has elected to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). The trustees reserve the right not to maintain the
qualification of the Fund as a regulated investment company if they determine
such course of action to be beneficial to shareholders. In such 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.
The Code requires all funds to distribute at least 98% of their taxable ordinary
income earned during the calendar year and at least 98% of their capital gain
net income earned during the twelve month period ending October 31 of each year
(in addition to amounts from the prior year that were neither distributed nor
taxed to the Fund) to shareholders by December 31 of each year in order to avoid
the imposition of a federal excise tax. Under these rules, certain distributions
which are declared in October, November or December but which, for operational
reasons, may not be paid to the shareholder until the following January, will be
treated for tax purposes as if paid by the Fund and received by the shareholder
on December 31 of the calendar year in which they are declared. The Fund intends
as a matter of policy to declare and pay such dividends, if any, in December to
avoid the imposition of this tax, but does not guarantee that its distributions
will be sufficient to avoid any or all federal excise taxes.
All or a portion of the sales charge incurred in purchasing shares of the Fund
will not be included in the federal tax basis of such shares sold or exchanged
within ninety (90) days of their purchase (for purposes of determining gain or
loss with respect to such shares) if the sales proceeds are reinvested in the
Fund or in another fund in the Franklin Templeton Funds and a sales charge which
would otherwise apply to the reinvestment is reduced or eliminated. Any portion
of such sales charge excluded from the tax basis of the shares sold will be
added to the tax basis of the shares acquired in the reinvestment. You should
consult with your tax advisors concerning the tax rules applicable to the
redemption or exchange of fund shares.
All or a portion of a loss realized upon a redemption of shares will be
disallowed to the extent other shares of the Fund are purchased (through
reinvestment of dividends or otherwise) within 30 days before or after such
redemption. Any loss disallowed under these rules will be added to the tax basis
of the shares purchased.
The Fund's investment in options, futures contracts and forward contracts,
including transactions involving actual or deemed short sales or foreign
exchange gains or losses are subject to many complex and special tax rules. For
example, over-the-counter options on debt securities and equity options,
including options on stock and on narrow-based stock indexes, will be subject to
tax under Section 1234 of the Code, generally producing a long-term or
short-term capital gain or loss upon exercise, lapse, or closing out of the
option or sale of the underlying stock or security. By contrast, the Fund
treatment of certain other options, futures and forward contracts entered into
by the Fund is generally governed by Section 1256 of the Code. These "Section
1256" positions generally include listed options on debt securities, options on
broad-based stock indexes, options on securities indexes, options on futures
contracts, regulated futures contracts and certain foreign currency contracts
and options thereon.
Absent a tax election to the contrary, each such Section 1256 position held by
the Fund will be mark-to-market (i.e., treated as if it were sold for fair
market value) on the last business day of the Fund's fiscal year, and all gain
or loss associated with fiscal year transactions and mark-to-market positions at
fiscal year end (except certain foreign currency gain or loss covered by Section
988 of the Code, which is treated as ordinary income or loss) will generally be
treated as 60% long-term capital gain or loss and 40% short-term capital gain or
loss. The effect of Section 1256 mark-to-market rules may be to accelerate
income or to convert what otherwise would have been long-term capital gains into
short-term capital gains or short-term capital losses into long-term capital
losses within the Fund. The acceleration of income on Section 1256 positions may
require the Fund to accrue taxable income without the corresponding receipt of
cash. In order to generate cash to satisfy the distribution requirements of the
Code, the Fund may be required to dispose of portfolio securities that it
otherwise would have continued to hold or to use cash flows from other sources
such as the sale of Fund shares. In these ways, any or all of these rules may
affect both the amount, character and time of income distributed to you by the
Fund.
When the Fund holds an option or contract which substantially diminishes the
Fund's risk of loss with respect to another position of the Fund (as might occur
in some hedging transactions), this combination of positions could be treated as
a "straddle" for tax purposes, resulting in possible deferral of losses,
adjustments in the holding periods of Fund securities and conversion of
short-term capital losses into long-term capital losses. Certain tax elections
exist for mixed straddles (i.e., straddles comprised of at least one Section
1256 position and at least one non-Section 1256 position) which may reduce or
eliminate the operation of these straddle rules.
As a regulated investment company, the Fund is subject to the requirement that
less than 30% of its annual gross income be derived from the sale or other
disposition of securities and certain other investments held for less than three
months ("short-short income"). This requirement may limit the Fund's ability to
engage in options, straddles, hedging transactions and forward or futures
contracts because these transactions are often consummated in less than three
months, may require the sale of portfolio securities held less than three months
and may, as in the case of short sales of portfolio securities reduce the
holding periods of certain securities within the Fund, resulting in additional
short-short income for the Fund.
The Fund will monitor its transactions in such options and contracts and may
make certain other tax elections in order to mitigate the effect of the above
rules and to prevent disqualification of the Fund as a regulated investment
company under Subchapter M of the Code.
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 total assets at the close of its
taxable year consist 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, you will be
required to include in gross income (in addition to taxable dividends actually
received) your pro rata share of 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 your taxable income or to use it
as a foreign tax credit against U.S. Federal income tax liability, subject to
limitations. No deduction for foreign taxes may be subject to limitations. No
deductions for foreign taxes may be claimed by you if you do not itemize
deductions, but you may be eligible to claim the foreign tax credit (see below).
You will be notified within 60 days after the close of the Fund's taxable year
whether the foreign taxes paid by the fund will be "pass through" for that year.
Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed your U.S. tax attributable to foreign source taxable income. For this
purpose, if the pass-through election is made, the source of the Fund's income
flows through to you. With respect to the Fund, gains from the sales 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, receivable 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. You may be unable to claim a credit for the full amount of your
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 you 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.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currencies, foreign currency payables or
receivables, foreign currency-denominated debt securities, foreign currency
forward contracts, and options or futures contracts on foreign currencies are
subject to special tax rules which may cause such gains and losses to be treated
as ordinary income and losses rather than capital gains and losses and may
affect the amount and timing of the Fund's income or loss from such transactions
and in turn its distributions to shareholders. Additionally, investments in
foreign securities pose special issues to the Fund in meeting its asset
diversification and income tests as a regulated investment company. The Fund
will limit its investments in foreign securities to the extent necessary to
comply with these requirements.
In order for the Fund to qualify as a regulated investment company, at least 90%
of the Fund's annual gross income must consist of dividends, interest and
certain other types of qualifying income, and no more than 30% of its annual
gross income may be derived from the sale or other disposition of securities on
certain other instruments held for less than three months. Foreign exchange
gains derived by the Fund with respect to the Fund's business of investing in
stock or securities, or options or futures with respect to such stock or
securities is qualifying income for purposes of this 90% limitation.
Currency speculation or the use of currency forward contracts or other currency
instruments for non-hedging purposes may generate gains deemed not to be derived
with respect to the Fund's principal business of investing in stock or
securities and related options or futures. Under current law, non-directly
related gains arising from foreign currency positions or instruments held for
less than three months are treated as derived from the disposition of securities
held less than three months in determining the Fund's compliance with the 30%
limitation. The Fund will limit its activities involving foreign exchange gains
to the extent necessary to comply with these requirements.
The foregoing discussion and related discussion in the Prospectus have been
prepared by the management of the Trust and do not purport to be a complete
description of all tax implications of an investment in the Fund. You are
advised to consult your own tax advisors with respect to the particular tax
consequences to you of an investment in the Fund.
The Fund's Underwriter
Pursuant to an underwriting agreement dated November 12, 1993 in effect until
February 28, 1996, Distributors acts as principal underwriter in a continuous
public offering for shares of the Fund. Prior to November 12, 1993 Huntington
Investments, Inc., an indirect wholly-owned subsidiary of Long Beach Bank and an
affiliate of Huntington Advisers, Inc., the Fund's former manager, served as the
Fund's principal underwriter.
The underwriting agreement will continue in effect for successive annual periods
provided that 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
Trust's trustees who are not parties to the underwriting agreement or interested
persons of any such party (other than as trustees of the Trust), 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.
Until April 30, 1994, income dividends were reinvested at the offering price
(which includes the sales charge) and Distributors allowed 50% of the entire
commission to the securities dealer of record, if any, on an account. Starting
with any income dividends paid after April 30, 1994, such reinvestment is at net
asset value.
In connection with the offering of shares of the Fund, aggregate underwriting
commissions for the fiscal year ended April 30, 1994, the period ended October
31, 1994 and the fiscal year ended October 31, 1995 were $442,640, $30,522, and
$256,910 respectively. After allowances to dealers, Huntington Investments, Inc.
retained $37,000 for the fiscal year ended April 30, 1994, and Distributors
retained $14,854, $232 and $28,562 in net underwriting discount and commissions
for the fiscal year ended April 30, 1994, the period ended October 31, 1994 and
for the fiscal year ended October 31, 1995 respectively. Distributors may be
entitled to reimbursement under the Fund's distribution plan, as discussed
below. Except as noted, Huntington Investments, Inc. and Distributors received
no other compensation from the Fund for acting as underwriter.
Distribution Plan
The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the 1940
Act (the "Plan") whereby the Fund may pay up to a maximum of 0.25% per annum of
its average daily net assets, payable quarterly, for expenses incurred in the
promotion and distribution of its shares.
Pursuant to the Plan, Distributors or others will be entitled to be reimbursed
each quarter (up to the maximum stated above) for actual expenses incurred in
the distribution and promotion of the Fund's shares, including, but not limited
to, the printing of prospectuses and reports used for sales purposes, expenses
of preparing and distributing sales literature and related expenses,
advertisements, and other distribution-related expenses, including a prorated
portion of Distributors' overhead expenses attributable to the distribution of
Fund shares, as well as any distribution or service fees paid to securities
dealers or their firms or others who have executed a servicing agreement with
the Fund, Distributors or its affiliates.
In addition to the payments to which Distributors or others are entitled under
the Plan, the Plan also provides that to the extent the Fund, the Manager or
Distributors or other parties on behalf of the Fund, the Manager or
Distributors, make payments that are deemed to be payments for the financing of
any activity primarily intended to result in the sale of shares of the Fund
within the context of Rule 12b-1 under the 1940 Act, then such payments shall be
deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges, which include
payments made under the Plan, plus any other payments deemed to be made pursuant
to the Plan, exceed the amount permitted to be paid pursuant to the Rules of
Fair Practice of the National Association of Securities Dealers, Inc., Article
III, Section 26(d)4.
The terms and provisions of the Plan relating to required reports, term, and
approval are consistent with Rule 12b-1. The Plan does not permit unreimbursed
expenses incurred in a particular year to be carried over to or reimbursed in
subsequent years.
To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks will not be
entitled to participate in the Plan as a result of applicable federal law
prohibiting certain banks from engaging in the distribution of mutual fund
shares. Such banking institutions, however, are permitted to receive fees under
the Plan for administrative servicing or for agency transactions. If you are a
customer of a bank that is prohibited from providing such services, you would be
permitted to remain a shareholder of the Fund, and alternate means for
continuing the servicing would be sought. In such an event, changes in the
services provided might occur and you might no longer be able to avail yourself
of any automatic investment or other services then being provided by the bank.
It is not expected that you would suffer any adverse financial consequences as a
result of any of these changes.
The Plan has been approved in accordance with the provisions of Rule 12b-1. The
Plan is effective through February 28, 1997 and renewable annually by a vote of
the Board, including a majority vote of the trustees who are non-interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the Plan, cast in person at a meeting called for that purpose.
It is also required that the selection and nomination of such trustees be done
by the non-interested trustees. The Plan and any related agreement may be
terminated at any time, without penalty, by vote of a majority of the
non-interested trustees on not more than 60 days' written notice, by
Distributors, on not more than 60 days' written notice, by any act that
constitutes an assignment of the management agreement with the Manager or the
underwriting agreement with Distributors, or by vote of a majority of the Fund's
outstanding shares. Distributors or any dealer or other firm may also terminate
their respective distribution or service agreement at any time upon written
notice.
The Plan and any related agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a majority
of the Fund's outstanding shares, and all material amendments to the Plan or any
related agreements shall be approved by a vote of the non-interested trustees,
cast in person at a meeting called for the purpose of voting on any such
amendment.
Distributors is required to report in writing to the Board at least quarterly on
the amounts and purpose of any payment made under the Plan and any related
agreements, as well as to furnish the Board with such other information as may
reasonably be requested in order to enable the Board to make an informed
determination of whether the Plan should be continued.
For the fiscal year ended October 31, 1995, the total amount paid by the Fund
pursuant to the Plan was $32,842, all of which was paid to broker-dealers.
General Information
Performance
As noted in the Prospectus, the Fund may from time to time quote various
performance figures to illustrate the Fund's past performance and may
occasionally cite statistics to reflect its volatility or risk.
Performance quotations by investment companies are subject to rules adopted by
the SEC. 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. Current yield and average annual compounded total return
quotations used by the Fund are based on the standardized methods of computing
performance mandated by the SEC. An explanation of those and other methods used
by the Fund to compute or express performance follows.
Total Return
The average annual total return is determined by finding the average annual
compounded rates of return over one-, five- and ten-year periods, or fractional
portion thereof, that would equate an initial hypothetical $1,000 investment to
its ending redeemable value. The calculation assumes the maximum front-end sales
charge is deducted from the initial $1,000 purchase order, and income dividends
and capital gains 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. If a change is made
on the sales charge structure, historical performance information will be
restated to reflect the maximum front-end sales charge currently in effect.
The Fund's average annual compounded rates of return for the one-year period
ended on October 31, 1995, was 14.73% and for the period from inception of the
Fund (12/31/92) to October 31, 1995 was 11.45%.
These figures were calculated according to the SEC formula:
n
P(1+T) = 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 one-, five- or ten-year periods at the end of the one-, five-
or ten-year periods (or fractional portion thereof)
As discussed in the Prospectus, the Fund may quote total rates of return in
addition to its average annual total return. These quotations are computed in
the same manner as the Fund's average annual compounded rate, except they will
be based on the Fund's actual return for a specified period rather than on its
average return over one-, five- and ten-year periods, or fractional portion
thereof. The Fund's total rate of return for the one-year period ended October
31, 1995 was 14.73% and for the period from inception of the Fund to October 31,
1995 was 35.89%.
Current Yield
Current yield reflects the income per share earned by the Fund's portfolio
investments and is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base period. The
Fund's yield for the 30-day period ended on October 31, 1995 was 4.34%.
This figure was obtained using the following SEC formula:
6
Yield = 2 [( a-b + 1 ) - 1]
-----
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the last day of the period
Current Distribution Rate
Current yield which is calculated according to a formula prescribed by the SEC
is not indicative of the amounts which were or will be paid to shareholders of
the Fund. Amounts paid to shareholders are reflected in the quoted current
distribution rate. The current distribution rate is computed by dividing the
total amount of dividends per share paid by the Fund during the past 12 months
by a current maximum offering price. Under certain circumstances, such as when
there has been a change in the amount of dividend payout or a fundamental change
in investment policies, it might be appropriate to annualize the dividends paid
over the period such policies were in effect, rather than using the dividends
during the past 12 months. The current distribution rate differs from the
current yield computation because it may include distributions to shareholders
from sources other than dividends and interest, such as premium income from
option writing and short-term capital gains and is calculated over a different
period of time.
Volatility
Occasionally statistics may be used to specify Fund volatility or risk. Measures
of volatility or risk are generally used to compare Fund net asset value or
performance relative 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 specified period of time. The idea is that greater volatility means greater
risk undertaken in achieving performance.
Other Performance Quotations
For investors who are permitted to purchase shares of the Fund at net asset
value, sales literature pertaining to the Fund may quote a current distribution
rate, yield, total return, average annual total return and other measures of
performance as described elsewhere in this SAI with the substitution of net
asset value for the public offering price.
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.
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.
The Fund may include in its advertising or sales material information relating
to investment objectives and performance results of funds belonging to the
Templeton Group of Funds. Resources is the parent company of the advisers and
underwriter of both the Franklin Group of Funds and Templeton Group of Funds.
Comparisons
To help you better evaluate how an investment in the Fund may satisfy your
investment objective, advertisements and other materials regarding 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. Such
comparisons may include, but are not limited to, the following examples:
a) Dow Jones Composite Average or its component averages - an unmanaged index
composed of 30 blue-chip industrial corporation stocks (Dow Jones Industrial
Average), 15 utilities company stocks (Dow Jones Utilities Average), and 20
transportation company stocks. Comparisons of performance assume reinvestment of
dividends.
b) Standard & Poor's 500 Stock Index or its component indices - an unmanaged
index composed of 400 industrial stocks, 40 financial stocks, 40 utilities
stocks, and 20 transportation stocks. Comparisons of performance assume
reinvestment of dividends.
c) The New York Stock Exchange composite or component indices - an unmanaged
index of all industrial, utilities, transportation, and finance stocks listed on
the New York Stock Exchange.
d) Wilshire 5000 Equity Index - represents the return on the market value of all
common equity - securities for which daily pricing is available. Comparisons of
performance assume reinvestment of dividends.
e) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed Income Fund
Performance Analysis and Lipper - Mutual Fund Yield Survey - measure total
return and average current yield for the mutual fund industry and rank
individual mutual fund performance over specified time periods, assuming
reinvestment of all distributions, exclusive of any applicable sales charges.
f) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc.
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
g) Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk, and total return for equity funds.
h) Financial publications: The Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, Fortune, and Money magazines - provide
performance statistics over specified time periods.
i) Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics - a statistical measure of change, over time, in the price
of goods and services in major expenditure groups.
j) Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates
historical measure of yield, price, and total return for common and small
company stock, long-term government bonds, Treasury bills, and inflation.
k) Savings and Loan Historical Interest Rates - as published in the U.S. Savings
& Loan League Fact Book.
l) Historical data supplied by the research departments of First Boston
Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill Lynch, Lehman
Brothers and Bloomberg L.P.
m) Standard & Poor's 100 Stock Index - an unmanaged index based on the prices of
100 blue- chip stocks, including 92 industrials, one utility, two transportation
companies, and 5 financial institutions. The S&P 100 Stock Index is a smaller
more flexible index for options trading.
From time to time, advertisements or information for the Fund may include a
discussion of certain attributes or benefits to be derived by an investment in
the Fund. Such advertisements or information may include symbols, headlines, or
other material which highlights or summarizes the information discussed in more
detail in the communication.
Advertisements or information may also compare the Fund's performance to the
return on certificates of deposit 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 certificate
of deposit issued by a bank. For example, as the general level of interest rates
rise, the value of the Fund's fixed-income investments, as well as the value of
its shares which 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. Certificates of deposit 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 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 such other averages.
Other Features and Benefits
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/or
other long-term goals. The Franklin College Costs Planner may assist 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 such goals will be met.
Miscellaneous Information
The Fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the United States, 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 $135
billion in assets under management for more than 3.9 million U.S. based mutual
fund shareholder and other accounts. The Franklin Group of Funds and the
Templeton Group of Funds offers to the public 114 U.S.-based mutual funds. 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 seven years.
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.
As a shareholder of a Massachusetts business trust, you could, under certain
circumstances, be held personally liable as a partner for its obligations. The
Fund's Agreement and Declaration of Trust, however, contains an express
disclaimer of shareholder liability for acts or obligations of the Fund. The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of the Fund's assets if you are held personally liable for
obligations of the Fund. The Declaration of Trust provides that the Fund shall,
upon request, assume the defense of any claim made against you for any act or
obligation of the Fund and satisfy any judgment thereon. All such rights are
limited to the assets of the Fund. The Declaration of Trust further provides
that the Fund may maintain appropriate insurance (for example, fidelity bonding
and errors and omissions insurance) for the protection of the Fund, its
shareholders, trustees, officers, employees and agents to cover possible tort
and other liabilities. Furthermore, the activities of the Fund as an investment
company, as distinguished from an operating company, would not likely give rise
to liabilities in excess of the Fund's total assets. Thus, the risk of you
incurring financial loss on account of shareholder liability is limited to the
unlikely circumstances in which both inadequate insurance exists and the Fund
itself is unable to meet its obligations.
Ownership and Authority Disputes
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 Internal Revenue Service in response to a
Notice of Levy.
Financial Statements
The audited financial statements contained in the Annual Report to Shareholders
of the Trust for the year ended October 31, 1995, including the auditors'
report, are incorporated herein by reference.
FRANKLIN TEMPLETON
INTERNATIONAL
CURRENCY FUNDS
Franklin Templeton Global Currency Fund
Franklin Templeton High Income Currency Fund
Franklin Templeton Hard Currency Fund
STATEMENT OF
ADDITIONAL INFORMATION
777 Mariners Island Blvd., P.O. Box 7777
MARCH1, 1996San Mateo, CA 94403-7777 1-800/DIAL BEN
Contents Page
How Do the Funds Invest Their Assets? 2
Investment Restrictions........... 5
Officers and Trustees............. 6
Investment Advisory and Other Services 10
How Do the Funds Purchase Securities
For Their Portfolios?............ 12
How Do I Buy and Sell Shares?..... 13
How Are the Funds' Shares Valued?. 16
Additional Information Regarding Taxation 17
The Funds' Underwriter............ 19
General Information............... 21
Financial Statements.............. 25
This Statement of Additional Information ("SAI") pertains only to the Franklin
Templeton Global Currency Fund ("Global Currency Fund"), the Franklin Templeton
Hard Currency Fund (the "Hard Currency Fund") and the Franklin Templeton High
Income Currency Fund (the "High Income Fund") (individually or collectively, the
"Funds"), each a separate non-diversified series of the Franklin Templeton
Global Trust (the "Trust"), formerly known as the Huntington Funds, an open-end
management investment company consisting of four separate series. The Trust and
its series are also referred to in this document and from time to time in other
communications as The Franklin Templeton International Currency Funds. Each
series of the Trust represents a separate fund with its own investment objective
and policies, with various possibilities for income or capital appreciation, and
subject to various market risks. Through the different series, the Trust
attempts to satisfy different investment objectives.
A Prospectus for the Funds, dated March 1, 1996, as may be amended from time to
time, provides the basic information you should know before investing in one of
the Funds and may be obtained without charge from the Trust or the Funds'
principal underwriter, Franklin/Templeton Distributors, Inc. ("Distributors"),
at the address or telephone number shown above.
This Statement of Additional Information ("SAI") is not a prospectus. It
contains information in addition to and in more detail than set forth in the
Prospectus. This SAI is intended to provide you with additional information
regarding the activities and operations of the Funds, and should be read in
conjunction with the Funds' Prospectus.
How Do the Funds Invest Their Assets?
The following information supplements and should be read in conjunction with the
sections in the Funds' Prospectus entitled "What Is the Franklin Templeton
Global Trust?", "How Do the Funds Invest Their Assets?", and "What Are the
Funds' Potential Risks?"
The Trust was organized as a Massachusetts business trust on November 6, 1985,
and has registered with the Securities and Exchange Commission ("SEC") as a
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"). Each Fund represents a separate and distinct series of
the Trust's shares of beneficial interest.
The Funds are managed by Franklin Advisers, Inc. (the "Manager"). Templeton
Investment Counsel, Inc. ("TICI" or the "Subadvisor") serves as the subadvisor
under a contract with the Manager (together, the "Trust's Investment Managers").
TICI is an indirect subsidiary of Templeton Worldwide, Inc. which is a direct,
wholly-owned subsidiary of Franklin Resources, Inc. (See "Investment Advisory
and Other Services.")
The Global Currency Fund invests in high-quality money market instruments
denominated in three or more of the world's Major Currencies (as defined in the
Prospectus under "What Is the Franklin Templeton Global Trust?"), with the
objective of maximizing total return.
The Hard Currency Fund invests in high-quality money market instruments (and
forward contracts) denominated in foreign Major Currencies that historically
have experienced low rates of inflation and which, in the view of the Trust's
Investment Managers, are pursuing economic policies conducive to continued low
rates of inflation in the future and currency appreciation versus the United
States ("U.S.") dollar over the long-term, with the objective of protection
against depreciation of the U.S. dollar relative to other currencies. The Hard
Currency Fund endeavors, to the maximum extent practicable, to maintain foreign
currency (non-U.S. dollar) exposure with respect to 100% of its net assets at
all times.
The High Income Fund invests primarily in high-quality money market instruments
denominated in three or more of the ten highest yielding Major Currencies, with
the objective of high current income at a level significantly above that
available on U.S. dollar money market funds. Consistent with this objective, the
High Income Fund may invest up to 25% of its total assets in instruments
denominated in Non-Major Currencies (as defined in the Prospectus under "What Is
the Franklin Templeton Global Trust?").
Floating and Variable Rate Notes. Floating and variable rate notes generally are
unsecured obligations issued by financial institutions and other entities. These
obligations typically have a stated maturity in excess of one year. The interest
rate on these notes is based on an identified interest rate index and is
adjusted automatically at specified intervals, generally not less frequently
than semiannually.
Commercial Paper. Commercial paper consists of short-term, unsecured promissory
notes issued to finance short-term credit needs.
Concentration in Financial Services Obligations. Under normal market conditions,
each Fund invests at least 25% of its net assets in obligations of companies
engaged in the financial services industry. These investments include
obligations of the character described below:
Certificates of Deposit. Certificates of deposit are certificates representing
the obligation of a bank or a foreign branch of such bank to repay funds
deposited with it for a specified period of time at a stated interest rate.
Time Deposits. Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate.
Bankers' Acceptances. Bankers' acceptances are credit instruments bearing
interest at a stated interest rate and evidencing the obligation of a bank to
pay a draft drawn on it by a customer. These instruments reflect the obligation
both of the bank and of the drawer to pay the face amount of the instrument upon
maturity.
U.S. Banks. Commercial banks organized under U.S. federal law are supervised and
examined by the U.S. Comptroller of the Currency and are required to be members
of the U.S. Federal Reserve System and to be insured by the U.S. Federal Deposit
Insurance Corporation (the "FDIC"). U.S. banks organized under state law are
supervised and examined by state banking authorities but are members of the U.S.
Federal Reserve System only if they elect to join. Most state banks are insured
by the FDIC (although such insurance may not be of material benefit to the Funds
depending upon the principal amount of the certificates of deposit of each bank
held by the Funds) and are subject to U.S. federal examination and to a
substantial body of U.S. federal law and regulation. As a result of U.S. federal
and state laws and regulations, domestic branches of U.S. banks are, among other
things, generally required to maintain specified levels of reserves, and are
subject to other supervision and regulation designed to promote financial
soundness.
Non-U.S. Banks and Non-U.S. Branches of U.S. Banks. Obligations of non-U.S.
branches of U.S. banks and of non-U.S. banks, such as certificates of deposit
and time deposits, may be general obligations of the parent banks in addition to
the issuing branch, or may be limited by the terms of a specific obligation and
governmental regulation. These obligations are subject to different risks than
are those of domestic U.S. banks or U.S. branches of non-U.S. banks. These risks
include foreign economic and political developments, foreign governmental
restrictions that may adversely affect payment of principal and interest on the
obligations, foreign exchange controls and foreign withholding and other taxes
on interest income. Non-U.S. branches of U.S. banks are not necessarily subject
to the same or similar regulatory requirements that apply to U.S. banks, such as
mandatory reserve requirements, loan limitations, and accounting, auditing and
financial recordkeeping requirements. In addition, less information may be
publicly available about a non-U.S. branch of a U.S. bank or about a non-U.S.
bank than about a U.S. bank.
Obligations of U.S. branches of non-U.S. banks may be general obligations of the
parent bank in addition to the issuing branch, or may be limited by the terms of
a specific obligation and by U.S. federal and state regulation as well as
governmental action in the country in which the non-U.S. bank has its head
office. A U.S. branch of a non-U.S. bank with assets in excess of $1 billion may
or may not be subject to reserve requirements imposed by the U.S. Federal
Reserve System or by the state in which the branch is located if the branch is
licensed in that state. In addition, a branch licensed by the U.S. Comptroller
of the Currency or a branch licensed by certain states may or may not be
required to: (1) pledge to the regulator, by depositing assets with a designated
bank within the state, an amount of its assets equal to 5% of its total
liabilities; and (2) maintain assets with the state in an amount equal to a
specified percentage of the aggregate amount of liabilities of the foreign bank
payable at or through all of its agencies or branches within the state. The
deposits of branches licensed by states may not necessarily be insured by the
FDIC.
Investing in Non-U.S. Securities. Non-U.S. securities markets generally are not
as developed or efficient as those in the U.S.. Securities of some foreign
issuers are less liquid and more volatile than securities of comparable U.S.
issuers. Similarly, volume and liquidity in most foreign securities markets are
less than in the U.S. and, at times, volatility of prices can be greater than in
the U.S.. In addition, there may be less publicly available information about a
non-U.S. issuer, and non-U.S. issuers are not generally subject to uniform
accounting and financial reporting standards, practices and requirements
comparable to those applicable to U.S. issuers.
Because foreign securities (e.g., non-U.S. money market instruments) are
purchased with and payable in currencies of foreign countries, the value of
these assets as measured in U.S. dollars will be affected favorably or
unfavorably by changes in currency exchange rates and exchange control
regulations. Currency exchange costs may be incurred when a Fund sells
instruments denominated in one currency and purchases instruments denominated in
another.
Furthermore, some of these securities may be subject to transaction taxes levied
by foreign governments, which would have the effect of increasing the cost of
such investments and reduce the realized gain or increase the realized loss on
such securities at the time of sale. Transaction costs and custodial expenses
for a portfolio of non-U.S. securities generally are higher than for a portfolio
of U.S. securities. Interest payments from certain foreign securities may be
subject to foreign withholding taxes on interest income payable on the
securities.
U.S. government policies have, in the past, through taxation and other
restrictions, discouraged certain investments abroad by U.S. investors. While no
such restrictions are currently in effect, they could be reinstituted. In that
event, it may be necessary for a Fund to invest temporarily all or substantially
all of its assets in U.S. money market instruments, or it may become necessary
to liquidate a Fund.
Currency Transactions. Generally, the currency exchange transactions of the
Funds are conducted on a spot (i.e., cash) basis at the spot rate prevailing in
the currency exchange market for purchasing or selling currency. However, the
Funds have authority and intend to enter into forward currency contracts as a
hedge against possible variations in the exchange rates between the currencies
in which their investments are denominated and other currencies, including the
U.S. dollar, or in conjunction with money market instruments for the purpose of
obtaining an investment result that is substantially equivalent to a direct
investment in a foreign currency denominated instrument. A forward currency
contract is an agreement to purchase or sell a specified currency at a specified
future date and price set at the time of the contract.
When using forward contracts for hedging purposes, the Funds may enter into
forward contracts with respect to either specific transactions ("transaction
hedging") or portfolio positions ("position hedging"). Transaction hedging is
the purchase or sale of forward contracts with respect to specific receivables
or payables of a Fund generally owing in connection with the purchase and sale
of portfolio securities. Position hedging is the sale of a forward contract on a
particular currency with respect to portfolio security positions denominated or
quoted in such currency. The Funds will not speculate in forward contracts;
however, the Funds will utilize forward contracts in conjunction with money
market instruments in a manner which is unrelated to the Funds' normal hedging
activities as described above (i.e., to obtain an investment result that is
substantially equivalent to a direct investment in a foreign currency
denominated instrument).
If a Fund enters into a position hedging transaction, its custodian bank will
place cash or readily marketable liquid securities in a segregated account of a
Fund in an amount equal to the value of its total assets committed to the
consummation of the forward contract. If the value of the securities placed in
the segregated account declines, additional cash or securities will be placed in
the account so that the value of the account will equal the amount of a Fund's
commitment with respect to such contracts.
A Fund may attempt to hedge up to 100% of its portfolio positions, but will
enter into hedging transactions only to the extent, if any, deemed appropriate
by the Trust's Investment Managers. A Fund may not enter into a position hedging
forward contract if, as a result, it would have more than 10% of the value of
its total assets committed to such contracts. A Fund may not enter into a
forward contract with a term of more than one year. A Fund may not engage in
position hedging with respect to the currency of a particular country to an
extent greater than the aggregate market value (at the time the hedging
transaction is entered into) of its portfolio securities denominated in (or
quoted in or currently convertible into or directly related through the use of
forward contracts in conjunction with money market instruments to) that
particular currency.
It may not be possible for a given Fund to hedge against a devaluation that is
so generally anticipated that a Fund is not able to contract to sell the
currency at a price above the devaluation level it anticipates. It is possible
that, under certain circumstances, one or more Funds may have to limit currency
transactions to qualify as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code").
At or before the maturity of a forward contract, a Fund that entered into the
contract may either sell a portfolio security and make delivery of the currency,
or it may retain the security and terminate its contractual obligation to
deliver the currency by purchasing an "offsetting" contract obligating it to
purchase, on the same maturity date, the same amount of the currency.
If a Fund entering into a forward contract retains the portfolio security and
engages in an offsetting transaction, a Fund will incur a gain or loss (as
described below) to the extent that there has been movement in forward contract
prices. If a Fund engages in an offsetting transaction, it may subsequently
enter into a new forward contract to sell the currency. Should forward prices
decline during the period between a Fund's entering into a forward contract for
the sale of a currency and the date it enters into an offsetting contract for
the purchase of the currency, a Fund will realize a gain to the extent that the
price of the currency it has agreed to sell exceeds the price of the currency it
has agreed to purchase. Should forward prices increase, a Fund will suffer a
loss to the extent the price of the currency it has agreed to purchase exceeds
the price of the currency it has agreed to sell.
Transactions in forward contracts by any of the Funds will be limited to the
transactions described above. Of course, no Fund is required to enter into
forward contracts, and none will do so unless deemed appropriate by the Trust's
Investment Managers. You should realize that the use of forward contracts does
not eliminate fluctuations in the underlying prices of the securities. Forward
contracts simply establish a rate of exchange that a Fund can achieve at some
future point in time. Additionally, although such contracts tend to minimize the
risk of loss due to fluctuations in the value of the hedged currency, at the
same time they tend to limit any potential gain which might result from the
change in the value of such currency.
Because the Funds invest primarily in money market instruments denominated in
non-U.S. currencies, each may hold foreign currencies pending their investment
in such instruments or their conversion into U.S. dollars. Although the Funds
value their assets daily (as described in the Prospectus) in terms of U.S.
dollars, they do not convert their holdings of foreign currencies into U.S.
dollars on a daily basis. They will do so from time to time, however, and you
should be aware of the costs of currency conversion. Foreign exchange dealers do
not charge a fee for conversion, but they do realize a profit based on the
difference, which is known as the spread, between the prices at which they are
buying and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to a Fund at one rate, while offering a lesser rate of exchange
should a Fund desire to resell the currency to the dealer.
Currency Movements
Exchange rates fluctuate for a number of reasons. Depending on the currency in
question and the point in time, some factors may outweigh others in determining
the course of exchange rate movements.
1. Inflation. The most fundamental reason exchange rates change is to reflect
changes in currencies' purchasing power. Different countries experience
different inflation rates due to different monetary and fiscal policies,
different product and labor market conditions and a host of other factors.
2. Trade Deficits. Countries with trade deficits tend to experience a
depreciating currency. Often, inflation is the cause of a trade deficit, making
a country's goods more expensive and less competitive and so reducing demand for
its currency.
3. Interest Rates. High interest rates tend to boost currency values in the
short run by making such currencies more attractive to investors. However, since
high interest rates are often the result of high inflation, the opposite is
often true in the longer run.
4. Budget Deficits and Low Savings Rates. Countries that run large budget
deficits and save little of their national income tend to suffer a depreciating
currency because they are forced to borrow abroad to finance their deficits.
Payments of interest on this debt can "flood" the currency markets with the
currency of the debtor nation.
Also, budget deficits can indirectly contribute to currency depreciation if a
government chooses to cope with its deficits and debt by means of inflation.
5. Political Factors. Political instability in a country can cause a currency to
depreciate. If the country appears a less desirable place in which to invest and
do business, demand for the currency is likely to fall.
6. Government Control. Through their own buying and selling of currencies, the
world's central banks sometimes manipulate exchange rate movements. In addition,
governments occasionally issue statements to influence people's expectations
about the direction of exchange rates, or they may instigate actual policies
with an exchange rate target as the goal.
Investment Restrictions
Each of the Funds has adopted the following restrictions as fundamental
policies, which means that they may not be changed without the approval of a
majority of the outstanding voting securities of a Fund. Under the 1940 Act, a
"vote of a majority of the outstanding voting securities" of a Fund means the
affirmative vote of the lesser 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 that Fund are represented
at the meeting in person or by proxy.
Each Fund may not:
1. Purchase common stocks, preferred stocks, warrants or other equity
securities, or purchase municipal bonds or industrial revenue bonds.
2. Borrow money, except from banks for temporary or emergency (not leveraging)
purposes in an amount up to 331/3% of the value of that Fund's total assets
(including the amount borrowed) based on the lesser of cost or market, less
liabilities (not including the amount borrowed) at the time the borrowing is
made. While borrowings exceed 5% of a Fund's total assets, the Fund will not
make any additional investments.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except in an
amount up to 331/3% of the value of its total assets, but only to secure
borrowings for temporary or emergency purposes provided that the deposit or
payment of initial or variation margin in connection with transactions in
options and futures shall not be treated as a pledge of assets hereunder.
4. Sell securities short or purchase securities on margin, provided that the
deposit or payment of initial or variation margin in connection with
transactions in options and futures shall not be treated as the purchase of
securities on margin hereunder.
5. Underwrite the securities of other issuers or invest more than 10% of its
net assets in (a) securities subject to restrictions on disposition under the
Securities Act of 1933 ("restricted securities"), (b) repurchase agreements
providing for settlement in more than seven days, (c) options which are traded
in the over-the-counter market and investments hedged by such options, or (d)
securities which are not readily marketable. No Fund may enter into time
deposits maturing in more than seven days and any Fund's investment in time
deposits with maturities of three days or more may not exceed 10% of the net
assets of such Fund.
6. Purchase or sell real estate, securities of real estate investment trusts,
commodities, or oil and gas interests, except that a Fund may purchase or sell
currencies, may enter into futures contracts on securities, currencies,
securities and other indices or any other financial instruments, and may
purchase and sell options on such futures contracts.
7. Make loans to others except through the purchase of debt obligations
referred to in the Prospectus and the entry into repurchase agreements and
portfolio lending agreements, provided that the value of securities subject to
such lending agreements may not exceed 30% of the value of the Fund's total
assets. Any loans of portfolio securities will be made according to guidelines
established by the Securities and Exchange Commission and the Trust's Board of
Trustees, including maintenance of collateral of the borrower equal at all times
to at least the current market value of the securities loaned.
8. Invest less than 25% of its assets in securities issued by companies
primarily engaged in the financial services industry or invest more than 25% of
its assets in the securities of issuers in any other industry, provided that
there shall be no limitation on the purchase of securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities. Notwithstanding the
foregoing, for temporary defensive purposes, a Fund may invest less than 25% of
its assets in the obligations of companies primarily engaged in the financial
services industry.
9. Have invested as of the last day of any fiscal quarter (or other measuring
period used for purposes of determining compliance with Subchapter M of the
Code) (a) more than 25% of its total assets in the securities of any one issuer,
or (b) with respect to 50% of the Fund's total assets, more than 5% of its total
assets in the obligations of any one issuer, except for cash and cash items and
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
10. Invest in companies for the purpose of exercising control.
11. Invest in securities of other investment companies, except as they may be
acquired as part of a merger, consolidation or acquisition of assets.
12. Purchase the securities of any issuer having less than three years'
continuous operations (or any predecessors) if such purchase would cause the
value of the Fund's investments in all such issuers to exceed 5% of the value of
its total assets.
Securities issued by a foreign government, its agencies and instrumentalities,
as well as supra-national organizations are considered as one industry for
concentration purposes.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values or assets
will not constitute a violation of that restriction.
Officers and Trustees
The Board of Trustees (the "Board") has the responsibility for the overall
management of the Trust and each Fund, including general supervision and review
of each Fund's investment activities. The trustees, in turn, elect the officers
of the Trust who are responsible for administering day-to-day operations of the
Trust. The affiliations of the officers and trustees and their principal
occupations for the past five years are listed below. Trustees who are deemed to
be "interested persons" of the Trust, as defined in the 1940 Act, are indicated
by an asterisk (*).
Positions and Offices Principal Occupation During
Name, Age and Address with the Trust Past Five Years
Frank H. Abbott, III (74) Trustee
1045 Sansome St.
San Francisco, CA 94111
President and Director, Abbott Corporation (an investment company); and
director, trustee or managing general partner, as the case may be, of 31 of the
investment companies in the Franklin Group of Funds.
Harris J. Ashton (63) Trustee
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers); Director, RBC Holdings, Inc. (a bank
holding company) and Bar-S Foods; and director, trustee or managing general
partner, as the case may be, of 56 of the investment companies in the Franklin
Templeton Group of Funds.
David K. Eiteman (66) Trustee
HC2, Box 8076
Frazier Park, CA 93225
Since 1959, Professor of Finance in the John E. Anderson Graduate School of
Management, University of California, Los Angeles. From 1988 to June 1993, a
Trustee of the Huntington Investment Trust.
S. Joseph Fortunato (63) Trustee
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director of General Host
Corporation; director, trustee or managing general partner, as the case may be,
of 58 of the investment companies in the Franklin Templeton Group of Funds.
David W. Garbellano (81) Trustee
111 New Montgomery St., #402
San Francisco, CA 94105
Private Investor; Assistant Secretary/Treasurer and Director, Berkeley Science
Corporation (a venture capital company); and director, trustee or managing
general partner, as the case may be, of 30 of the investment companies in the
Franklin Group of Funds.
*Donald P. Gould (37) President
777 Mariners Island Blvd. and Trustee
San Mateo, CA 94404
Managing Director, Templeton Worldwide, Inc.; from November 1993 to present,
Executive Vice President, Franklin Institutional Services Corporation; from
January 1995 to present, Senior Vice President of Templeton Franklin Investment
Services, Inc.; from February 1992 to November 1993, independent consultant to
the Trust; and from February 1992 to June 1993, independent consultant to
Huntington Investment Trust. From December 1985 to February 1992, Chairman of
the Board of the Trust. From 1988 to June 1993, President and Trustee, from 1988
to February 1992, Chairman of the Board, Huntington Investment Trust. From
October 1985 to February 1992, President and Director of Huntington Advisers,
Inc., a mutual fund investment adviser, and President of Huntington Investments,
Inc., a mutual fund underwriter.
Gerald R. Healy (54) Trustee
5917 Cleveland Street
Morton Grove, IL 60053
Since April 1994, a private consultant. From July 1993 to March 1994, Director
of Corporate Management Resources of Alliance Imaging, Inc. From 1989, Executive
Vice President of Capital Health Services Corp. Prior to that time, a private
investor. From 1988 to June 1993, a Trustee of the Huntington Investment Trust.
*Charles B. Johnson (63) Chairman
777 Mariners Island Blvd. of the Board
San Mateo, CA 94404 and Trustee
President and Director, Franklin Resources, Inc.; Chairman of the Board and
Director, Franklin Advisers, Inc. and Franklin Templeton Distributors, Inc.;
Director, Franklin/Templeton Investor Services, Inc. and General Host
Corporation; and officer and/or director, trustee or managing general partner,
as the case may be, of most other subsidiaries of Franklin Resources, Inc. and
of 57 of the investment companies in the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (55) Vice President
777 Mariners Island Blvd. and Trustee
San Mateo, CA 94404
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.;
Director, Franklin/Templeton Investor 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 of 43 of the investment companies
in the Franklin Templeton Group of Funds.
David P. Kraus (38) Trustee
Bet Tzedek Legal Services
145 South Fairfax Ave., Suite 200
Los Angeles, CA 90036-2166
Since 1981, an attorney with various private law firms in Los Angeles. Also,
since October 1995, an attorney with Bet Tzedek Legal Services.
Frank W. T. LaHaye (66) Trustee
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
General Partner, Peregrine Associates and Miller & LaHaye, which are General
Partners of Peregrine Ventures and Peregrine Ventures II (venture capital
firms); Chairman of the Board and Director, Quarterdeck Office Systems, Inc.;
Director, FischerImaging Corporation; and director or trustee, as the case may
be, of 26 of the investment companies in the Franklin Group of Funds.
Gordon S. Macklin (67) Trustee
8212 Burning Tree Road
Bethesda, MD 20817
Chairman, White River Corporation (information services); Director, Fund
American Enterprises Holdings, Inc., Lockheed Martin Corporation, MCI
Communications Corporation, MedImmune, Inc. (biotechnology), InfoVest
Corporation (information services), and Fusion Systems Corporation (industrial
technology); and director, trustee or managing general partner, as the case may
be, of 53 of the investment companies in the Franklin Templeton Group of Funds;
and formerly held the following positions: Chairman, Hambrecht and Quist Group;
Director, H & Q Healthcare Investors; and President, National Association of
Securities Dealers, Inc..
Harmon E. Burns (51) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
Executive Vice President, Secretary and Director, Franklin Resources, Inc.;
Executive Vice President and Director, Franklin Templeton Distributors, Inc.;
Executive Vice President, Franklin Advisers, Inc.; Director, Franklin/Templeton
Investor Services, 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 43 of the investment companies in the Franklin Templeton Group of Funds.
Kenneth V. Domingues (63) Vice President -
777 Mariners Island Blvd. Financial Reporting
San Mateo, CA 94404 and Accounting
Standards
Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc., and
Franklin Templeton Distributors, Inc.; officer and/or director, as the case may
be, of other subsidiaries of Franklin Resources, Inc.; and officer and/or
managing general partner, as the case may be, of 37 of the investment companies
in the Franklin Group of Funds.
Martin L. Flanagan (35) Vice President
777 Mariners Island Blvd. and Chief
San Mateo, CA 94404 Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, Franklin
Resources, Inc.; Executive Vice President, Templeton Worldwide, Inc.; Senior
Vice President and Treasurer, Franklin Advisers, Inc. and Franklin Templeton
Distributors, Inc.; Senior Vice President, Franklin/Templeton Investor Services,
Inc.; officer of most other subsidiaries of Franklin Resources, Inc.; and
officer of 61 of the investment companies in the Franklin Templeton Group of
Funds.
Deborah R. Gatzek (47) Vice President
777 Mariners Island Blvd. and Secretary
San Mateo, CA 94404
Senior Vice President and General Counsel, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; Vice President, Franklin Advisers, Inc. and
officer of 37 of the investment companies in the Franklin Group of Funds.
Charles E. Johnson (39) Vice President
777 Mariners Island Blvd.
San Mateo CA 94404
Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc. and Franklin Institutional Services Corporation;
officer and/or director, as the case may be, of some of the subsidiaries of
Franklin Resources, Inc. and officer and/or director or trustee, as the case may
be, of 26 of the investment companies in the Franklin Templeton Group of Funds.
Diomedes Loo-Tam (57) Treasurer and
777 Mariners Island Blvd. Principal
San Mateo, CA 94404 Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.
Edward V. McVey (58) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
Senior Vice President/National Sales Manager, Franklin Templeton Distributors,
Inc.; and officer of 32 of the investment companies in the Franklin Group of
Funds.
The preceding table indicates those officers and trustees who are also
affiliated persons of Distributors and the investment manager. Trustees not
affiliated with the investment manager ("nonaffiliated trustees") are currently
paid fees of $800 per month plus $800 per meeting attended. As indicated above,
certain of the Trust's nonaffiliated trustees also serve as directors, trustees
or managing general partners of other investment companies in the Franklin Group
of Funds(R) and the Templeton Group of Funds (the "Franklin Templeton Group of
Funds") from which they may receive fees for their services. The following table
indicates the total fees paid to nonaffiliated trustees by the Trust and by
other funds in the Franklin Templeton Group of Funds.
<TABLE>
<CAPTION>
Total Fees Number of Boards in
Total Fees Received from the the Franklin Templeton
Received Franklin Templeton Group of Funds on
Name from Trust*Group of Funds** Which Each Serves***
<S> <C> <C> <C>
Frank H. Abbott, III................... $5,000 $162,420 31
Harris J. Ashton...................... 5,000 327,925 56
David K. Eiteman....................... 3,400 2,400 1
S. Joseph Fortunato.................... 5,000 344,745 58
David Garbellano....................... 5,000 146,100 30
Gerald R. Healy....................... 4,200 4,000 1
David P. Kraus......................... 5,000 4,800 1
Frank W.T. LaHaye...................... 5,000 143,200 26
Gordon S. Macklin...................... 5,000 321,525 53
</TABLE>
*For the fiscal year ended October 31, 1995.
**For the calendar year ended December 31, 1995.
***The number of boards is based on the number of registered investment
companies in the Franklin Templeton Group of Funds and does not include the
total number of series or funds within each investment company for which the
trustees are responsible. The Franklin Templeton Group of Funds currently
includes 61 registered investment companies, consisting of approximately 162
U.S. based funds or series.
Nonaffiliated trustees are reimbursed for expenses incurred in connection with
attending board meetings, 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 trustee received any other compensation directly from the
Funds. Certain officers or trustees who are shareholders of Franklin Resources,
Inc. ("Resources") may be deemed to receive indirect remuneration by virtue of
their participation, if any, in the fees paid to its subsidiaries.
As of December 7, 1995, the officers and trustees, as a group, owned of record
and beneficially approximately 61 shares of the Global Currency Fund, 280 shares
of the Hard Currency Fund and 73 shares of the High Income Currency Fund, each
of which is less than 1% of the total outstanding shares of each Fund. Many of
the Trust's trustees also own shares in various of the 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.
From time to time, the number of each Fund's 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 Trust, no other person holds
beneficially or of record more than 5% of any of these Funds' outstanding
shares.
Investment Advisory and Other Services
The investment manager of the Funds is Franklin Advisers, Inc. ("Advisers" or
"Manager"). Advisers is a wholly-owned subsidiary of Resources, a publicly owned
holding company whose shares are listed on the New York Stock Exchange (the
"Exchange"). Resources owns several other subsidiaries that are involved in
investment management and shareholder services.
Pursuant to the management agreement, the Manager provides investment research
and portfolio management services, including the selection of securities for
each Fund to purchase, hold or sell and the selection of brokers through whom
each Fund's portfolio transactions are executed. The Manager's activities are
subject to the review and supervision of the Board to whom the Manager renders
periodic reports of each Fund's investment activities. Under the terms of the
management agreement, the Manager provides office space and office furnishings,
facilities and equipment required for managing the business affairs of each
Fund; maintains all internal bookkeeping, clerical, secretarial and
administrative personnel and services; and provides certain telephone and other
mechanical services. The Manager is covered by fidelity insurance on its
officers, directors and employees for the protection of the Trust. Please see
the Statement of Operations in the financial statements included in the Trust's
Annual Report to Shareholders for the year ended October 31, 1995.
The Manager also provides management services to numerous other investment
companies or funds pursuant to management agreements with each fund. The Manager
may give advice and take action with respect to any of the other funds it
manages, or for its own account, which may differ from action taken by the
Manager on behalf of the Funds. Similarly, with respect to the Funds, the
Manager is not obligated to recommend, purchase or sell, or to refrain from
recommending, purchasing or selling any security that the Manager and access
persons, as defined by the 1940 Act, may purchase or sell for its or their own
account or for the accounts of any other fund. Furthermore, the Manager is not
obligated to refrain from investing in securities held by the Funds or other
funds which it manages or administers. Of course, any transactions for the
accounts of the Manager and other access persons will be made in compliance with
the Trust's Code of Ethics.
Pursuant to the management agreement, each Fund is obligated to pay the Manager
a fee computed at the close of business on the first business day of each month
equal to an annual rate of 0.65% of the value of the average daily net assets of
each Fund.
The management agreement specifies that the management fee will be reduced to
the extent necessary to comply with the most stringent limits on the expenses
which may be borne by each Fund as prescribed by any state in which each Fund's
shares are offered for sale. The most stringent current limit requires the
Manager to reduce or eliminate its fee to the extent that aggregate operating
expenses of each Fund (excluding interest, taxes, brokerage commissions and
extraordinary expenses such as litigation costs) would otherwise exceed in any
fiscal year 2.5% of the first $30 million of average net assets of each Fund,
2.0% of the next $70 million of average net assets of each Fund and 1.5% of
average net assets of each Fund in excess of $100 million. Expense reductions
have not been necessary based on state requirements.
The Manager has agreed in advance to waive a portion of its management fees and
make certain payments to reduce expenses. For the fiscal year ended October 31,
1995, the Global Currency Fund and the Hard Currency Fund paid the Manager their
respective contractual management fees of $379,524 and $634,188, respectively.
The High Income Fund paid management fees of $57,812 instead of the contractual
amount of $82,819. For the period May 1, 1994 to October 31, 1994, the
management fees the Funds were contractually obligated to pay the Manager were
$173,619, $179,397 and $56,657 for the Global Currency Fund, the Hard Currency
Fund and the High Income Fund, respectively, and the management fees actually
paid to the Manager by the Funds for the same period were $6,878, $12,025 and
$0, respectively. For the period November 15, 1993 to April 30, 1994, the
management fees the Funds were contractually obligated to pay the Manager were
$165,435, $104,552 and $55,225, for the Global Currency Fund, the Hard Currency
Fund and the High Income Fund, respectively, and the management fees actually
paid to the Manager by the Funds for the same period were $48,533, $12,229 and
$7,093, respectively.
The management agreement is in effect until February 28, 1997. Thereafter, it
may continue in effect for successive annual periods providing such continuance
is specifically approved at least annually by a vote of the Board or by a vote
of the holders of a majority of a Fund's outstanding voting securities, and in
either event by a majority vote of the Trust's trustees who are not parties to
the management agreement or interested persons of any such party (other than as
trustees of the Trust), cast in person at a meeting called for that purpose. The
management agreement may be terminated without penalty at any time by the Board
or by a vote of the holders of a majority of each Fund's outstanding voting
securities, or by the Manager on 60 days' written notice and will automatically
terminate in the event of its assignment, as defined in the 1940 Act.
As stated in the Prospectus, prior to November 12, 1993, Huntington Advisers,
Inc., 251 South Lake Avenue, Suite 600, Pasadena, California 91101, an indirect
wholly-owned subsidiary of Long Beach Bank, served as the Trust's manager; and
Bankers Trust Company, 280 Park Avenue, New York, New York 10015, a wholly-owned
subsidiary of Bankers Trust New York Corporation, served as each Fund's
investment adviser. For the fiscal years ended April 30, 1993 and for the period
May 1, 1993 to November 15, 1993 investment advisory fees and management and
administration fees paid by the Funds were as follows:
Global High Hard
Currency Income Currency
Fund Fund Fund
Management and administration fees paid to Huntington Advisers
May 1, 1993 to November 15, 1993..................... $139,768 $ 61,738$ 93,886
Fiscal Year 1993..................................... 254,010 180,302 162,142
Advisory fees paid to Bankers Trust Company
May 1, 1993 to November 15, 1993..................... $ 85,126 $ 37,844$ 57,239
Fiscal Year 1993..................................... 158,756 112,688 101,339
As stated in the Prospectus, TICI, an affiliate of Templeton Worldwide, Inc. and
an indirect wholly-owned subsidiary of Resources will serve as the subadvisor
under a contract with the Manager. Pursuant to the subadvisory agreement between
the Manager and TICI, and subject to the overall policies, control, direction
and review of the Board and to the instructions and supervision of the Manager,
TICI will provide a continuous investment program for each Fund, including
allocation of each Fund's assets among the various securities markets of the
world and, investment research and advice with respect to securities and
investments and cash equivalents in the Funds.
Under the subadvisory agreement with the Manager, TICI receives a fee from the
Manager equal to an annual rate of 0.25% of the value of the average daily net
assets of each of the Funds.
Franklin/Templeton Investor Services, Inc. ("Investor Services"), a wholly-owned
subsidiary of Resources, is the shareholder servicing agent for each Fund and
acts as each Fund's transfer agent and dividend-paying agent. Investor Services
is compensated on the basis of a fixed fee per account. Prior to November 12,
1993, Fund/Plan Services, Inc., Two Elm Street, Conshohochken, Pennsylvania
19428, served as the Trust's transfer and dividend-disbursing agent.
Bank of New York, Mutual Funds Division, 90 Washington Street, New York, New
York, 10286, acts as custodian of the securities and other assets of the Fund.
Bank of America NT & SA, 555 California Street, 4th Floor, San Francisco,
California 94104, acts as custodian for cash received in connection with the
purchase of Fund shares. Chase Manhattan Bank, Global Securities Service, Chase
MetroTech Center, Brooklyn, New York 11245, also acts as custodian of certain
securities and other assets of each Fund. Citibank Delaware, One Penn's Way, New
Castle, Delaware 19720, acts as custodian in connection with transfer services
through bank automated clearing houses. The custodians do not participate in
decisions relating to the purchase and sale of portfolio securities. Prior to
November 12, 1993, Bankers Trust Company 280 Park Avenue, New York, New York
10015, served as the Trust's custodian.
Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California 94105,
are the Trust's independent auditors. During the fiscal year ended October 31,
1995, their auditing services consisted of rendering an opinion on the financial
statements of the Funds included in the Trust's Annual Report for the year ended
October 31, 1995. Prior to the fiscal year ended April 30, 1994, the Funds were
audited by other independent auditors.
How Do the Funds Purchase Securities For Their Portfolios?
Under the current management agreement, the selection of brokers and dealers to
execute transactions in each Fund's portfolio is made by the Manager in
accordance with criteria set forth in the management agreement and any
directions which the Board may give. Under the subadvisory agreement, Adviser
may delegate to TICI the authority to select securities dealers to execute
portfolio transactions for the Funds.
When placing a portfolio transaction, the Trust's Investment Managers attempt to
obtain the best net price and execution of the transaction. On portfolio
transactions done on a securities exchange, the amount of commission paid by the
Funds is negotiated between the Trust's Investment Managers and the broker
executing the transaction. The Trust's Investment Managers seek to obtain the
lowest commission rate available from brokers that are felt to be capable of
efficient execution of the transactions. 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 such transactions. These
opinions are formed on the basis of, among other things, the experience of these
individuals in the securities industry and information available to them
concerning the level of commissions being paid by other institutional investors
of comparable size. The Trust's Investment Managers will ordinarily place orders
for the purchase and sale of over-the-counter securities on a principal rather
than agency basis with a principal market maker unless, in the opinion of the
Trust's Investment Managers, 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. Each Fund
seeks to obtain prompt execution of orders at the most favorable net price.
The amount of commission is not the only relevant factor to be considered in the
selection of a broker to execute a trade. If it is felt to be in a Fund's best
interest, the Trust's Investment Managers may place portfolio transactions with
brokers who provide the types of services described below, even if it means the
Funds 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 the
Trust's Investment Managers, 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 Funds or assist the Trust's Investment Managers
in carrying out their responsibilities to the Funds, or when it is otherwise in
the best interest of the Funds to do so, whether or not such services may also
be useful to the Trust's Investment Managers in advising other clients.
When it is felt that several brokers are equally able to provide the best net
price and execution, the Trust's Investment Managers may decide to execute
transactions through brokers who provide quotations and other services to the
Funds, specifically including the quotations necessary to determine the value of
each Fund's net assets, in such amount of total brokerage as may reasonably be
required in light of such services, and through brokers who supply research,
statistical and other data to the Funds and the Trust's Investment Managers in
such amount of total brokerage as may reasonably be required.
It is not possible to place a dollar value on the special executions or on the
research services received by the Trust's Investment Managers from dealers
effecting transactions in portfolio securities. The allocation of transactions
in order to obtain additional research services permits the Trust's Investment
Managers to supplement their 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, the Trust's Investment
Managers and their affiliates may use this research and data in their investment
advisory capacities with other clients. Provided that the Trust's officers are
satisfied that the best execution is obtained, the sale of Fund shares may also
be considered as a factor in the selection of broker-dealers to execute each
Fund's portfolio transactions.
Because Distributors is a member of the National Association of Securities
Dealers, it is sometimes entitled to obtain certain fees when a Fund tenders
portfolio securities pursuant to a tender-offer solicitation. As a means of
recapturing brokerage for the benefit of a Fund, any portfolio securities
tendered by a Fund will be tendered through Distributors if it is legally
permissible to do so. In turn, the next management fee payable to Advisers under
the management agreement will be reduced by the amount of any fees received by
Distributors in cash, less any costs and expenses incurred in connection
therewith.
If purchases or sales of securities of a Fund and one or more other investment
companies or clients supervised by the Trust's Investment Managers are
considered at or about the same time, transactions in such securities will be
allocated among the several investment companies and clients in a manner deemed
equitable to all by the Trust's Investment Managers, taking into account the
respective sizes of the funds and the amount of securities to be purchased or
sold. It is recognized that in some cases this procedure could possibly have a
detrimental effect on the price or volume of the security so far as a 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 a Fund.
During the fiscal year ended October 31, 1995, the six-month period ended
October 31, 1994 and the fiscal years ended April 30, 1992 and 1993, the Funds
paid no brokerage commissions. As of October 31, 1995, the Funds did not own
securities of their regular broker-dealers.
How Do I Buy and Sell Shares?
All checks, drafts, wires and other payment mediums used for purchasing or
redeeming shares of the Funds must be denominated in U.S. dollars. Each Fund
reserves the right, in its sole discretion, to either (a) reject any order for
the purchase or sale of 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.
In connection with exchanges, it should be noted that since the proceeds from
the sale of shares of an investment company are generally not available until
the fifth business day following the redemption, the funds into which you are
seeking to exchange reserve the right to delay issuing shares pursuant to an
exchange until said fifth business day. The redemption of shares of a Fund to
complete an exchange will be effected at the close of business on the day the
request for exchange is received in proper form at the net asset value then
effective. Please see "What If My Investment Outlook Changes? - Exchange
Privilege" in the Prospectus.
If, in connection with the purchase of a Fund's shares, you submit a check or a
draft that is returned unpaid to a Fund, that Fund may impose a $10 charge
against your account for each returned item.
Dividend checks returned to a Fund marked "unable to forward" by the postal
service will be deemed to be a request to change your dividend option to
reinvest all distributions and the proceeds will be reinvested in additional
shares at net asset value until new instructions are received.
Each Fund may deduct from your account the costs of its efforts to locate you if
mail is returned as undeliverable or a Fund is otherwise unable to locate you or
verify your current mailing address. These costs may include a percentage of the
account when a search company charges a percentage fee in exchange for its
location services.
Under agreements with certain banks in Taiwan, Republic of China, each Fund's
shares are available to such banks' discretionary trust funds at net asset
value. The banks may charge service fees to their customers who participate in
the discretionary trusts. Pursuant to agreements, a portion of such service fees
may be paid to Distributors or one of its affiliates to help defray expenses of
maintaining a service office in Taiwan, including expenses related to local
literature fulfillment and communication facilities.
Shares of the Funds may be offered to investors in Taiwan through securities
firms known locally as Securities Investment Consulting Enterprises. In
conformity with local business practices in Taiwan, shares of the Funds will be
offered with the following schedule of sales charges:
Size of Purchase - U.S. dollarsSales Charge
Up to $100,000................ 3%
$100,000 to $1,000,000........ 2%
Over $1,000,000............... 1%
Purchases and Redemptions
through Securities Dealers
Orders for the purchase of shares of the Funds received in proper form prior to
the scheduled close of the Exchange (generally 1:00 p.m. Pacific time) any
business day that the Exchange is open for trading and promptly transmitted to a
Fund will be based upon the public offering price determined that day. Purchase
orders received by securities dealers or other financial institutions after the
scheduled close of the Exchange will be effected at the applicable Fund's public
offering price on the day it is next calculated. The use of the term "securities
dealer" herein shall include other financial institutions which, either directly
or through affiliates, have an agreement with Distributors to handle customer
orders and accounts with a Fund. Such reference, however, is for convenience
only and does not indicate a legal conclusion of capacity.
Orders for the redemption of shares are effected at net asset value subject to
the same conditions concerning time of receipt in proper form. It is the
securities dealer's responsibility to transmit the order in a timely fashion and
any loss to you resulting from the failure to do so must be settled between you
and the securities dealer.
Other Payments to Securities Dealers
As discussed in the Prospectus under "How Do I Buy Shares? - General," either
Distributors or one of its affiliates may make payments, out of its own
resources, to securities dealers who initiate and are responsible for purchases
made at net asset value by certain trust companies and trust departments of
banks, certain designated retirement plans (excluding IRA and IRA Rollovers),
certain non-designated plans, and certain retirement plans of organizations with
collective retirement plan assets of $1 million or more, as described below.
Distributors may make these payments in the form of contingent advance payments,
which may be recovered from the securities dealer or set off against other
payments due to the securities dealer in the event shares are redeemed within 12
months of the calendar month of purchase. Other conditions may apply. All terms
and conditions may be imposed by an agreement between Distributors, or one of
its affiliates, and the securities dealer.
Either Distributors or one of its affiliates may pay the following amounts, out
of its own resources, to securities dealers who initiate and are responsible for
purchases made at net asset value by certain designated retirement plans
(excluding IRA and IRA rollovers): 1% on sales of $1 million but less than $2
million, plus 0.80% on sales of $2 million but less than $3 million, plus 0.50%
on sales of $3 million but less than $50 million, plus 0.25% on sales of $50
million but less than $100 million, plus 0.15% on sales of $100 million or more;
and for purchases made at net asset value by certain non-designated retirement
plans: 0.75% on sales of $1 million but less than $2 million, plus 0.60% on
sales of $2 million but less than $3 million, plus 0.50% on sales of $3 million
but less than $50 million, plus 0.25% on sales of $50 million but less than $100
million, plus 0.15% on sales of $100 million or more. These payment breakpoints
are reset every 12 months for purposes of additional purchases. With respect to
purchases made at net asset value by certain trust companies and trust
departments of banks and certain retirement plans of organizations with
collective retirement plan assets of $1 million or more, either Distributors or
one of its affiliates, out of its own resources, may pay up to 1% of the amount
invested.
Letter of Intent
You may qualify for a reduced sales charge on the purchase of shares of a Fund,
as described in the Prospectus. At any time within 90 days after the first
investment which you want to qualify for a reduced sales charge, you may file
with a Fund a signed Shareholder Application with the Letter of Intent (the
"Letter") section completed. After the Letter is filed, each additional
investment will be entitled to the sales charge applicable to the level of
investment indicated on the Letter. Sales charge reductions based upon purchases
in more than one of the Franklin Templeton Funds will be effective only after
notification to Distributors that the investment qualifies for a discount. Your
holdings in the Franklin Templeton Funds, including Class II shares, acquired
more than 90 days before the Letter is filed, will be counted towards completion
of the Letter but will not be entitled to a retroactive downward adjustment in
the sales charge. Any redemptions you make, unless by a designated retirement
plan, during the 13-month period will be subtracted from the amount of the
purchases for purposes of determining whether the terms of the Letter have been
completed. If the Letter is not completed within the 13-month period, there will
be an upward adjustment of the sales charge, depending upon the amount actually
purchased (less redemptions) during the period. The upward adjustment does not
apply to designated retirement plans. If you execute a Letter prior to a change
in the sales charge structure for a Fund, you will be entitled to complete the
Letter at the lower of the new sales charge structure or the sales charge
structure in effect at the time the Letter was filed.
As mentioned in the Prospectus, five percent (5%) of the amount of the total
intended purchase will be reserved in shares of a Fund registered in your name.
This policy of reserving shares does not apply to a designated retirement plan.
If the total purchases, less redemptions, equal the amount specified under the
Letter, the reserved shares will be deposited to an account in your name or
delivered to you or as you direct. If the total purchases, less redemptions,
exceed the amount specified under the Letter and is an amount which would
qualify for a further quantity discount, a retroactive price adjustment will be
made by Distributors and the securities dealer through whom purchases were made
pursuant to the Letter (to reflect such further quantity discount) on purchases
made within 90 days before and on those made after filing the Letter. The
resulting difference in offering price will be applied to the purchase of
additional shares at the offering price applicable to a single purchase or the
dollar amount of the total purchases. If the total purchases, less redemptions,
are less than the amount specified under the Letter, you will remit to
Distributors an amount equal to the difference in the dollar amount of sales
charge actually paid and the amount of sales charge that would have applied to
the aggregate purchases if the total of such purchases had been made at a single
time. Upon such remittance, the reserved shares held for your account will be
deposited to an account in your name or delivered to you or as you direct. If
within 20 days after written request the difference in sales charge is not paid,
the redemption of an appropriate number of reserved shares to realize the
difference will be made. In the event of a total redemption of the account prior
to fulfillment of the Letter, the additional sales charge due will be deducted
from the proceeds of the redemption, and the balance will be forwarded to you.
If a Letter is executed on behalf of a designated retirement plan, the level and
any reduction in sales charge for these plans will be based on actual plan
participation and the projected investments in the Franklin Templeton Funds
under the Letter. These plans are not subject to the requirement to reserve 5%
of the total intended purchase, or to any penalty as a result of the early
termination of a plan, nor are these plans entitled to receive retroactive
adjustments in price for investments made before executing the Letter.
Redemptions in Kind
Each 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 a Fund's net
assets at the beginning of the 90-day period. This commitment is irrevocable
without the prior approval of the Securities and Exchange Commission ("SEC"). In
the case of redemption requests in excess of these amounts, the trustees reserve
the right to make payments in whole or in part in securities or other assets of
that Fund, in case of an emergency, or if the payment of such a redemption in
cash would be detrimental to the existing shareholders of a Fund. In such
circumstances, the securities distributed would be valued at the price used to
compute a Fund's net assets. Should a Fund do so, you may incur brokerage fees
in converting the securities to cash. The Funds do not intend to redeem illiquid
securities in kind. Should it happen, however, you may not be able to recover
your investment in a timely manner and you may incur brokerage costs in selling
the securities.
Redemptions by a Fund
Due to the relatively high cost of handling small investments, the Trust
reserves the right to involuntarily redeem your shares at net asset value if
your account has a value of less than one-half of your initial required minimum
investment, but only where the value of your account has been reduced by the
prior voluntary redemption of shares. Until further notice, it is the present
policy of the Trust not to exercise this right if your account has a value of
$50 or more. In any event, before a Fund redeems your shares and sends you the
proceeds, it will notify you that the value of the shares in your account is
less than the minimum amount and allow you 30 days to make an additional
investment in an amount which will increase the value of your account to at
least $100 in that Fund.
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 from month to month, and does not affect the
amount or value of the shares acquired.
Reports to Shareholders
The Trust sends annual and semiannual reports regarding its performance and
portfolio holdings to shareholders. If you would like to receive an interim
quarterly report, you may phone Fund Information at 1-800/DIAL BEN.
Special Services
The Franklin Templeton Institutional Services Department provides specialized
services, including recordkeeping, for institutional investors of the Funds. The
cost of these services is not borne by the Funds.
Investor Services may pay certain financial institutions that maintain omnibus
accounts with the Funds on behalf of numerous beneficial owners for
recordkeeping operations performed with respect to such owners. For each
beneficial owner in the omnibus account, each Fund may reimburse Investor
Services an amount not to exceed the per account fee which a Fund normally pays
Investor Services. These financial institutions may also charge a fee for their
services directly to their clients.
How Are the Funds' Shares Valued?
As noted in the Prospectus, each Fund calculates net asset value as of the
scheduled close of the Exchange (generally 1:00 p.m. Pacific time) each day that
the Exchange is open for trading. As of the date of this SAI, each Fund is
informed that the Exchange 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 each 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. Over-the-counter portfolio securities are
valued within the range of the most recent quoted bid and ask prices. Portfolio
securities which 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 the Manager.
Portfolio securities underlying actively traded call options are valued at their
market price as determined above. The current market value of any option held by
a Fund is its last sale price on the relevant exchange prior to the time when
assets are valued. Lacking any sales that day or if the last sale price is
outside the bid and ask prices, the options are valued within the range of the
current closing bid and ask prices if such valuation is believed to fairly
reflect the contract's market value.
Securities denominated in foreign currencies and traded on foreign exchanges or
in foreign markets will be valued in a similar manner to that discussed above
and their value will then be converted into their U.S. dollars equivalent to the
foreign exchange rate in effect at 9:00 a.m. Pacific time or, if no such
quotation is available, at the rate of exchange determined in accordance with
policies established in good faith by the Board. Because the value of securities
denominated in foreign currencies must be translated into U.S. dollars,
fluctuations in the value of such currencies in relation to the U.S. dollar will
affect the net asset value of a Fund's shares even though there has not been a
change in the values of such securities.
Trading in European or Far Eastern currencies generally, or in a particular
country or countries, may not take place on every Exchange business day.
Furthermore, trading takes place in various foreign markets on days that are not
business days for the Exchange and on which a Fund's net asset value is not
calculated. Each Fund calculates net asset value per share, and therefore
effects sales and redemptions of its shares, as of the scheduled close of the
Exchange each day that the Exchange is open for trading. This calculation does
not take place contemporaneously with the determination of the prices of many of
the portfolio securities used in the calculation and, if events occur which
materially affect the values of these foreign securities, they will be valued at
fair value as determined by management and approved in good faith by the Board.
Generally, trading in U.S. government securities and money market instruments is
substantially completed each day at various times prior to the scheduled close
of the Exchange. The value of these securities used in computing the net asset
value of a Fund's shares is determined as of such times. Occasionally, events
affecting the values of such securities may occur between the times at which
they are determined and the scheduled close of the Exchange which will not be
reflected in the computation of a Fund's net asset value. If events materially
affecting the values of these securities occur during such period, then 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 trustees, the
Funds may utilize a pricing service, bank or securities dealer to perform any of
the above described functions.
Additional Information Regarding Taxation
As stated in the Prospectus, each Fund has elected to be treated as a regulated
investment company under Subchapter M of the Code. The trustees reserve the
right not to maintain the qualification of a Fund as a regulated investment
company if they determine such course of action to be beneficial to
shareholders. In such case, a 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 a Fund's available earnings and
profits.
The Code requires all funds to distribute at least 98% of their taxable ordinary
income earned during the calendar year and at least 98% of their capital gain
net income earned during the twelve month period ending October 31 of each year
(in addition to amounts from the prior year that were neither distributed nor
taxed to a Fund) to shareholders by December 31 of each year in order to avoid
the imposition of a federal excise tax. Under these rules, certain distributions
which are declared in October, November or December but which, for operational
reasons, may not be paid to you until the following January, will be treated for
tax purposes as if paid by a Fund and received by you on December 31 of the
calendar year in which they are declared. The Funds intend as a matter of policy
to declare such dividends, if any, in December or January to avoid the
imposition of this tax, but do not guarantee that their distributions will be
sufficient to avoid any or all federal excise taxes.
For corporate shareholders, none of the distributions paid by a Fund for the
fiscal year ended October 31, 1995 qualified for the corporate
dividends-received deduction and it is not anticipated that any of the current
year's dividends will qualify.
Redemptions and exchanges of Fund shares are taxable transactions for federal
and state income tax purposes. For most shareholders, gain or loss will be
recognized in an amount equal to the difference between your basis in the shares
and the amount received, subject to the rules described below. If such shares
are a capital asset in your hands, gain or loss will be capital gain or loss and
will be long-term for federal income tax purposes if the shares have been held
for more than one year.
All or a portion of the sales charge incurred in purchasing shares of each Fund
will not be included in the federal tax basis of shares sold or exchanged within
ninety (90) days of their purchase (for purposes of determining gain or loss
with respect to such shares) if the sales proceeds are reinvested in the Funds
or in another fund in the Franklin Templeton Funds and a sales charge which
would otherwise apply to the reinvestment is reduced or eliminated. Any portion
of such sales charge excluded from the tax basis of the shares sold will be
added to the tax basis of the shares acquired in the reinvestment. You should
consult with your tax advisors concerning the tax rules applicable to the
redemption or exchange of fund shares.
The Funds will inform you of the source of dividends and distributions at the
time they are paid, and will promptly after the close of each calendar year
advise you of the tax status for federal income tax purposes of such dividends
and distributions.
All or a portion of a loss realized upon a redemption of shares will be
disallowed to the extent other shares of a Fund are purchased (through
reinvestment of dividends or otherwise) within 30 days before or after such
redemption. Any loss disallowed under these rules will be added to the tax basis
of the shares purchased.
A Fund's investment in options, futures contracts and forward contracts,
including transactions involving actual or deemed short sales or foreign
exchange gains or losses are subject to many complex and special tax rules. For
example, a Fund's treatment of options on futures contracts, regulated futures
contracts, and certain foreign currency forward contracts and options thereon is
generally governed by Section 1256 of the Code. Absent a tax election to the
contrary, each such Section 1256 position held by a Fund will be
marked-to-market (i.e., treated as if it were sold for fair market value) on the
last business day of a Fund's fiscal year, and all gain or loss associated with
mark-to-market positions at fiscal year end (except certain foreign currency
gain or loss covered by Section 988 of the Code, which is treated as ordinary
income or loss) will generally be treated as 60% long-term capital gain or loss
and 40% short-term capital gain or loss. The effect of Section 1256
mark-to-market rules may be to accelerate income or to convert what otherwise
would have been long-term capital gains into short-term capital gains or
short-term capital losses into long-term capital losses within a Fund. The
acceleration of income on Section 1256 positions may require a Fund to recognize
taxable income without the corresponding receipt of cash. In order to generate
cash to satisfy the distribution requirements of the Code, a Fund may be
required to dispose of portfolio securities that it otherwise would have
continued to hold or to use cash flows from other sources such as the sale of
Fund shares. In these ways, any or all of these rules may affect both the
amount, character and timing of income distributed to you by a Fund.
When a Fund holds an option or contract which substantially diminishes a Fund's
risk of loss with respect to another position of a Fund (as might occur in some
hedging transactions), this combination of positions could be treated as a
"straddle" for tax purposes, resulting in possible deferral of losses,
adjustments in the holding periods of Fund securities and conversion of
short-term capital losses into long-term capital losses. Certain tax elections
exist for mixed straddles (i.e., straddles comprised of at least one Section
1256 position and at least one non-Section 1256 position) which may reduce or
eliminate the operation of these straddle rules.
As a regulated investment company, each Fund is also subject to the requirement
that less than 30% of its annual gross income be derived from the sale or other
disposition of securities and certain other investments held for less than three
months ("short-short income"). This requirement may limit a Fund's ability to
engage in options, straddles, hedging transactions and forward or futures
contracts because these transactions are often consummated in less than three
months, may require the sale of portfolio securities held less than three months
and may, as in the case of short sales of portfolio securities reduce the
holding periods of certain securities within a Fund, resulting in additional
short-short income for a Fund.
The Funds will monitor their transactions in such options and contracts and may
make certain other tax elections in order to mitigate the effect of the above
rules and to prevent disqualification of a Fund as a regulated investment
company under Subchapter M of the Code.
Foreign exchange gains and losses realized by a Fund in connection with certain
transactions involving foreign currencies, foreign currency payables or
receivables, foreign currency-denominated debt securities, foreign currency
forward contracts, and options or futures contracts on foreign currencies are
subject to special tax rules which may cause such gains and losses to be treated
as ordinary income and losses rather than capital gains and losses and may
affect the amount and timing of a Fund's income or loss from such transactions
and in turn its distributions to you.
In order for a Fund to qualify as a regulated investment company, at least 90%
of a Fund's annual gross income must consist of dividends, interest and certain
other types of qualifying income, and no more than 30% of its annual gross
income may be derived from the sale or other disposition of securities or
certain other instruments held for less than three months. Foreign exchange
gains, derived by the Funds with respect to a Fund's business of investing in
stock or securities, or options or futures with respect to such stock or
securities, constitute qualifying income for purposes of the 90% limitation.
Currency speculation or the use of currency forward contracts or other currency
instruments for non-hedging purposes may generate gains deemed to be not
directly related to a Fund's principal business of investing in stock or
securities and related options or futures. Under current law,
non-directly-related gains arising from foreign currency positions or
instruments held for less than three months are treated as derived from the
disposition of securities held less than three months in determining a Fund's
compliance with the 30% limitation. Each Fund will limit its activities
involving foreign exchange gains to the extent necessary to comply with these
requirements.
Income received by the Funds from sources within foreign countries may be
subject to withholding and other income or similar taxes imposed by such
countries. If more than 50% of the value of a Fund's total assets at the close
of its taxable year consists of securities of foreign corporations, that Fund
will be eligible and intends to elect to "pass through" to you, as the Fund's
shareholders, the amount of foreign taxes paid by the Fund. Pursuant to this
election, you will be required to include in gross income (in addition to
taxable dividends actually received) your pro rata share of the foreign taxes
paid by the Fund, and will be entitled either to deduct (as an itemized
deduction) your pro rata share of the foreign income and similar taxes in
computing your taxable income or to use it as a foreign tax credit against your
U.S. Federal income tax liability, subject to limitations. You may not claim a
deduction for foreign taxes if you do not itemize deductions, but you may be
eligible to claim the foreign tax credit (see below). You will be notified
within 60 days after the close of the Funds' fiscal year whether the foreign
taxes paid by a Fund will "pass through" for that year.
Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed a shareholder's U.S. tax attributable to the shareholder's foreign
source taxable income. For this purpose, if the pass-though election is made,
the source of a Fund's income flows through to its shareholders. With respect to
the Funds, 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 Funds. You may be unable to claim a
credit for the full amount of your proportionate share of the foreign taxes paid
by a Fund. Foreign taxes may not be deducted in computing alternative minimum
taxable income and the foreign tax credit can be used to offset only 90% of the
alternative minimum tax (as computed under the Code for purposes of this
limitation) imposed on corporations and individuals. If a Fund is not eligible
to make the election to "pass through" to you its foreign taxes, the foreign
income taxes it pays generally will reduce investment company taxable income and
the distributions by that Fund will be treated as U.S. source income.
The Funds' Underwriter
Pursuant to an underwriting agreement in effect until February 28, 1997,
Distributors acts as principal underwriter in a continuous public offering for
shares of each Fund. Prior to November 12, 1993, Huntington Investments, Inc.,
an indirect wholly-owned subsidiary of Long Beach Bank and an affiliate of
Huntington Advisers, Inc., each Fund's former manager, served as each Fund's
principal underwriter.
The underwriting agreement will continue in effect for successive annual periods
provided that its continuance is specifically approved at least annually by a
vote of the Board, or, as to each Fund, by a vote of the holders of a majority
of that Fund's outstanding voting securities, and in either event by a majority
vote of the Trust's trustees who are not parties to the underwriting agreement
or interested persons of any such party (other than as trustees of the Trust),
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 each Fund's shares,
including advertising expenses and the costs of printing sales material and
prospectuses used to offer shares to the public. Each 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.
Until April 30, 1994, income dividends were reinvested at the offering price
(which includes the sales charge) and Distributors allowed 50% of the entire
commission to the securities dealer of record, if any, on an account. Starting
with any income dividends paid after April 30, 1994, such reinvestment is at net
asset value.
In connection with the offering of the Funds' shares, aggregate underwriting
commissions for the fiscal year ended October 31, 1995, the six-month period
ended October 31, 1994 and the fiscal years ended April 30, 1994 and 1993 were
$1,765,383, $461,923, $280,011, and $495,391, respectively. After allowances to
dealers, Distributors retained $199,595 for the fiscal year ended October 31,
1995, $5,455 for the six-month period ended October 31, 1994 and $10,779 for the
period from November 15, 1993 to April 30, 1994 in net underwriting discounts
and commissions for the respective years. After allowances to dealers,
Huntington Investments, Inc., retained $22,148 and $58,393 for the period May 1,
1993 to November 15, 1993 and the fiscal year ended April 30, 1993,
respectively. Distributors may be entitled to reimbursement under the Funds'
distribution plan, as discussed below. Except as noted, Huntington Investment,
Inc. and Distributors received no other compensation from the Funds for acting
as underwriter.
Distribution Plan
The Funds have adopted a distribution plan pursuant to Rule 12b-1 under the 1940
Act (the "Plan") whereby each Fund may reimburse Distributors or others up to
0.25% per annum of its daily net assets, payable quarterly, for expenses
incurred in the promotion and distribution of its shares, and each Fund is also
permitted to pay Distributors up to an additional 0.20% per annum of its daily
net assets for reimbursement of distribution expenses.
Pursuant to the Plan, Distributors or others will be entitled to be reimbursed
each quarter (up to the maximum stated above) for actual expenses incurred in
the distribution and promotion of each Fund's shares, including, but not limited
to, the printing of prospectuses and reports used for sales purposes, expenses
of preparing and distributing sales literature and related expenses,
advertisements, and other distribution-related expenses, including a prorated
portion of Distributors' overhead expenses attributable to the distribution of
Fund shares, as well as any distribution or service fees paid to securities
dealers or their firms or others who have executed a servicing agreement with a
Fund, Distributors or its affiliates.
In addition to the payments to which Distributors or others are entitled under
the Plan, the Plan also provides that to the extent a Fund, the Manager or
Distributors or other parties on behalf of a Fund, the Manager or Distributors,
make payments that are deemed to be payments for the financing of any activity
primarily intended to result in the sale of shares of a Fund within the context
of Rule 12b-1 under the 1940 Act, then such payments shall be deemed to have
been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges, which include
payments made under the Plan, plus any other payments deemed to be made pursuant
to the Plan, exceed the amount permitted to be paid pursuant to the Rules of
Fair Practice of the National Association of Securities Dealers, Inc., Article
III, Section 26(d)4.
The terms and provisions of the Plan relating to required reports, term, and
approval are consistent with Rule 12b-1. The Plan does not permit unreimbursed
expenses incurred in a particular year to be carried over to or reimbursed in
subsequent years.
To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks will not be
entitled to participate in the Plan as a result of applicable federal law
prohibiting certain banks from engaging in the distribution of mutual fund
shares. Such banking institutions, however, are permitted to receive fees under
the Plan for administrative servicing or for agency transactions. If you are a
customer of a bank that is prohibited from providing such services, you would be
permitted to remain a shareholder of a Fund, and alternate means for continuing
the servicing would be sought. In such an event, changes in the services
provided might occur and you might no longer be able to avail yourself of any
automatic investment or other services then being provided by the bank. It is
not expected that you would suffer any adverse financial consequences as a
result of any of these changes.
The Plan has been approved in accordance with the provisions of Rule 12b-1. The
Plan is effective through February 28, 1997, and renewable annually by a vote of
the Board, including a majority vote of the trustees who are non-interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the Plan, cast in person at a meeting called for that purpose.
It is also required that the selection and nomination of such trustees be done
by the non-interested trustees. The Plan and any related agreement may be
terminated at any time, without penalty, by vote of a majority of the
non-interested trustees on not more than 60 days' written notice, by
Distributors on not more than 60 days' written notice, by any act that
constitutes an assignment of the management agreement with the Manager or the
underwriting agreement with Distributors, or by vote of a majority of the Funds'
outstanding shares. Distributors or any dealer or other firm may also terminate
their respective distribution or service agreement at any time upon written
notice.
The Plan and any related agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a majority
of the Funds' outstanding shares, and all material amendments to the Plan or any
related agreements shall be approved by a vote of the non-interested trustees,
cast in person at a meeting called for the purpose of voting on any such
amendment.
Distributors is required to report in writing to the Board at least quarterly on
the amounts and purpose of any payment made under the Plan and any related
agreements, as well as to furnish the Board with such other information as may
reasonably be requested in order to enable the Board to make an informed
determination of whether the Plan should be continued.
For the fiscal year ended October 31, 1995, the total amount paid by each Fund
pursuant to the Plan was $132,583 (Global Currency Fund), $349,101 (Hard
Currency Fund), and $34,722 (High Income Fund), which was used for the following
purposes:
Dollar Amounts
Global Hard High
Currency Currency Income
Fund Fund Fund
Advertising........................................ $27,991 $198,366 $16,275
Printing and mailing of prospectuses other than to
current shareholders.............................. $14,579 $ 18,103 $ 5,369
Payments to underwriters........................... $ 6,710 $ 29,572 $ 440
Payments to broker-dealers......................... $83,303 $103,060 $12,638
General Information
Performance
As noted in the Prospectus, each Fund may from time to time quote various
performance figures to illustrate a Fund's past performance and may occasionally
cite statistics to reflect their volatility or risk.
Performance quotations by investment companies are subject to rules adopted by
the SEC. These rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation furnished by a
Fund be accompanied by certain standardized performance information computed as
required by the SEC. Current yield and average annual compounded total return
quotations used by the Funds are based on the standardized methods of computing
performance mandated by the SEC. An explanation of those and other methods used
by each Fund to compute or express performance follows.
Total Return
The average annual total return is determined by finding the average annual
compounded rates of return over one-, five- and ten-year periods, or fractional
portion thereof, that would equate an initial hypothetical $1,000 investment to
its ending redeemable value. The calculation assumes the maximum front-end sales
charge is deducted from the initial $1,000 purchase order, and income dividends
and capital gains 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. If a change is made
on the sales charge structure, historical performance information will be
restated to reflect the maximum front-end sales charge currently in effect.
This charge will affect actual performance less the longer you retain your
investment in a Fund. The average annual compounded rates of return for each
Fund for the indicated periods ended on October 31, 1995 were as follows:
From
Fund Name One-YearFive-YearInception
Global Currency
Fund........ 2.87% 5.52% 8.10%
(6-27-86)
Hard Currency
Fund........ 3.48% 7.04% 10.43%
(11-17-89)
High Income
Fund........ 5.63% 4.40% 7.33%
(11-17-89)
These figures were calculated according to the SEC formula:
n
P(1+T) = 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 one-, five- or ten-year periods at the end of the one-, five-
or ten-year periods (or fractional portion thereof)
As discussed in the Prospectus, each Fund may quote total rates of return in
addition to its average annual total return. These quotations are computed in
the same manner as a Fund's average annual compounded rate, except they will be
based on a Fund's actual return for a specified period rather than on its
average return over one-, five- and ten-year periods, or fractional portion
thereof. The total rates of return for each Fund for the indicated periods ended
on October 31, 1995 was as follows:
From
Fund Name One YearFive YearInception
Global Currency
Fund........ 2.87% 30.84% 107.04%
Hard Currency
Fund........ 3.48% 40.62% 80.57%
High Income
Fund........ 5.63% 24.04% 52.40%
Current Yield
Current yield reflects the income per share earned by a Fund's portfolio
investments and is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base period. The
yield for each Fund for the 30-day period ended on October 31, 1995 was as
follows:
Fund Name
Global Currency Fund........... 4.14%
Hard Currency Fund............. 4.43
High Income Fund............... 4.93
These figures were obtained using the following SEC formula:
6
Yield = 2 [(a-b + 1) - 1]
---
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the last day of the period
Current Distribution Rate
Current yield which is calculated according to a formula prescribed by the SEC
is not indicative of the amounts which were or will be paid to a Fund's
shareholders. Amounts paid to shareholders are reflected in the quoted current
distribution rate. The current distribution rate is computed by dividing the
total amount of dividends per share paid by a Fund during the past 12 months by
a current maximum offering price. Under certain circumstances, such as when
there has been a change in the amount of dividend payout or a fundamental change
in investment policies, it might be appropriate to annualize the dividends paid
over the period such policies were in effect, rather than using the dividends
during the past 12 months. The current distribution rate differs from the
current yield computation because it may include distributions to shareholders
from sources other than dividends and interest, such as premium income from
option writing and short-term capital gains, and is calculated over a different
period of time.
Volatility
Occasionally, statistics may be used to specify Fund volatility or risk.
Measures of volatility or risk are generally used to compare Fund net asset
value or performance relative 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 specified period of time. The idea is that greater
volatility means greater risk undertaken in achieving performance.
Other Performance Quotations
For investors who are permitted to purchase shares of the Funds at net asset
value, sales literature pertaining to the Funds may quote a current distribution
rate, yield, total return, average annual total return and other measures of
performance as described elsewhere in this SAI with the substitution of net
asset value for the public offering price.
Sales literature referring to the use of the Funds as potential investments 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.
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.
Each Fund may include in its advertising or sales material information relating
to investment objectives and performance results of funds belonging to the
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
To help you better evaluate how an investment in the Funds may satisfy your
investment objective, advertisements and other materials regarding the Funds 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. Such
comparisons may include, but are not limited to, the following examples:
a) Dow Jones Composite Average or its component averages - an unmanaged index
composed of 30 blue-chip industrial corporation stocks (Dow Jones Industrial
Average), 15 utilities company stocks (Dow Jones Utilities Average), and 20
transportation company stocks. Comparisons of performance assume reinvestment of
dividends.
b) Standard & Poor's 500 Stock Index or its component indices - an unmanaged
index composed of 400 industrial stocks, 40 financial stocks, 40 utilities
stocks, and 20 transportation stocks. Comparisons of performance assume
reinvestment of dividends.
c) The New York Stock Exchange composite or component indices - an unmanaged
index of all industrial, utilities, transportation, and finance stocks listed on
the New York Stock Exchange.
d) Wilshire 5000 Equity Index - represents the return on the market value of all
common equity securities for which daily pricing is available. Comparisons of
performance assume reinvestment of dividends.
e) Lipper - Mutual Fund Performance Analysis, Lipper - Fixed Income Fund
Performance Analysis and Lipper Mutual Fund Yield Survey - measure total return
and average current yield for the mutual fund industry and rank individual
mutual fund performance over specified time periods, assuming reinvestment of
all distributions, exclusive of any applicable sales charges.
f) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc.
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
g) Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk, and total return for equity funds.
h) Financial publications: The Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, Fortune, and Money magazines - provide
performance statistics over specified time periods.
i) Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics - a statistical measure of change, over time, in the price
of goods and services in major expenditure groups.
j) Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates
historical measure of yield, price, and total return for common and small
company stock, long-term government bonds, Treasury bills, and inflation.
k) Savings and Loan Historical Interest Rates -
as published in the U.S. Savings & Loan League Fact Book.
l) Historical data supplied by the research departments of First Boston
Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill Lynch, Lehman
Brothers and Bloomberg L.P.
m) Standard & Poor's 100 Stock Index - an unmanaged index based on the prices of
100 blue-chip stocks, including 92 industrials, one utility, two transportation
companies, and 5 financial institutions. The S&P 100 Stock Index is a smaller
more flexible index for options trading.
From time to time, advertisements or information for a Fund may include a
discussion of certain attributes or benefits to be derived by an investment in a
Fund. Such advertisements or information may include symbols, headlines, or
other material which highlights or summarizes the information discussed in more
detail in the communication.
Advertisements or information may also compare a Fund's performance to the
return on certificates of deposit or other investments. You should be aware,
however, that an investment in a Fund involves the risk of fluctuation of
principal value, a risk generally not present in an investment in a certificate
of deposit issued by a bank. For example, as the general level of interest rates
rise, the value of a Fund's fixed-income investments, as well as the value of
its shares which are based upon the value of such portfolio investments, can be
expected to decrease. Conversely, when interest rates decrease, the value of a
Fund's shares can be expected to increase. Certificates of deposit are
frequently insured by an agency of the U.S. government. An investment in a 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 a Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by a Fund to calculate its figures. In addition,
there can be no assurance that a Fund will continue this performance as compared
to such other averages.
Other Features and Benefits
Each 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/or
other long-term goals. The Franklin College Costs Planner may assist 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 a Fund
cannot guarantee that such goals will be met.
Miscellaneous Information
The Funds of the Trust are members 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 $135
billion in assets under management for more than 3.9 million U.S.-based mutual
fund shareholder and other accounts. The Franklin Group of Funds and the
Templeton Group of Funds offers to the public offers 114 U.S.-based mutual
funds. A 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 seven years.
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.
As a shareholder of a Massachusetts business trust, you could, under certain
circumstances, be held personally liable as a partner for its obligations. The
Agreement and Declaration of Trust, however, contains an express disclaimer of
shareholder liability for acts or obligations of the Trust. The Declaration of
Trust also provides for indemnification and reimbursement of expenses out of the
Trust's assets if you are held personally liable for obligations of a Fund. The
Declaration of Trust provides that the Trust shall, upon request, assume the
defense of any claim made against you for any act or obligation of the Trust and
satisfy any judgment thereon. All such rights are limited to the assets of the
Trust. The Declaration of Trust further provides that the Trust may maintain
appropriate insurance (for example, fidelity bonding and errors and omissions
insurance) for the protection of the Trust, its shareholders, trustees,
officers, employees and agents to cover possible tort and other liabilities.
Furthermore, the activities of the Trust as an investment company, as
distinguished from an operating company, would not likely give rise to
liabilities in excess of that Fund's total assets. Thus, the risk of you
incurring financial loss on account of shareholder liability is limited to the
unlikely circumstances in which both inadequate insurance exists and the Trust
itself is unable to meet its obligations.
Ownership and Authority Disputes
In the event of disputes involving multiple claims of ownership or authority to
control your account, each Fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all persons deemed by
the Fund to have a potential property interest in the account, prior to
executing instructions regarding the account; (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 Internal Revenue Service in response to a
Notice of Levy.
Financial Statements
The audited financial statements contained in the Annual Report to Shareholders
of the Trust, dated October 31, 1995, including the auditors' report, are
incorporated herein by reference.
