As filed with the Securities and Exchange Commission on December 31, 1996.
File Nos.
33-01212
811-4450
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 16 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 17 (X)
FRANKLIN TEMPLETON GLOBAL TRUST
(Exact Name of Registrant as Specified in Charter)
777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (415) 312-2000
HARMON E. BURNS, 777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
(Name and Address of Agent for Service of Process)
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[x] on January 1, 1996 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a) (ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 495
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Declaration Pursuant to Rule 24f-2. The issuer has registered an indefinite
number or amount of securities under the Securities Act of 1933 pursuant to
Section 24f-2 under the Investment Company Act of 1940. The Rule 24f-2 Notice
for the issuer's most recent fiscal year was filed on December 22, 1995.
FRANKLIN TEMPLETON GLOBAL TRUST
CROSS REFERENCE SHEET
FORM N-1A
PART A: INFORMATION REQUIRED IN PROSPECTUS
Franklin Templeton German Government Bond Fund - Advisor Class
N-1A Location In
ITEM NO. ITEM REGISTRATION STATEMENT
1. Cover Page Cover Page
2. Synopsis "Expense Summary"
3. Condensed Financial "How Does the Fund Measure
Information Performance?"
4. General Description "How Is the Trust Organized?"; "How
Does the Fund Invest Its Assets?";
"What Are the Fund's Potential Risks?"
5. Management of the Fund "Who Manages the Fund?"
5A. Management's Discussion of "Contained in Registrant's Annual
Fund Performance Report to Shareholders"
6. Capital Stock and Other "How Is the Trust Organized?";
Securities "Services to Help You Manage Your
Account"; "What Distributions Might I
Receive From the Fund?"; "How
Taxation Affects You and the Fund"
7. Purchase of Securities Being "How Do I Buy Shares?"; "May I
Offered Exchange Shares for Shares of Another
Fund?"; "Transaction Procedures and
Special Requirements"; "Services to
Help You Manage Your Account"; "Who
Manages the Fund?"; "Useful Terms and
Definitions"
8. Redemption or Repurchase "May I Exchange Shares for Shares of
Another Fund?"; "How Do I Sell
Shares?"; "Transaction Procedures and
Special Requirements"; "Services to
Help You Manage Your Account"
9. Pending Legal Proceedings Not Applicable
FRANKLIN TEMPLETON GLOBAL TRUST
CROSS REFERENCE SHEET
FORM N-1A
PART A: INFORMATION REQUIRED IN PROSPECTUS
Franklin Templeton Hard Currency Fund - Advisor Class
N-1A Location In
ITEM NO. ITEM REGISTRATION STATEMENT
1. Cover Page Cover Page
2. Synopsis "Expense Summary"
3. Condensed Financial "How Does the Fund Measure
Information Performance?"
4. General Description "How Is the Trust Organized?"; "How
Does the Fund Invest Its Assets?";
"What Are the Fund's Potential Risks?"
5. Management of the Fund "Who Manages the Fund?"
5A. Management's Discussion of "Contained in Registrant's Annual
Fund Performance Report to Shareholders"
6. Capital Stock and Other "How Is the Trust Organized?";
Securities "Services to Help You Manage Your
Account"; "What Distributions Might I
Receive From the Fund?"; "How
Taxation Affects You and the Fund"
7. Purchase of Securities Being "How Do I Buy Shares?"; "May I
Offered Exchange Shares for Shares of Another
Fund?"; "Transaction Procedures and
Special Requirements"; "Services to
Help You Manage Your Account"; "Who
Manages the Fund?"; "Useful Terms and
Definitions"
8. Redemption or Repurchase "May I Exchange Shares for Shares of
Another Fund?"; "How Do I Sell
Shares?"; "Transaction Procedures and
Special Requirements"; "Services to
Help You Manage Your Account"
9. Pending Legal Proceedings Not Applicable
FRANKLIN TEMPLETON GLOBAL TRUST
CROSS REFERENCE SHEET
FORM N-1A
Part B: Information Required in
THE STATEMENT OF ADDITIONAL INFORMATION
Franklin Templeton German Government Bond Fund - Advisor Class
N-1A Location In
ITEM NO. ITEM REGISTRATION STATEMENT
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and History Not Applicable
13. Investment Objectives and "How Does the Fund Invest Its
Policies Assets?"; "Investment Restrictions"
14. Management of the Fund "Officers and Trustees";
"Investment Advisory and Other
Services"
15. Control Persons and Principal "Officers and Trustees";
Holders of Securities "Investment Management and Other
Services"; "Miscellaneous
Information"
16. Investment Advisory and Other "Investment Management and Other
Services Services"; "The Fund's Underwriter"
17. Brokerage Allocation "How Does the Fund Purchase
Securities for Its Portfolio?"
18. Capital Stock and Other See Prospectus "How Is the Trust
Securities Organized?"
19. Purchase, Redemption and "How Do I Buy, Sell and Exchange
Pricing of Securities Shares?"; "How Are Fund Shares
Valued?"; "Financial Statements"
20. Tax Status "Additional Information on
Distributions and Taxes"
21. Underwriters "The Fund's Underwriter"
22. Calculation of Performance Data "How Does the Fund Measure
Performance?"
23. Financial Statements Financial Statements
FRANKLIN TEMPLETON GLOBAL TRUST
CROSS REFERENCE SHEET
FORM N-1A
Part B: Information Required in
THE STATEMENT OF ADDITIONAL INFORMATION
Franklin Templeton Hard Currency Fund - Advisor Class
N-1A Location In
ITEM NO. ITEM REGISTRATION STATEMENT
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and History Not Applicable
13. Investment Objectives and "How Does the Fund Invest Its
Policies Assets?"; "Investment Restrictions"
14. Management of the Fund "Officers and Trustees";
"Investment Advisory and Other
Services"
15. Control Persons and Principal "Officers and Trustees";
Holders of Securities "Investment Management and Other
Services"; "Miscellaneous
Information"
16. Investment Advisory and Other "Investment Management and Other
Services Services"; "The Fund's Underwriter"
17. Brokerage Allocation "How Does the Fund Purchase
Securities for Its Portfolio?"
18. Capital Stock and Other See Prospectus "How Is the Trust
Securities Organized?"
19. Purchase, Redemption and "How Do I Buy, Sell and Exchange
Pricing of Securities Shares?"; "How Are Fund Shares
Valued?"; "Financial Statements"
20. Tax Status "Additional Information on
Distributions and Taxes"
21. Underwriters "The Fund's Underwriter"
22. Calculation of Performance Data "How Does the Fund Measure
Performance?"
23. Financial Statements Financial Statements
PROSPECTUS & APPLICATION
FRANKLIN TEMPLETON
GERMAN GOVERNMENT
BOND FUND
INVESTMENT STRATEGY
GLOBAL INCOME
Advisor Class
Advisor
JANUARY 1, 1997
Franklin Templeton Global Trust
This prospectus describes the Advisor Class shares of Franklin Templeton German
Government Bond Fund (the "Fund"). It contains information you should know
before investing in the Fund. Please keep it for future reference.
The Fund's Advisor Class SAI, dated January 1, 1997, as may be amended from time
to time, includes more information about the Fund's procedures and policies. It
has been filed with the SEC and is incorporated by reference into this
prospectus. For a free copy or a larger print version of this prospectus, call
1-800/DIAL BEN or write the Fund at the address shown.
Advisor Class shares are only available for purchase by certain persons,
including, among others, certain financial institutions (such as banks, trust
companies, savings institutions and credit unions); government and tax-exempt
entities; pension, profit sharing and employee benefit plans; certain qualified
groups, including family trusts, endowments, foundations and corporations;
Franklin Templeton Fund Allocator Series; and directors, trustees, officers and
full-time employees (and their family members) of Franklin Templeton Group and
the Franklin Templeton Group of Funds. See "About Your Account."
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S.
GOVERNMENT. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This prospectus is not an offering of the securities herein described in any
state in which the offering is not authorized. No sales representative, dealer,
or other person is authorized to give any information or make any
representations other than those contained in this prospectus. Further
information may be obtained from Distributors.
FRANKLIN
TEMPLETON GERMAN GOVERNMENT BOND FUND -
ADVISOR CLASS
JANUARY 1, 1997
When reading this prospectus, you will see certain terms beginning with capital
letters. This means the term is explained in our glossary section.
Table of Contents
About the Fund
Expense Summary.............................
How does the Fund Invest its Assets?........
What are the Fund's Potential Risks?........
Who Manages the Fund?.......................
How does the Fund Measure Performance?......
How is the Trust Organized?.................
How Taxation Affects You and the Fund.......
About Your Account
How Do I Buy Shares?........................
May I Exchange Shares for Shares of Another Fund?
How Do I Sell Shares?.......................
What Distributions Might I Receive from the Fund?
Transaction Procedures and Special Requirements
Services to Help You Manage Your Account....
Glossary
Useful Terms and Definitions ...............
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777
1-800/DIAL BEN
ABOUT THE FUND
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in the
Fund. Because Advisor Class shares were not offered to the public before January
1, 1997, the table is based on the historical expenses of the Class I shares of
the Fund, after fee waivers and expense reductions, for the fiscal year ended
October 31, 1995+. Your actual expenses may vary.
A. Shareholder Transaction Expenses++
Maximum Sales Charge Imposed on Purchases None
Exchange Fee (per transaction) $5.00+++
B. Annual Fund Operating Expenses
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.51%++++
Rule 12b-1 Fees None
Other Expenses 0.55%
Total Fund Operating Expenses 1.06%
C. Example
Assume the annual return for Advisor Class shares is 5% and operating
expenses are as described above. For each $1,000 investment, you would pay
the following projected expenses if you sold your shares after the number of
years shown.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$41 $63 $87 $156
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
The Fund pays its operating expenses. The effects of these expenses are
reflected in the Net Asset Value or the dividends paid on Advisor Class
shares and are not directly charged to your account.
+Unlike Advisor Class shares, the Class I shares of the Fund have a front-end
sales charge and Rule 12b-1 fees.
++If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for these services.
+++$5.00 fee is only for Market Timers. We process all other exchanges without a
fee.
++++Advisers has agreed in advance to limit its management fee 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 would have represented 0.55% of the Fund's average net assets.
HOW DOES THE FUND INVEST ITS ASSETS?
THE FUND'S INVESTMENT OBJECTIVE
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:
o Higher current yields than may be available on U.S. government bonds
o Capital appreciation resulting from a decline in German interest rates and a
corresponding increase in German government bond prices
o Currency gains from an increase in the value of the German mark relative to
the U.S. dollar
o Safety of principal due to the high credit quality of German government bonds
o Portfolio diversification outside the U.S. through German currency and
interest rate exposure
o 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.
TYPES OF SECURITIES IN WHICH THE FUND MAY INVEST
Under normal market conditions, the Fund will invest 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"); and securities backed exclusively by loans to public
sector institutions, known as Offentliche Pfandbriefe or global Pfandbriefe).
The German government obligations or Pfandbriefe 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 S&P or Moody's, or, if
unrated, are considered by the Investment Managers to be of comparable quality
to triple A rated instruments, the highest rating given by the rating services.
The Fund currently intends to limit its investments in Pfandbriefe to no more
than 20% of its total assets. For liquidity purposes, the Fund may invest up to
5% of its total assets in U.S. dollar denominated cash and money market
instruments, such as U.S. Treasury bills.
It is possible, although not anticipated, that the Fund may 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 S&P or Moody's, or in securities that are unrated
if, in the opinion of the Investment Managers, they are of comparable quality to
triple A rated instruments; and (ii) cash and money market instruments
denominated in the German mark that are rated at time of purchase A-1+ by S&P
and/or P-1 by Moody's, or that, if unrated, are in the opinion of the Investment
Managers to be of comparable high quality.
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). 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?"
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 Investment Managers invest the Fund's assets based on 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 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.
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 earnest 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 after the
reunification of what were previously East Germany and West Germany in 1990 have
significantly increased German public sector financing needs 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 obligations that the Investment Managers consider to be of credit quality
substantially equivalent to direct obligations of the German government. Issuers
presently satisfying this standard 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) comprising Germany.
Pfandbriefe - These are German non-callable, fixed income securities, known as
Offentliche Pfandbriefe and global Pfandbriefe. Global Pfandbriefe represents a
pool of Offentliche Pfandbriefe which are issued by German privately owned
mortgage banks and collateralized by loans to public sector institutions.
OTHER INVESTMENT POLICIES OF THE FUND
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 ("OTC") 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. When the
Fund enters into a futures contract, it must make an initial deposit, known as
"initial margin", as a partial guarantee of its performance under the contract.
As the value of the currency fluctuates, either party to the contract is
required to make additional margin payments, known as "variation margin," to
cover any additional obligation it may have under the contract.
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 the
security or currency, on a specified date and 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 in the OTC
market directly between the buyer and seller. The staff of the SEC has taken the
position that purchased OTC options and the assets used as "cover" for written
OTC options are illiquid securities. The Fund may treat the securities it uses
as cover for written OTC options as liquid if it follows certain procedures. The
Fund may sell OTC options only to qualified dealers who agree that the Fund may
repurchase any OTC options it writes for a maximum price to be calculated by a
predetermined formula. The option would then 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.
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 buyer, 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 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 possible.
When the Fund enters into a when-issued purchase or a firm commitment to buy
securities, the Fund will maintain, in a segregated account with its custodian
bank, 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.
Illiquid Investments. The Fund's policy is not to invest more than 10% of its
net assets, at the time of purchase, in illiquid securities, including
repurchase agreements maturing in more than seven days, time deposits maturing
in more than seven days, OTC options bought by the Fund and investments hedged
by OTC options. Illiquid securities are generally securities that cannot be sold
within seven days in the normal course of business at approximately the amount
at which the Fund has valued them.
Other. 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 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).
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. High portfolio
turnover may increase the Fund's transaction costs. 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, that would affect
taxable distributions paid to you. (See "How Taxation Affects You and the Fund"
below and "Additional Information on Distributions and Taxes, " 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.
Percentage Restrictions. If a percentage restriction noted above 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 policies.
Other Policies and Restrictions. The Fund has a number of additional investment
restrictions that limit its activities to some extent. Some of these
restrictions may only be changed with shareholder approval. For a list of these
restrictions and more information about the Fund's investment policies, please
see "How does the Fund Invest its Assets?" and "Investment Restrictions" in the
SAI.
WHAT ARE THE FUND'S POTENTIAL RISKS?
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 the 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 that
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.
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 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 (determined on a U.S. dollar basis). On
the other hand, 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 that, 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 the 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 interest 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 on Distributions and Taxes," in the SAI.
The Fund is a "nondiversified" 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 "nondiversified" for purposes of the 1940
Act, it must still meet certain diversification standards to qualify as a
regulated investment company under the Code. If the Fund is unable to meet the
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 Investment Managers believe the Fund will be able to meet these
diversification standards following its normal investment policies. As necessary
to satisfy the 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.
WHO MANAGES THE FUND?
The Board. The Board oversees the management of the Fund and elects its
officers. The officers are responsible for the Fund's day-to-day operations. The
Board also monitors the Fund to ensure no material conflicts exist between the
two classes of shares. While none is expected, the Board will act appropriately
to resolve any material conflict that may arise.
Investment Managers. Advisers manages the Fund's assets and makes its investment
decisions. Under a sub-advisory agreement between Advisers and TICI, TICI
provides advice regarding the Fund's investment, subject to the Board's review
and control as well as Advisers' instructions and supervision. The Investment
Managers also performs similar services for other funds. They are wholly owned
by Resources, a publicly owned company engaged in the financial services
industry through its subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr.
are the principal shareholders of Resources. Together, the Investment Managers
and their affiliates manage over $150 billion in assets. Please see "Investment
Management and Other Services" and "Miscellaneous Information" in the SAI for
information on securities transactions and a summary of the Fund's Code of
Ethics.
Management Team. 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. Prior to
joining the Franklin Templeton Group in 1991, 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 the Franklin Templeton Group 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.
Management Fees. During the fiscal year ended October 31, 1995, management fees,
before any advance waiver, totaled 0.55% of the average daily net assets of the
Fund. Under an agreement by Advisers to limit its fees, the Fund paid management
fees totaling 0.51%. Advisers may end this arrangement at any time upon notice
to the Board. The annualized management fees for the six-month period ended
April 30, 1996 were 0.55%.
Advisers' payment of sub-advisory fees to TICI has no effect on the Fund's
payment of fees to Advisers.
Portfolio Transactions. The Investment Managers try to obtain the best execution
on all transactions. If the Investment Managers believe more than one broker or
dealer can provide the best execution, consistent with internal policies they
may consider research and related services and the sale of Fund shares, as well
as shares of other funds in the Franklin Templeton Group of Funds, when
selecting a broker or dealer. Please see "How does the Fund Buy Securities for
its Portfolio?" in the SAI for more information.
Administrative Services. Under an agreement with Advisers, FT Services provides
certain administrative services and facilities for the Fund. Please see
"Investment Management and Other Services" in the SAI for more information.
HOW DOES THE FUND MEASURE PERFORMANCE?
From time to time, each class of the Fund advertises its performance. The more
commonly used measures of performance are total return, current yield and
current distribution rate. Performance figures are usually calculated using the
maximum sales charge, if applicable. Certain performance figures may not include
any applicable sales charge or Rule 12b-1 fees.
Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested. Current yield for each
class shows the income per share earned by that class. The current distribution
rate shows the dividends or distributions paid to shareholders of a class. This
rate is usually computed by annualizing the dividends paid per share during a
certain period and dividing that amount by the current Offering Price of the
class or, in the case of Advisor Class shares, the Net Asset Value of the class.
Unlike current yield, the current distribution rate may include income
distributions from sources other than dividends and interest received by the
Fund.
The investment results of each class will vary. Performance figures are always
based on past performance and do not guarantee future results. For a more
detailed description of how the Fund calculates its performance figures, please
see "How does the Fund Measure Performance?" in the SAI.
HOW IS THE TRUST ORGANIZED?
The Fund is a nondiversified series of Franklin Templeton Global Trust (the
"Trust"), an open-end management investment company, commonly called a mutual
fund. It was organized as a Massachusetts business trust in November 1985 and
reorganized as a Delaware business trust in August 1996. The Trust is registered
with the SEC under the 1940 Act.
The Fund began offering two classes of shares on January 1, 1997: Franklin
Templeton German Government Bond Fund - Class I, and Franklin Templeton German
Government Bond Fund - Advisor Class. All shares purchased before that time are
considered Class I shares. Class I and Advisor Class differ as to sales charges,
expenses and services. Different fees and expenses will affect performance.
Additional classes and series may be offered in the future. A further
description of Class I is set forth below.
Each class will vote separately on matters (1) affecting only that class, (2)
expressly required to be voted on separately by state law, or (3) required to be
voted on separately by the 1940 Act. Shares of each class represent
proportionate interests in the assets of the Fund and have the same voting and
other rights and preferences as any other class of the Fund on matters that
affect the Trust as a whole.
The Trust has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the Board.
The Trust does not intend to hold annual shareholder meetings. It may hold a
special meeting of a series, however, for matters requiring shareholder approval
under the 1940 Act. A meeting may also be called by the Board in its discretion
or by shareholders holding at least 10% of the outstanding shares. The 1940 Act
requires that we help you communicate with other shareholders in connection with
removing members of the Board.
Class I. Class I shares of the Fund are described in a separate prospectus
relating only to that class. You may buy Class I shares through your investment
representative or directly by contacting the Trust. If you would like a
prospectus relating to the Fund's Class I shares, contact your investment
representative or Distributors.
Class I shares of the Fund have sales charges and Rule 12b-1 charges that may
affect performance. Class I shares have a front-end sales charge of 3.00% (3.09%
of the net amount invested) that is reduced on certain transactions of $100,000
or more. Class I shares are subject to Rule 12b-1 fees up to a maximum of 0.25%
per year of Class I's average daily net assets. Shares of Class I may be subject
to a Contingent Deferred Sales Charge upon redemption.
HOW TAXATION AFFECTS YOU AND THE FUND
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For more information on tax matters
relating to the Fund and its shareholders, see "Additional Information on
Distributions and Taxes" in the SAI.
The Fund has elected and 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 the 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 that 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 the
distributions are received in cash or in additional shares.
Pursuant to the Code, certain distributions that 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 the 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 the 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 the dividends
and distributions.
If you are not considered a U.S. person for federal income tax purposes, you
should consult with your financial or tax advisor 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.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
You may buy shares with a minimum initial investment of $5 million (in the
aggregate) in one or more Advisor Class shares of the Franklin Templeton Funds
($25 for subsequent investments) except if you fall in one of the following
categories of investors satisfying one of the following criteria:
(a) Broker-dealers, qualified registered investment advisors or certified
financial planners, who have entered into a supplemental agreement with
Distributors for clients participating in comprehensive fee programs;
(b) Qualified registered investment advisors or registered certified financial
planners who have clients invested in Mutual Series on October 31, 1996;
(c) Qualified registered investment advisors or registered certified financial
planners who did not have clients invested in Mutual Series on October 31, 1996
may buy through a broker-dealer or service agent who has entered into an
agreement with Distributors;
(d) Employer stock, bonus, pension or profit-sharing plans that meet the
requirements for qualification under Section 401 of the Code, including salary
reduction plans qualified under Section 401(k) of the Code, are subject to no
initial investment requirement if the number of employees is 5,000 or more or
the plan has assets of $50 million or more;
(e) Effective on or about February 1, 1997, participants in Franklin Templeton's
401(k) and Franklin Templeton's Profit Sharing Plans;
(f) Trust companies and bank trust departments initially investing in any of the
Franklin Templeton Funds at least $1 million of assets held in a fiduciary,
agency, advisory, custodial or similar capacity and over which the trust
companies, bank trust departments or other plan fiduciaries or participants, in
the case of certain retirement plans, have full or shared investment discretion;
(g) Governments, municipalities and tax-exempt entities that meet the
requirements for qualification under Section 501 of the Code (subject to an
initial investment in Advisor Class shares of $1 million);
(h) Any other investor, including a private investment vehicle such as a family
trust or foundation, who is a member of a qualified group may also purchase
Advisor Class shares of the Fund if the group as a whole meets the required
minimum initial investment of $5 million;
(i) Directors, trustees, officers and full-time employees (and members of their
immediate family) of Franklin Templeton Group and Franklin Templeton Group of
Funds who invest $100 or more;
(j) Accounts managed by the Franklin Templeton Group;
(k) Class I shareholders of the Fund who qualify under one of the above
categories, may have their existing Class I shares invested into the Fund's
Advisor Class by sending written instructions indicating that they wish to do
so, by June 30, 1997. Instructions should be addressed to Investor Servic es.
Generally, for federal income tax purposes, there will be no recognition of gain
or loss associated with such a transaction. You may wish to consult with your
tax advisor to determine whether there are any state income tax consequences to
such a transaction.
(l) Each series of Franklin Templeton Fund Allocator Series that invests $1,000
or more.
The qualified group referred to in Item (h) above, is one that:
o Was formed at least six months ago,
o Has a purpose other than buying Fund shares at a discount,
o Has more than 10 members,
o Can arrange for meetings between our representatives and group members,
o Agrees to include sales and other Franklin Templeton Fund materials in
publications and mailings to its members at reduced or no cost to Distributors,
o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the Fund, and
o Meets other uniform criteria that allow Distributors to achieve cost savings
in distributing shares.
If you are subject to the $5 million minimum investment requirement, the cost or
current value (whichever is higher) of your investment in other funds in the
Franklin Templeton Funds will be included for purposes of determining compliance
with the required minimum investment amount, provided that at least $1 million
is invested in Advisor Class shares of the Franklin Templeton Funds.
The minimum for subsequent investments in Advisor Class shares is; $25 for most
purchases of Advisor Class shares of the Fund and for purchases by directors,
trustees, officers and full-time employees (and members of their immediate
family) of Franklin Templeton Group and Franklin Templeton Funds; and $1,000 for
each series of Franklin Templeton Fund Allocator Series.
PURCHASE PRICE OF FUND SHARES
Advisor Class shares are purchased at Net Asset Value without a sales charge.
Securities Dealers may receive compensation up to 0.25% of the amount invested
from Distributors or an affiliated company.
MAY I BUY SHARES IN GERMAN MARKS?
o Normally you can add to your existing account in German marks.
o The minimum is 10,000 German marks.
o You cannot use a currency other than U.S. dollars or German marks without our
preapproval.
o You need our preapproval to open a new account.
Provided that we receive 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. You
should check with your bank for any wire and other fees you may need to pay for
the transaction.
To invest in the Fund with German marks, please follow the directions below:
1. Call us at 1-800/632-2301 (or 1-415/312-3400) or fax the instructions at
1-415/312-4175 by 1:00 p.m., Eastern time, at least two business days prior to
your wiring the money. If the call or fax is made after 1:00 p.m., please allow
three business days. Include the following information:
Date of Wire (Value Date)
Amount of Wire (in German marks)
Name of Bank Wiring Funds
Your Name (as it appears on your account)
Your Account Number
Wire Order Number (a new number will be assigned each time)
2. At least two or three business days after the call or fax, you should request
for your bank to transmit, for value, immediately available funds in 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 Creditfor Franklin Templeton German Government Bond Fund
HOW DO I BUY SHARES IN CONNECTION WITH RETIREMENT PLANS?
Your individual or employer-sponsored retirement plan may invest in the Fund.
Plan documents are required for all retirement plans. Trust Company can provide
the plan documents for you and serve as custodian or trustee.
Trust Company can provide you with brochures containing important information
about its plans. To establish a Trust Company retirement plan, you will need an
application other than the one included in this prospectus. For a retirement
plan brochure or application, please call our Retirement Plans Department.
Please consult your legal, tax or retirement plan specialist before choosing a
retirement plan. Your investment representative or advisor can help you make
investment decisions within your plan.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction for taxable investors.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund and its rules and
requirements for exchanges. For example, some Franklin Templeton Funds do not
accept exchanges and others may have different investment minimums. Some
Franklin Templeton Funds do not offer Advisor Class shares.
METHOD STEPS TO FOLLOW
By Mail 1. Send us written instructions signed by all account
owners
2. Include any outstanding share certificates for the
shares you're exchanging
By Phone Call Shareholder Services
- If you do not want the ability
to exchange by phone to apply to
your account, please let us know.
Through Your Dealer Call your investment representative
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
HOW WE PROCESS YOUR EXCHANGE
If you are exchanging your Advisor Class shares of the Fund you may:
o exchange into any of our money funds except Franklin Templeton Money Fund II.
o exchange into the other Advisor Class shares of the Franklin Templeton Funds
(excluding Templeton Developing Markets Trust, Templeton Foreign Fund and
Templeton Growth Fund, except as described below), Mutual Series Class Z shares
and Templeton Institutional Funds, Inc., if you meet the investment requirements
of the fund to be acquired.
o exchange into the Advisor Class shares of Templeton Developing Markets Trust,
Templeton Foreign Fund and Templeton Growth Fund if you fall into one of the
following categories: (i) you are a broker-dealer or a qualified registered
investment advisor who has entered into a special agreement with Distributors
for your clients who are participating in comprehensive fee programs; (ii) you
are a qualified registered investment advisor or certified financial planner who
has clients invested in Mutual Series on October 31, 1996; (iii) you are a
qualified registered investment advisor or certified financial planner who did
not have clients invested in Mutual Series on October 31, 1996 and are buying
through a broker-dealer or service agent who has entered into an agreement with
Distributors; (iv) you are a director, trustee, officer or full-time employee
(or a family member) of the Franklin Templeton Group or the Franklin Templeton
Funds; (v) you are a participant in Franklin Templeton's 401(k) or Franklin
Templeton's Profit Sharing Plans; (vi) the exchanging shareholder is an account
managed by the Franklin Templeton Group; or (vii) the exchanging shareholder is
a series of the Franklin Templeton Fund Allocator Series.
o If the fund you are exchanging into does not offer Advisor Class shares, you
may exchange into the Class I shares of the fund at Net Asset Value.
Please be aware that the following restrictions may apply to exchanges:
o The accounts must be identically registered. You may exchange shares from a
Fund account requiring two or more signatures into an identically registered
money fund account requiring only one signature for all transactions. Please
notify us in writing if you do not want this option to be available on your
account(s). Additional procedures may apply.
Please see "Transaction Procedures and Special Requirements."
o Trust Company IRA or 403(b) retirement plan accounts may exchange shares as
described above. Restrictions may apply to other types of retirement plans.
Please contact our Retirement Plans Department for information on exchanges
within these plans.
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy upon 60 days' written notice.
o Your exchange may be restricted or refused if you: (i) request an exchange out
of the Fund within two weeks of an earlier exchange request, (ii) exchange
shares out of the Fund more than twice in a calendar quarter, or (iii) exchange
shares equal to at least $5 million, or more than 1% of the Fund's net assets.
Shares under common ownership or control are combined for these limits. If you
exchange shares as described in this paragraph, you will be considered a Market
Timer. Each exchange by a Market Timer, if accepted, will be charged $5.00. Some
of our funds do not allow investments by Market Timers.
Because excessive trading can hurt Fund performance and shareholders, we may
refuse any exchange purchase if (i) we believe the Fund would be harmed or
unable to invest effectively, or (ii) the Fund receives or anticipates
simultaneous orders that may significantly affect the Fund.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
METHOD STEPS TO FOLLOW
By Mail 1. Send us written instructions signed by all account
owners
2. Include any outstanding share certificates for the
shares you are selling
3. Provide a signature guarantee if required
4. Corporate, partnership and trust accounts may need to
send additional documents. Accounts under court
jurisdiction may have additional requirements.
METHOD STEPS TO FOLLOW
By Phone Call Shareholder Services
(Only available if you
have completed and sent
to us the telephone redemption
agreement included with
this prospectus)
Telephone requests will be accepted:
o If the request is $50,000 or less. Institutional
accounts may exceed $50,000
by completing a separate agreement. Call Institutional
Services to receive a copy.
o If there are no share certificates
issued for the shares you want to
sell or you have already returned
them to the Fund
o Unless you are selling shares in a Trust Company
retirement plan account
o Unless the address on your account was changed by
phone within the last 30 days
o Beginning on or about May 1, 1997,
you will automatically be able to
redeem shares by telephone without
completing a telephone redemption
agreement. Please notify us if you
do not want this option to be
available on your account. If you
later decide you would like this
option, send us written instructions
signed by all account owners.
Through Your Dealer Call your investment representative
We will send your redemption check within seven days after we receive your
request in proper form. If you sell your shares by phone, the check may only be
made payable to all registered owners on the account and sent to the address of
record. We are not able to receive or pay out cash in the form of currency.
If you sell shares you just purchased with a check or draft, we may delay
sending you the proceeds for up to 15 days or more to allow the check or draft
to clear. A certified or cashier's check may clear in less time.
Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
MAY I RECEIVE MY REDEMPTION PROCEEDS IN GERMAN MARKS?
To request payment of redemption proceeds in German marks:
o First, you need to have on file a Foreign Currency Redemption Authorization
Form. Please call us for the form at 1-800/632-2301 (or 1-415/312-3400) or fax
your request to 1-415/312-4175.
o You must have established a German mark-denominated bank account
o The redemption proceeds must be for a minimum of U.S. $5,000.
o Your 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.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS
To comply with IRS regulations, you need to complete additional forms before
selling shares in a Trust Company retirement plan account. Tax penalties
generally apply to any distribution from these plans to a participant under age
59 1/2, unless the distribution meets an exception stated in the Code. To obtain
the necessary forms, please call our Retirement Plans Department.
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
The Fund declares dividends from its net investment income monthly to
shareholders of record on the first business day before the 15th of the month
and pays them on or about the last day of that month.
Capital gains, if any, may be distributed annually, usually in December.
Dividends and capital gains are calculated and distributed the same way for each
class. The amount of any income dividends per share will differ, however,
generally due to the difference in the applicable Rule 12b-1 fees of any class.
Advisor Class shares are not subject to Rule 12b-1 fees.
Dividend payments are not guaranteed, are subject to the Board's discretion and
may vary with each payment. The Fund does not pay "interest" or guarantee any
fixed rate of return on an investment in its shares.
If you buy shares shortly before the record date, please keep in mind that any
distribution will lower the value of the Fund's shares by the amount of the
distribution.
DISTRIBUTION OPTIONS
You may receive your distributions from the Fund in any of these ways:
1. Buy additional shares of the Fund - You may buy additional shares of the same
class of the Fund by reinvesting capital gain distributions, or both dividend
and capital gain distributions. This is a convenient way to accumulate
additional shares and maintain or increase your earnings base.
2. Buy shares of other Franklin Templeton Funds - You may direct your
distributions to buy Advisor Class shares or Class I shares of another Franklin
Templeton Fund. Many shareholders find this a convenient way to diversify their
investments.
3. Receive distributions in cash - You may receive dividends, or both dividend
and capital gain distributions in cash. If you have the money sent to another
person or to a checking account, you may need a signature guarantee. To select
one of these options, please complete sections 6 and 7 of the shareholder
application included with this prospectus or tell your investment representative
which option you prefer. If you do not select an option, we will automatically
reinvest dividend and capital gain distributions in Advisor Class shares of the
Fund. For Trust Company retirement plans, special forms are required to receive
distributions in cash. You may change your distribution option at any time by
notifying us by mail or phone. Please allow at least seven days prior to the
record date for us to process the new option.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
HOW AND WHEN SHARES ARE PRICED
The Fund is open for business each day the NYSE is open. We determine the Net
Asset Value per share of each class as of the scheduled close of the NYSE,
generally 1:00 p.m. Pacific time. You can find the prior day's closing Net Asset
Value and Offering Price for each class in many newspapers.
The Net Asset Value of all outstanding shares of each class is calculated on a
pro rata basis. It is based on each class' proportionate participation in the
Fund, determined by the value of the shares of each class. To calculate Net
Asset Value per share of each class, the assets of each class are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares of the class outstanding. The Fund's assets are
valued as described under "How are Fund Shares Valued?" in the SAI.
THE PRICE WE USE WHEN YOU BUY OR SELL SHARES
You buy shares of Advisor Class at the Net Asset Value per share. We calculate
it to two decimal places using standard rounding criteria. You also sell shares
at Net Asset Value.
We will use the Net Asset Value next calculated after we receive your
transaction request in proper form. If you buy or sell shares through your
Securities Dealer, however, we will use the Net Asset Value next calculated
after your Securities Dealer receives your request, which is promptly
transmitted to the Fund. Your redemption proceeds will not earn interest between
the time we receive the order from your dealer and the time we receive any
required documents.
PROPER FORM
An order to buy shares is in proper form when we receive your signed shareholder
application and check. Written requests to sell or exchange shares are in proper
form when we receive written instructions signed by all registered owners, with
a signature guarantee if necessary. We must also receive any outstanding share
certificates for those shares.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:
o Your name,
o The Fund's name,
o The class of shares,
o A description of the request,
o For exchanges, the name of the fund you're exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the evening if
preferred.
SIGNATURE GUARANTEES
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered owners,
3) The proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature and may be
obtained from certain banks, brokers or other eligible guarantors. You should
verify that the institution is an eligible guarantor prior to signing. A
notarized signature is not sufficient.
SHARE CERTIFICATES
We will credit your shares to your Fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate is
lost, stolen or destroyed, you may have to pay an insurance premium of up to 2%
of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the Fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form. In this case, you should send the certificate and assignment
form in separate envelopes.
TELEPHONE TRANSACTIONS
You may initiate many transactions by phone. Please refer to the sections of
this prospectus that discuss the transaction you would like to make or call
Shareholder Services.
When you call, we will request personal or other identifying information to
confirm that instructions are genuine. We will also record calls. We will not be
liable for following instructions communicated by telephone if we reasonably
believe they are genuine. For your protection, we may delay a transaction or not
implement one if we are not reasonably satisfied that the instructions are
genuine. If this occurs, we will not be liable for any loss.
Trust Company Retirement Plan Accounts. You may not sell shares or change
distribution options on Trust Company retirement plans by phone. While you may
exchange shares of Trust Company IRA and 403(b) retirement accounts by phone,
certain restrictions may be imposed on other retirement plans.
To obtain any required forms or more information about distribution or transfer
procedures, please call our Retirement Plans Department.
ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS
When you open an account, you need to tell us how you want your shares
registered. How you register your account will affect your ownership rights and
ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
Joint Ownership. If you open an account with two or more owners, we register the
account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or more
owners, all owners must sign instructions to process transactions and changes to
the account. Even if the law in your state says otherwise, you will not be able
to change owners on the account unless all owners agree in writing. If you would
like another person or owner to sign for you, please send us a current power of
attorney.
Gifts and Transfers to Minors. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this form
of registration, a minor may not be named as an account owner.
Trusts. If you register your account as a trust, you should have a valid written
trust document to avoid future disputes or possible court action over who owns
the account.
Required Documents. For corporate, partnership and trust accounts, please send
us the following documents when you open your account. This will help avoid
delays in processing your transactions while we verify who may sign on the
account.
TYPE OF ACCOUNT DOCUMENTS REQUIRED
Corporation Corporate Resolution
Partnership 1. The pages from the partnership agreement that identify
the general partners, or
2. A certification for a partnership agreement
Trust 1. The pages from the trust document that identify the
trustees, or
2. A certification for trust
Street or Nominee Accounts. If you have Fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the shares
to the street or nominee name account of another Securities Dealer. Both dealers
must have an agreement with Distributors or we will not process the transfer.
Contact your Securities Dealer to initiate the transfer. We will process the
transfer after we receive authorization in proper form from your delivering
Securities Dealer. Accounts may be transferred electronically through the NSCC.
For accounts registered in street or nominee name, we may take instructions
directly from the Securities Dealer or your nominee.
Electronic Instructions. If there is a Securities Dealer or other representative
of record on your account, we are authorized to use and execute electronic
instructions received directly from your dealer or representative without
further inquiry. Electronic instructions may be processed through the services
of the NSCC, which currently include the NSCC's "Networking," "Fund/SERV," and
"ACATS" systems, or through Franklin/Templeton's PCTrades II(TM) System.
TAX IDENTIFICATION NUMBER
For tax reasons, we must have your correct Social Security or tax identification
number on a signed shareholder application or applicable tax form. Federal law
requires us to withhold 31% of your taxable distributions and sale proceeds if
(i) you have not furnished a certified correct taxpayer identification number,
(ii) you have not certified that withholding does not apply, (iii) the IRS or a
Securities Dealer notifies the Fund that the number you gave us is incorrect, or
(iv) you are subject to backup withholding.
We may refuse to open an account if you fail to provide the required tax
identification number and certifications. We may also close your account if the
IRS notifies us that your tax identification number is incorrect. If you
complete an "awaiting TIN" certification, we must receive a correct tax
identification number within 60 days of your initial purchase to keep your
account open.
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is $50 or less, except for investors
under categories (d), (e), (j) and (l) under "Opening Your Account." We will do
this if the value of your account falls below this minimum because you
voluntarily sold your shares and your account has been inactive (except for the
reinvestment of distributions) for at least six months. Before we close your
account, we will notify you and give you 30 days to increase the value of your
account to at least $100.
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
AUTOMATIC INVESTMENT PLAN
Our automatic investment plan offers a convenient way to invest in the Fund.
Under the plan, you can have money transferred automatically from your checking
account to the Fund each month to buy additional shares. If you are interested
in this program, please refer to the automatic investment plan application
included with this prospectus or contact your investment representative. The
market value of the Fund's shares may fluctuate and a systematic investment plan
such as this will not assure a profit or protect against a loss. You may
discontinue the program at any time by notifying Investor Services by mail or
phone.
SYSTEMATIC WITHDRAWAL PLAN
Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or annual
basis. The value of your account must be at least $5,000 and the minimum payment
amount for each withdrawal must be at least $50. For retirement plans subject to
mandatory distribution requirements, the $50 minimum will not apply.
If you would like to establish a systematic withdrawal plan, please complete the
systematic withdrawal plan section of the shareholder application included with
this prospectus and indicate how you would like to receive your payments. You
may choose to direct your payments to buy the same class of shares of another
Franklin Templeton Fund or have the money sent directly to you, to another
person, or to a checking account. You will generally receive your payment by the
fifth business day of the month in which a payment is scheduled. Beginning with
your February 1997 payment, however, you will generally receive your payment by
the end of the month in which a payment is scheduled. When you sell your shares
under a systematic withdrawal plan, it is a taxable transaction.
You may discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying us in writing at
least seven business days before the end of the month preceding a scheduled
payment. Please see "How Do I Buy, Sell and Exchange Shares? - Systematic
Withdrawal Plan" in the SAI for more information.
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your account,
including additional purchases and dividend reinvestments. Please verify the
accuracy of your statements when you receive them.
o Financial reports of the Fund will be sent every six months. To reduce Fund
expenses, we attempt to identify related shareholders within a household and
send only one copy of a report. Call Fund Information if you would like an
additional free copy of the Fund's financial reports or an interim quarterly
report.
BROKERS AND DEALERS AND PLAN ADMINISTRATORS
You may buy and sell Fund shares through registered broker-dealers. The Fund
does not impose a sales or service charge but your broker-dealer may charge you
a transaction fee. Transaction fees and services may vary among broker-dealers,
and your broker-dealer may impose higher initial or subsequent investment
requirements than those established by the Fund. Services provided by
broker-dealers may include allowing you to establish a margin account and borrow
on the value of the Fund's shares in that account. If your broker-dealer
receives your order before pricing on a given day, the broker-dealer is required
to forward the order to the Fund before pricing closes on that day. A
broker-dealer's failure to timely forward an order may give rise to a claim by
the investor against the broker.
Third party plan administrators of tax-qualified retirement plans and other
entities may provide sub-transfer agent services to the Fund. In such cases, the
Fund may pay the third party an annual sub-transfer agency fee that is not
greater than the Fund otherwise would have paid for such services.
INSTITUTIONAL ACCOUNTS
Institutional investors will likely be required to complete an institutional
account application. There may be additional methods of opening accounts and
purchasing, redeeming or exchanging shares of the Fund available for
institutional accounts. To obtain an institutional application or additional
information regarding institutional accounts, contact Franklin Templeton
Institutional Services at 1-800/321-8563 Monday through Friday, from 6:00 a.m.
to 5:00 p.m. Pacific time.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your shares
are held by a financial institution, in a street name account, or networked
through the NSCC, the Fund may not be able to offer these services directly to
you.
Please contact your investment representative.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Investor Services
at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California 94403-7777.
The Fund, Distributors and Advisers are also located at this address. You may
also contact us by phone at one of the numbers listed below.
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.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Plans 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.
GLOSSARY
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
CD - Certificate of deposit
Class I and Advisor Class - The Fund offers two classes of shares, designated
"Class I," and "Advisor Class." The two classes have proportionate interests in
the Fund's portfolio. Class I shares are purchased with a sales charge and have
a Rule 12b-1 plan. Advisor Class shares are purchased without a sales charge and
do not have a Rule 12b-1 plan.
Code - Internal Revenue Code of 1986, as amended
Contingency Period - For Class I shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. Regardless of when during the month
you purchased shares, they will age one month on the last day of that month and
each following month.
Contingent Deferred Sales Charge (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the Contingency Period.
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Trustees."
Franklin Funds - The mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin
Government Securities Trust
Franklin Templeton Funds - The Franklin Funds and the Templeton Funds
Franklin Templeton Group - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
Franklin Templeton Group of Funds - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds
FT Services - Franklin Templeton Services, Inc., the Fund's administrator
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., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
Market Timer(s) - Market Timers generally include market timing or allocation
services, accounts administered so as to buy, sell or exchange shares based on
predetermined market indicators, or any person or group whose transactions seem
to follow a timing pattern.
Moody's - Moody's Investors Service, Inc.
Mutual Series - Franklin Mutual Series Fund Inc., a member of the Franklin Group
of Funds, formerly the Mutual Series Fund Inc. Each series of Mutual Series
began offering three classes of shares on November 1, 1996, Class I, Class II
and Class Z. All shares sold before that time are designated Class Z shares.
NASD - National Association of Securities Dealers, Inc.
Net Asset Value (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NSCC - National Securities Clearing Corporation
NYSE - New York Stock Exchange
Offering Price - The public offering price is based on the Net Asset Value per
share of the class and includes the front-end sales charge, if applicable. The
maximum front-end sales charge is 3.0% for Class I. Advisor Class has no
front-end sales charge.
Resources - Franklin Resources, Inc.
S&P - Standard & Poor's Corporation
SAI - Statement of Additional Information
SEC - U.S. Securities and Exchange Commission
Securities Dealer - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
Templeton Funds - The U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund
TICI - 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
We/Our/Us - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.
PROSPECTUS & APPLICATION
FRANKLIN TEMPLETON
HARD CURRENCY FUND
INVESTMENT STRATEGY
GLOBAL INCOME
Advisor Class
Advisor
JANUARY 1, 1997
FRANKLIN TEMPLETON GLOBAL TRUST
This prospectus describes the Advisor Class shares of Franklin Templeton Hard
Currency Fund (the "Fund"). It contains information you should know before
investing in the Fund. Please keep it for future reference.
The Fund's Advisor Class SAI, dated January 1, 1997, as may be amended from time
to time,
includes more information about the Fund's procedures and policies. It has been
filed with the SEC and is incorporated by reference into this prospectus. For a
free copy or a larger print version of this prospectus, call 1-800/DIAL BEN or
write the Fund at the address shown.
Advisor Class shares are only available for purchase by certain persons,
including, among others, certain financial institutions (such as banks, trust
companies, savings institutions and credit unions); government and tax-exempt
entities; pension, profit sharing and employee benefit plans; certain qualified
groups, including family trusts, endowments, foundations and corporations;
Franklin Templeton Fund Allocator Series; and directors, trustees, officers and
full-time employees (and their family members) of Franklin Templeton Group and
the Franklin Templeton Group of Funds. See "About Your Account."
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S.
GOVERNMENT. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES REPRESENTATIVE, DEALER,
OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER
INFORMATION MAY BE OBTAINED FROM DISTRIBUTORS.
FRANKLIN
TEMPLETON HARD CURRENCY FUND - ADVISOR CLASS
JANUARY 1, 1997
When reading this prospectus, you will see terms beginning with capital letters.
This means the term is explained in our glossary section.
Table of Contents
About the Fund
Expense Summary.............................
How does the Fund Invest its Assets?........
What are the Fund's Potential Risks?........
Who Manages the Fund?.......................
How does the Fund Measure Performance?......
How is the Trust Organized?.................
How Taxation Affects You and the Fund.......
About Your Account
How Do I Buy Shares?........................
May I Exchange Shares for Shares of Another Fund?
How Do I Sell Shares?.......................
What Distributions Might I Receive from the Fund?
Transaction Procedures and Special Requirements
Services to Help You Manage Your Account....
Glossary
Useful Terms and Definitions................
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777
1-800/DIAL BEN
ABOUT THE FUND
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in the
Fund. Because Advisor Class shares were not offered to the public before January
1, 1997, the table is based on the historical expenses of the Class I shares of
the Fund for the fiscal year ended October 31, 1995+. Your actual expenses may
vary.
A. SHAREHOLDER TRANSACTION EXPENSES++
Maximum Sales Charge Imposed on Purchases None
Exchange Fee (per transaction) $5.00+++
B. ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.65%
Rule 12b-1 Fees None
Other Expenses 0.15%
Total Fund Operating Expenses 0.80%
C. EXAMPLE
Assume the annual return for Advisor Class shares is 5% and operating
expenses are as described above. For each $1,000 investment, you would pay
the following projected expenses if you sold your shares after the number of
years shown.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$38 $55 $73 $126
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
The Fund pays its operating expenses. The effects of these expenses are
reflected in the Net Asset Value or the dividends paid on Advisor Class
shares and are not directly charged to your account.
+Unlike Advisor Class shares, the Class I shares of the Fund have a front-end
sales charge and Rule 12b-1 fees.
++If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for these services.
+++$5.00 fee is only for Market Timers. We process all other exchanges without a
fee.
How does the Fund Invest its Assets?
THE FUND'S INVESTMENT OBJECTIVE
The investment objective of the 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 Investment Managers, follow economic policies conducive to
continued low rates of inflation and currency appreciation versus the U.S.
dollar over the long-term. These currencies are often referred to as "hard
currencies" and the economic policies are often referred to as "sound money"
policies.
The Fund tries to keep foreign currency (non-U.S. dollar) exposure with respect
to 100% of its net assets. The Fund may invest in U.S. dollar-denominated money
market instruments in combination with forward contracts (calling for the future
purchase of foreign currencies in exchange for U.S. dollars) to obtain an
investment result that is substantially the same as a direct investment in a
foreign currency-denominated instrument.
Under normal market conditions, the Fund will not expose its portfolio in excess
of 50% of its total assets to a single foreign currency. For temporary defensive
purposes, however, the Fund may invest up to 100% of its net assets in Swiss
franc-denominated instruments.
The Investment Managers actively manage the Fund and will allocate its
investments based on current social, economic, financial and political
developments which, in the Investment Managers' opinion, may affect the value of
the currencies.
The yield 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 that, in the opinion of the 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 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
<TABLE>
<CAPTION>
for each year from 1989 through 1995 are listed below:
1995* 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <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% -
1995* 1994 1993 1992 1991 1990 1989
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, the Fund may invest in money market
instruments denominated in any of the Major Currencies. The currencies of
various countries may be added to or deleted from the list of Major Currencies
when, in the opinion of the Investment Managers, world social, economic,
financial or political conditions justify it, provided that the list of Major
Currencies in the prospectus is revised.
DESCRIPTION OF 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.
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 they are denominated. Interest income represents the
other primary component of the total return derived from international money
market instruments.
WHY SHOULD YOU CONSIDER INVESTING IN INTERNATIONAL MONEY MARKET INSTRUMENTS?
Global Diversification. One of the main 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 Buying Power. Currency exchange rate fluctuations can have
a significant effect on the global buying 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, and the cost of traveling abroad. In this
case, non-U.S. dollar denominated money market instruments may provide a degree
of global buying power protection since dollar depreciation will tend to enhance
the U.S. dollar return on these instruments.
Potential for Higher Current Yields and Higher Total Returns. You may consider
international money market instruments for their potentially higher current
yields and/or total returns than those available on similar U.S.
dollar-denominated instruments. If you expect general depreciation of the U.S.
dollar relative to other currencies you may, for example, invest in non-U.S.
dollar denominated instruments so you can participate in currency gains that may
result.
If you expect general exchange rate stability, you might invest in higher
yielding international money market instruments so you can earn a higher rate of
interest than may be available on similar 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.
TYPES OF SECURITIES IN WHICH THE FUND MAY INVEST
The 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 Investment Managers, are
pursuing economic policies favorable to continued low rates of inflation and
currency appreciation versus the U.S. dollar over the long-term.
The Fund seeks to minimize credit risk and interest rate risk to principal by
investing only in high-quality money market instruments, maintaining a weighted
average portfolio maturity of 120 days or less and buying 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 in the Fund's portfolio will be based upon these
periodic adjustments. Because the Fund invests primarily in short-term
securities which are excluded from the calculation of portfolio turnover rate,
the portfolio turnover rate for the Fund is usually minimal.
The issuers of money market instruments in which the Fund may invest may include
governments of, and financial institutions, corporations or other entities
located in or organized under the laws of, any country. The Fund may also invest
in money market securities issued by supranational organizations such as the
World Bank, chartered to finance development projects in member countries; the
European Union, a twelve-nation organization engaged in cooperative economic
activities; the European Coal and Steel Community, an economic union of various
European nations' steel and coal industries; and the Asian Development Bank, an
international development bank established to lend funds, promote investment and
provide technical assistance to member nations in the Asian and Pacific regions.
The Fund invests only in instruments which are considered by the Investment
Managers to be of high quality, comparable to those (1) rated within the two top
rating categories by U.S. nationally recognized rating services, such as S&P or
Moody's. The two highest ratings assigned by S&P are triple A or double A (A-1
for commercial paper) and by Moody's triple A or double A (P-1 for commercial
paper); 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 Board at least quarterly.
To hedge (protect) against currency exchange rate fluctuations that might
adversely affect the value of a portfolio position, the 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 Fund may enter into these forward
contracts without limitation. Also, the Fund 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.
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.
U.S. 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.
Foreign Government Securities. 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. The 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 a
specified amount of currency for a set price on a future date. When the Fund
enters into a futures contract, it must make an initial deposit, known as
"initial margin", as a partial guarantee of its performance under the contract.
As the value of the currency fluctuates, either party to the contract is
required to make additional margin payments, known as "variation margin," to
cover any additional obligation it may have under the contract.
The Fund sells currency futures contracts in order to offset a possible decline
in the value of the currency in which its securities are denominated. The value
of a futures contract tends to rise when the value of the currency (and the
hedged security) declines and to fall when the value of the currency (and the
hedged security) increases. The Fund buys currency futures contracts in order to
fix a favorable currency exchange rate for securities denominated in the
currency that the Fund intends to buy.
The Fund may also buy put and call options on currency futures contracts for
hedging purposes. A put option gives the Fund the right to sell a futures
contract and a call option gives the Fund the right to buy a futures contract.
The 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, the Fund's loss will be
limited to the amount of the premium and any transaction costs.
The Fund may enter into closing purchase or sale transactions in order to
terminate a futures contract. The 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 Fund's 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. The Fund may, for hedging purposes, buy put and
call options on any currency in which the Fund's investments are denominated.
The Fund is also authorized to enter into closing sale transactions in order to
realize gains or minimize losses on currency options purchased by the Fund.
The Fund would normally buy currency call options to fix a favorable currency
exchange rate for securities denominated in that currency which the Fund intends
to buy. The purchase of a call option entitles the Fund, in return for the
premium paid, to buy specified currency at a specified price, upon exercise of
the option, during the option period. The Fund would ordinarily realize a gain
if, during the option period, the value of the currency exceeds the sum of the
exercise price, the premium paid and transaction cost; otherwise, the Fund would
realize a loss on the purchase of the call option.
The Fund will 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 entitles the 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 put options would be offset
by compensating changes in the value of the underlying currency and the hedged
securities. The Fund may 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 the Fund would realize a loss
on the purchase of the put option.
If the Fund is unable to effect a closing sale transaction with respect to
options it has bought, 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
("OTC") market and will be bought only when the Investment Managers believe a
liquid secondary market exists for the 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). The Fund will
purchase over-the-counter options only from dealers and institutions that the
Investment Managers believe present a minimal credit risk.
OTHER INVESTMENT POLICIES OF THE FUND
Repurchase Agreements. The Fund may engage in repurchase transactions in which
the Fund buys a U.S. government security subject to resale to a bank or dealer
at an agreed-upon price and date. 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 the 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 the Fund to experience a loss or delay in the
liquidation of the collateral securing the repurchase agreement. The Fund might
also incur disposition costs in liquidating the collateral. The Fund, however,
intends to enter into repurchase agreements only with financial institutions
such as broker-dealers and banks which are deemed creditworthy by the Investment
Managers. A repurchase agreement is deemed to be a loan by the Fund under the
1940 Act. The U.S. government security subject to resale (the collateral) will
be held on behalf of the Fund by a custodian approved by the Board and will be
held pursuant to a written agreement. At no time will the Fund invest in
repurchase agreements of more than one year duration.
Loans of Portfolio Securities. Consistent with procedures approved by the Board
and subject to the following conditions, the 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 the
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%. This
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. The Fund may engage
in security loan arrangements with the primary objective of increasing the
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, the 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 Fund may use forward
contracts together with money market instruments (including U.S. dollar
denominated instruments) for the purpose of obtaining an investment result that
is substantially equal to a direct investment in a foreign currency denominated
instrument. The Fund 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 Fund) or portfolio
positions (for example, in respect of security positions already held by the
Fund). The Fund, however, tries to maintain foreign currency exposure with
respect to 100% of its net assets at all times and, therefore, any portfolio
position hedging activities of the Fund are expected to be consistent with this
policy. The Fund 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 Fund.
The Fund conducts 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 buy or sell currencies. A forward currency contract involves an
obligation to buy 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 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 each Fund is non-diversified under the 1940 Act,
as a non-fundamental policy, each Fund will not invest more than 5% of its total
assets in the securities of a single foreign bank. This limitation does not
apply to other issuers.
Illiquid Investments. The Fund may not invest more than 10% of its net assets,
at the time of purchase, in illiquid securities, including repurchase agreements
maturing in more than seven days, time deposits maturing in more than seven
days, over-the-counter options bought by the Fund and investments hedged by
over-the counter options. Illiquid securities are generally securities that
cannot be sold within seven days in the normal course of business at
approximately the amount at which the Fund has valued them.
Percentage Restrictions. If a percentage restriction noted above 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 policies.
Other Policies and Restrictions. The following are fundamental policies of the
Fund that cannot be changed without shareholder approval.
The 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; the Fund
may incur interest charges in connection with such borrowings); (2) invest more
than 25% of its assets in the securities of issuers in any industry; (3) 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 (4) invest more than 5% of its total assets in securities of issuers
(including predecessors) with less than three years' continuous operations.
Restrictions (2) and (4) do not apply to investments in U.S. government
securities.
The Fund has a number of additional investment restrictions that limit its
activities to some extent. Some of these restrictions may only be changed with
shareholder approval. For a list of these restrictions and more information
about the Fund's investment policies, please see "How does the Fund Invest its
Assets?" and "Investment Restrictions" in the SAI.
WHAT ARE THE FUND'S POTENTIAL RISKS?
An investment in the Fund may not be suitable 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 the Fund. The value of the Fund's investments and
therefore its Net Asset Value generally will differ inversely with changes in
prevailing interest rates, although this difference will depend upon the
effective maturities of the instruments held. The Fund intends to invest
exclusively in short-term money market instruments to minimize this effect.
Because the Fund invests in instruments denominated in Major Currencies issued
by countries that have recently experienced, and that are expected to continue
to experience, relatively low inflation, the instruments in which the 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 the 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, the 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 the Fund, expressed in U.S. dollar terms, will
fluctuate and, unlike a money market fund, the Fund does not seek to maintain a
stable Net Asset Value. In addition, the total return on the Fund may be higher
or lower than the total return on a U.S. dollar money market fund. You,
therefore, should not consider the Fund to be a substitute for a U.S. dollar
money market fund.
The value of the investments held by the Fund is calculated in U.S. dollars on
each day that the Exchange is open for business. As a result, to the extent that
the 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,
the Fund's Net Asset Value per share as expressed in U.S. dollars (and,
therefore, the value of your investment) should increase. If the U.S. dollar
appreciates relative to the other currencies, the opposite should occur, except
to the extent that losses are offset by net investment income generated by the
money market instruments in which the Fund invests.
The currency-related gains and losses experienced by the 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 the 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 the shares. The amount of appreciation or depreciation in the
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 similar U.S. dollar instruments. As a result,
the Fund may have a higher or lower yield than a portfolio which invests
strictly in U.S. dollar-denominated instruments.
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 not generally thought 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 the 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 a non-diversified Fund, 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. The 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, the 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, the Fund may not 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 Fund is not
fully diversified under the 1940 Act, 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.
Currency Futures and Options Transactions. Although currency futures and options
transactions are intended to enable the Fund 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
Investment Managers correctly predict currency exchange rate movements, a hedge
could be unsuccessful if changes in the value of the 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 the Fund's futures and
currency positions may be caused by differences between the futures and currency
markets.
The Investment Managers will attempt to minimize these risks through careful
selection and monitoring of the 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 Fund will not use futures transactions for speculation. The 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 the Fund's outstanding futures positions and premiums paid for
outstanding options on futures would exceed 5% of the market value of the Fund's
total assets. These transactions involve brokerage costs, require margin
deposits and, in the case of contracts obligating the Fund to purchase
securities, require the Fund to segregate assets to cover such contracts.
These transactions also involve risks to the Fund of the possible loss of margin
deposits or collateral in the event of bankruptcy of a broker with whom the Fund
has an open position in a futures or options contract. The Fund's ability to
enter into certain futures, forward contracts 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 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. The 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."
The 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 the 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 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.
WHO MANAGES THE FUND?
The Board. The Board oversees the management of the Fund and elects its
officers. The officers are responsible for the Fund's day-to-day operations. The
Board also monitors the Fund to ensure no material conflicts exist among the
classes of shares. While none is expected, the Board will act appropriately to
resolve any material conflict that may arise.
Investment Managers. Advisers manages the Fund's assets and makes its investment
decisions. Under a sub-advisory agreement between Advisers and TICI, TICI
provides advice regarding the Fund's investment, subject to the Board's review
and control as well as Advisers' instruction and supervision. The Investment
Managers also perform similar services for other funds. The Investment Managers
are wholly owned by Resources, a publicly owned company engaged in the financial
services industry through its subsidiaries. Charles B. Johnson and Rupert H.
Johnson, Jr. are the principal shareholders of Resources. The Investment
Managers and their affiliates manage over $150 billion in assets. Please see
"Investment Management and Other Services" and "Miscellaneous Information" in
the SAI for information on securities transactions and a summary of the Fund's
Code of Ethics.
Management Team. The team responsible for the day-to-day management of the
Fund's portfolio is: Mr. Neil S. Devlin since 1993 and Mr. Thomas J. Dickson
since 1995.
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 the Franklin Templeton Group 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.
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 Fund's 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.
Management Fees. During the fiscal year ended October 31, 1995, and for the six
month period ended April 30, 1996 (annualized), management fees totaling 0.65%
of the average daily net assets of the Fund were paid to Advisers.
Advisers' payment of sub-advisory fees to TICI has no effect on the Fund's
payment of fees to Advisers.
Portfolio Transactions. The Investment Managers try to obtain the best execution
on all transactions. If the Investment Managers believe more than one broker or
dealer can provide the best execution, consistent with internal policies it may
consider research and related services and the sale of Fund shares, as well as
shares of other funds in the Franklin Templeton Group of Funds, when selecting a
broker or dealer. Please see "How does the Fund Buy Securities for its
Portfolio?" in the SAI for more information.
Administrative Services. Under an agreement with Advisers, FT Services provides
certain administrative services and facilities for the Fund. Please see
"Investment Management and Other Services" in the SAI for more information.
HOW DOES THE FUND MEASURE PERFORMANCE?
From time to time, each class of the Fund advertises its performance. The more
commonly used measures of performance are total return, current yield and
current distribution rate. Performance figures are usually calculated using the
maximum sales charge, if applicable. Certain performance figures may not include
any applicable sales charge or Rule 12b-1 fees.
Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested. Current yield for each
class shows the income per share earned by that class. The current distribution
rate shows the dividends or distributions paid to shareholders of a class. This
rate is usually computed by annualizing the dividends paid per share during a
certain period and dividing that amount by the current Offering Price of the
class or, in the case of Advisor Class shares, the Net Asset Value of the class.
Unlike current yield, the current distribution rate may include income
distributions from sources other than dividends and interest received by the
Fund.
The investment results of each class will vary. Performance figures are always
based on past performance and do not guarantee future results. For a more
detailed description of how the Fund calculates its performance figures, please
see "How does the Fund Measure Performance?" in the SAI.
HOW IS THE TRUST ORGANIZED?
The Fund is a non-diversified series of Franklin Templeton Global Trust (the
"Trust"), an open-end management investment company, commonly called a mutual
fund. The Trust was organized as a Massachusetts business trust in November 1985
and reorganized as a Delaware business trust in August 1996. The Trust is
registered with the SEC under the 1940 Act.
The Fund began offering two classes of shares on January 1, 1997: Franklin
Templeton Hard Currency Fund - Class I, and Franklin Templeton Hard Currency
Fund - Advisor Class. All shares purchased before that time are considered Class
I shares. Franklin Templeton German Government Bond Fund, another series of the
Trust, also offers Advisor Class shares, the series Franklin Templeton Global
Currency Fund and Franklin Templeton High Income Currency Fund offers Class I
shares only. Class I and Advisor Class shares differ as to sales charges,
expenses and services. Different fees and expenses will affect performance.
Additional classes and series may be offered in the future. A further
description of Class I is set forth below.
Each class will vote separately on matters (1) affecting only that class, (2)
expressly required to be voted on separately by state law, or (3) required to be
voted on separately by the 1940 Act. Shares of each class represent
proportionate interests in the assets of the Fund and have the same voting and
other rights and preferences as any other class of the Fund on matters that
affect the Trust as a whole.
The Trust has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the Board.
The Trust does not intend to hold annual shareholder meetings. It may hold a
special meeting of a series, however, for matters requiring shareholder approval
under the 1940 Act. A meeting may also be called by the Board in its discretion
or by shareholders holding at least 10% of the outstanding shares. The 1940 Act
requires that we help you communicate with other shareholders in connection with
removing members of the Board.
Class I. Class I shares of the Fund are described in a separate prospectus
relating only to that class. You may buy Class I shares through your investment
representative or directly by contacting the Trust. If you would like a
prospectus relating to the Fund's Class I shares, contact your investment
representative or Distributors.
Class I shares of the Fund have sales charges and Rule 12b-1 charges that may
affect performance. Class I shares have a front-end sales charge of 3.00% (3.09%
of the net amount invested) that is reduced on certain transactions of $100,000
or more. Class I shares are subject to Rule 12b-1 fees up to a maximum of 0.45%
per year of Class I's average daily net assets. Shares of Class I may be subject
to a Contingent Deferred Sales Charge upon redemption.
HOW TAXATION AFFECTS YOU AND THE FUND
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For more information on tax matters
relating to the Fund and its shareholders, see "Additional Information on
Distributions and Taxes" in the SAI.
The Fund has elected and 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 that 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 you have
elected to receive them 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 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 the 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 its 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 considered a U.S. person for federal income tax purposes, you
should consult with your financial or tax advisor 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.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
You may buy shares with a minimum initial investment of $5 million (in the
aggregate) in one or more Advisor Class shares of the Franklin Templeton Funds
($25 for subsequent investments) except if you fall in one of the following
categories of investors satisfying one of the following criteria:
(a) Broker-dealers, qualified registered investment advisors or certified
financial planners, who have entered into a supplemental agreement with
Distributors for clients participating in comprehensive fee programs;
(b) Qualified registered investment advisors or registered certified financial
planners who have clients invested in Mutual Series on October 31, 1996;
(c) Qualified registered investment advisors or registered certified financial
planners who did not have clients invested in Mutual Series on October 31, 1996
may buy through a broker-dealer or service agent who has entered into an
agreement with Distributors;
(d) Employer stock, bonus, pension or profit-sharing plans that meet the
requirements for qualification under Section 401 of the Code, including salary
reduction plans qualified under Section 401(k) of the Code, are subject to no
initial investment requirement if the number of employees is 5,000 or more or
the plan has assets of $50 million or more);
(e) Effective on or about February 1, 1997, participants in Franklin Templeton's
401(k) and Franklin Templeton's profit sharing plans;
(f) Trust companies and bank trust departments initially investing in any of the
Franklin Templeton Funds at least $1 million of assets held in a fiduciary,
agency, advisory, custodial or similar capacity and over which the trust
companies, bank trust departments or other plan fiduciaries or participants, in
the case of certain retirement plans, have full or shared investment discretion;
(g) Governments, municipalities and tax-exempt entities that meet the
requirements for qualification under Section 501 of the Code (subject to an
initial investment in Advisor Class shares of $1 million);
(h) Any other investor, including a private investment vehicle such as a family
trust or foundation, who is a member of a qualified group may also purchase
Advisor Class shares of the Fund if the group as a whole meets the required
minimum initial investment of $5 million;
(i) Directors, trustees, officers and full-time employees (and members of their
immediate family) of Franklin Templeton Group and Franklin Templeton Group of
Funds who invest $100 or more;
(j) Accounts managed by the Franklin Templeton Group;
(k) Class I shareholders of the Fund who qualify under one of the above
categories, may have their existing Class I shares invested into the Fund's
Advisor Class by sending written instructions indicating that they wish to do
so, by June 30, 1997. Instructions should be addressed to Investor Servic es.
Generally, for federal income tax purposes, there will be no recognition of gain
or loss associated with such a transaction. You may wish to consult with your
tax advisor to determine whether there are any state income tax consequences to
such a transaction.
(l) Each series of Franklin Templeton Fund Allocator Series that invests $1,000
or more.
The qualified group referred to in Item (h) above, is one that:
o Was formed at least six months ago,
o Has a purpose other than buying Fund shares at a discount,
o Has more than 10 members,
o Can arrange for meetings between our representatives and group members,
o Agrees to include sales and other Franklin Templeton Fund materials in
publications and mailings to its members at reduced or no cost to
Distributors,
o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the Fund, and
o Meets other uniform criteria that allow Distributors to achieve cost savings
in distributing shares.
If you are subject to the $5 million minimum investment requirement, the cost or
current value (whichever is higher) of your investment in other funds in the
Franklin Templeton Funds will be included for purposes of determining compliance
with the required minimum investment amount, provided that at least $1 million
is invested in Advisor Class shares of the Franklin Templeton Funds.
The minimum for subsequent investments in Advisor Class shares is; $25 for most
purchases of Advisor Class shares of the Fund and for purchases by directors,
trustees, officers and full-time employees (and members of their immediate
family) of Franklin Templeton Group and Franklin Templeton Funds; and $1,000 for
each series of Franklin Templeton Fund Allocator Series.
PURCHASE PRICE OF FUND SHARES
Advisor Class shares are purchased at Net Asset Value without a sales charge.
Securities Dealers may receive compensation up to 0.25% of the amount invested
from Distributors or an affiliated company.
HOW DO I BUY SHARES IN CONNECTION WITH RETIREMENT PLANS?
Your individual or employer-sponsored retirement plan may invest in the Fund.
Plan documents are required for all retirement plans. Trust Company can provide
the plan documents for you and serve as custodian or trustee.
Trust Company can provide you with brochures containing important information
about its plans. To establish a Trust Company retirement plan, you will need an
application other than the one included in this prospectus. For a retirement
plan brochure or application, please call our Retirement Plans Department.
Please consult your legal, tax or retirement plan specialist before choosing a
retirement plan. Your investment representative or advisor can help you make
investment decisions within your plan.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction for taxable investors.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund and its rules and
requirements for exchanges. For example, some Franklin Templeton Funds do not
accept exchanges and others may have different investment minimums. Some
Franklin Templeton Funds do not offer Advisor Class shares.
METHOD STEPS TO FOLLOW
By Mail 1. Send us written instructions
signed by all account owners
2. Include any outstanding share
certificates for the shares
you're exchanging
By Phone Call Shareholder Services or TeleFACTS(R)
- If you do not want the ability
to exchange by phone to apply to
your account, please let us know.
Through Your Dealer Call your investment representative
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
HOW WE PROCESS YOUR EXCHANGE
If you are exchanging your Class Z shares of the Fund you may:
o exchange into any of our money funds except Franklin Templeton Money Fund II.
o exchange into the other Advisor Class shares of the Franklin Templeton Funds
(excluding Templeton Developing Markets Trust, Templeton Foreign Fund and
Templeton Growth Fund, except as described below), Mutual Series Class Z shares
and Templeton Institutional Funds, Inc., if you meet the investment requirements
of the fund to be acquired.
o exchange into the Advisor Class shares of Templeton Developing Markets Trust,
Templeton Foreign Fund and Templeton Growth Fund if you fall into one of the
following categories: (i) you are a broker-dealer or a qualified registered
investment advisor who has entered into a special agreement with Distributors
for your clients who are participating in comprehensive fee programs; (ii) you
are a qualified registered investment advisor or certified financial planner who
has clients invested in Mutual Series on October 31, 1996; (iii) you are a
qualified registered investment advisor or certified financial planner who did
not have clients invested in Mutual Series on October 31, 1996 and are buying
through a broker-dealer or service agent who has entered into an agreement with
Distributors; (iv) you are a director, trustee, officer or full-time employee
(or a family member) of the Franklin Templeton Group or the Franklin Templeton
Funds; (v) you are a participant in Franklin Templeton's 401(k) or Franklin
Templeton's Profit Sharing Plans; (vi) the exchanging shareholder is an account
managed by the Franklin Templeton Group; or (vii) the exchanging shareholder is
a series of the Franklin Templeton Fund Allocator Series.
o If the fund you are exchanging into does not offer Advisor Class shares, you
may exchange into the Class I shares of the fund at Net Asset Value.
Please be aware that the following restrictions may apply to exchanges:
o The accounts must be identically registered. You may exchange shares from a
Fund account requiring two or more signatures into an identically registered
money fund account requiring only one signature for all transactions. Please
notify us in writing if you do not want this option to be available on your
account(s). Additional procedures may apply.
Please see "Transaction Procedures and Special Requirements."
o Trust Company IRA or 403(b) retirement plan accounts may exchange shares as
described above. Restrictions may apply to other types of retirement plans.
Please contact our Retirement Plans Department for information on exchanges
within these plans.
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy upon 60 days' written notice.
o Your exchange may be restricted or refused if you: (i) request an exchange out
of the Fund within two weeks of an earlier exchange request, (ii) exchange
shares out of the Fund more than twice in a calendar quarter, or (iii) exchange
shares equal to at least $5 million, or more than 1% of the Fund's net assets.
Shares under common ownership or control are combined for these limits. If you
exchange shares as described in this paragraph, you will be considered a Market
Timer. Each exchange by a Market Timer, if accepted, will be charged $5.00. Some
of our funds do not allow investments by Market Timers.
Because excessive trading can hurt Fund performance and shareholders, we may
refuse any exchange purchase if (i) we believe the Fund would be harmed or
unable to invest effectively, or (ii) the Fund receives or anticipates
simultaneous orders that may significantly affect the Fund.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
METHOD STEPS TO FOLLOW
By Mail 1. Send us written instructions signed by all
account owners
2. Include any outstanding share certificates
for the shares you are selling
3. Provide a signature guarantee if required
4. Corporate, partnership and trust accounts
may need to send additional documents.
Accounts under court jurisdiction may have
additional requirements.
By Phone Call Shareholder Services
(Only available if you have
completed and sent to us
the telephone redemption
agreement included with
this prospectus)
Telephone requests will be accepted:
o If the request is $50,000 or less.
Institutional accounts may exceed $50,000
by completing a separate agreement.
Call Institutional Services to receive a
copy.
o If there are no share certificates
issued for the shares you want to
sell or you have already returned
them to the Fund
o Unless you are selling shares in a Trust
Company retirement plan account
o Unless the address on your account
was changed by phone within the last 30 days
o Beginning on or about May 1, 1997,
you will automatically be able to
redeem shares by telephone without
completing a telephone redemption
agreement. Please notify us if you
do not want this option to be
available on your account. If you
later decide you would like this
option, send us written instructions
signed by all account owners.
Through Your Dealer Call your investment representative
We will send your redemption check within seven days after we receive your
request in proper form. If you sell your shares by phone, the check may only be
made payable to all registered owners on the account and sent to the address of
record. We are not able to receive or pay out cash in the form of currency.
If you sell shares you just purchased with a check or draft, we may delay
sending you the proceeds for up to 15 days or more to allow the check or draft
to clear. A certified or cashier's check may clear in less time.
Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS
To comply with IRS regulations, you need to complete additional forms before
selling shares in a Trust Company retirement plan account. Tax penalties
generally apply to any distribution from these plans to a participant under age
59 1/2, unless the distribution meets an exception stated in the Code. To obtain
the necessary forms, please call our Retirement Plans Department.
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
The Fund declares dividends from its net investment income monthly to
shareholders of record on the first business day before the 15th of the month
and pays them on or about the last day of that month.
Capital gains, if any, may be distributed annually, usually in December.
Dividends and capital gains are calculated and distributed the same way for each
class. The amount of any income dividends per share will differ, however,
generally due to the difference in the applicable Rule 12b-1 fees of any class.
Advisor Class shares are not subject to Rule 12b-1 fees.
Dividend payments are not guaranteed, are subject to the Board's discretion and
may vary with each payment. The Fund does not pay "interest" or guarantee any
fixed rate of return on an investment in its shares.
If you buy shares shortly before the record date, please keep in mind that any
distribution will lower the value of the Fund's shares by the amount of the
distribution.
DISTRIBUTION OPTIONS
You may receive your distributions from the Fund in any of these ways:
1. Buy additional shares of the Fund - You may buy additional shares of the same
class of the Fund by reinvesting capital gain distributions, or both dividend
and capital gain distributions. This is a convenient way to accumulate
additional shares and maintain or increase your earnings base.
2. Buy shares of other Franklin Templeton Funds - You may direct your
distributions to buy Advisor Class of shares or Class I shares of another
Franklin Templeton Fund. Many shareholders find this a convenient way to
diversify their investments.
3. Receive distributions in cash - You may receive dividends, or both dividend
and capital gain distributions in cash. If you have the money sent to another
person or to a checking account, you may need a signature guarantee. To select
one of these options, please complete sections 6 and 7 of the shareholder
application included with this prospectus or tell your investment representative
which option you prefer. If you do not select an option, we will automatically
reinvest dividend and capital gain distributions in Advisor Class shares of the
Fund. For Trust Company retirement plans, special forms are required to receive
distributions in cash. You may change your distribution option at any time by
notifying us by mail or phone. Please allow at least seven days prior to the
record date for us to process the new option.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
HOW AND WHEN SHARES ARE PRICED
The Fund is open for business each day the NYSE is open. We determine the Net
Asset Value per share of each class as of the scheduled close of the NYSE,
generally 1:00 p.m. Pacific time. You can find the prior day's closing Net Asset
Value and Offering Price for each class in many newspapers.
The Net Asset Value of all outstanding shares of each class is calculated on a
pro rata basis. It is based on each class' proportionate participation in the
Fund, determined by the value of the shares of each class. To calculate Net
Asset Value per share of each class, the assets of each class are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares of the class outstanding. The Fund's assets are
valued as described under "How are Fund Shares Valued?" in the SAI.
THE PRICE WE USE WHEN YOU BUY OR SELL SHARES
You buy shares of Advisor Class at the Net Asset Value per share. We calculate
it to two decimal places using standard rounding criteria. You also sell shares
at Net Asset Value.
We will use the Net Asset Value next calculated after we receive your
transaction request in proper form. If you buy or sell shares through your
Securities Dealer, however, we will use the Net Asset Value next calculated
after your Securities Dealer receives your request, which is promptly
transmitted to the Fund. Your redemption proceeds will not earn interest between
the time we receive the order from your dealer and the time we receive any
required documents.
PROPER FORM
An order to buy shares is in proper form when we receive your signed shareholder
application and check. Written requests to sell or exchange shares are in proper
form when we receive written instructions signed by all registered owners, with
a signature guarantee if necessary. We must also receive any outstanding share
certificates for those shares.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:
o Your name,
o The Fund's name,
o The class of shares,
o A description of the request,
o For exchanges, the name of the fund you're exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the evening if
preferred.
SIGNATURE GUARANTEES
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered owners,
3) The proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature and may be
obtained from certain banks, brokers or other eligible guarantors. You should
verify that the institution is an eligible guarantor prior to signing. A
notarized signature is not sufficient.
SHARE CERTIFICATES
We will credit your shares to your Fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate is
lost, stolen or destroyed, you may have to pay an insurance premium of up to 2%
of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the Fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form. In this case, you should send the certificate and assignment
form in separate envelopes.
TELEPHONE TRANSACTIONS
You may initiate many transactions by phone. Please refer to the sections of
this prospectus that discuss the transaction you would like to make or call
Shareholder Services.
When you call, we will request personal or other identifying information to
confirm that instructions are genuine. We will also record calls. We will not be
liable for following instructions communicated by telephone if we reasonably
believe they are genuine. For your protection, we may delay a transaction or not
implement one if we are not reasonably satisfied that the instructions are
genuine. If this occurs, we will not be liable for any loss.
Trust Company Retirement Plan Accounts. You may not sell shares or change
distribution options on Trust Company retirement plans by phone. While you may
exchange shares of Trust Company IRA and 403(b) retirement accounts by phone,
certain restrictions may be imposed on other retirement plans.
To obtain any required forms or more information about distribution or transfer
procedures, please call our Retirement Plans Department.
ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS
When you open an account, you need to tell us how you want your shares
registered. How you register your account will affect your ownership rights and
ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
Joint Ownership. If you open an account with two or more owners, we register the
account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or more
owners, all owners must sign instructions to process transactions and changes to
the account. Even if the law in your state says otherwise, you will not be able
to change owners on the account unless all owners agree in writing. If you would
like another person or owner to sign for you, please send us a current power of
attorney.
Gifts and Transfers to Minors. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this form
of registration, a minor may not be named as an account owner.
Trusts. If you register your account as a trust, you should have a valid written
trust document to avoid future disputes or possible court action over who owns
the account.
Required Documents. For corporate, partnership and trust accounts, please send
us the following documents when you open your account. This will help avoid
delays in processing your transactions while we verify who may sign on the
account.
TYPE OF ACCOUNT DOCUMENTS REQUIRED
Corporation Corporate Resolution
Partnership 1. The pages from the partnership agreement that
identify the general partners, or
2. A certification for a partnership agreement
Trust 1. The pages from the trust document that identify the
trustees, or
2. A certification for trust
Street or Nominee Accounts. If you have Fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the shares
to the street or nominee name account of another Securities Dealer. Both dealers
must have an agreement with Distributors or we will not process the transfer.
Contact your Securities Dealer to initiate the transfer. We will process the
transfer after we receive authorization in proper form from your delivering
Securities Dealer. Accounts may be transferred electronically through the NSCC.
For accounts registered in street or nominee name, we may take instructions
directly from the Securities Dealer or your nominee.
Electronic Instructions. If there is a Securities Dealer or other representative
of record on your account, we are authorized to use and execute electronic
instructions received directly from your dealer or representative without
further inquiry. Electronic instructions may be processed through the services
of the NSCC, which currently include the NSCC's "Networking," "Fund/SERV," and
"ACATS" systems, or through Franklin/Templeton's PCTrades II(TM) System.
TAX IDENTIFICATION NUMBER
For tax reasons, we must have your correct Social Security or tax identification
number on a signed shareholder application or applicable tax form. Federal law
requires us to withhold 31% of your taxable distributions and sale proceeds if
(i) you have not furnished a certified correct taxpayer identification number,
(ii) you have not certified that withholding does not apply, (iii) the IRS or a
Securities Dealer notifies the Fund that the number you gave us is incorrect, or
(iv) you are subject to backup withholding.
We may refuse to open an account if you fail to provide the required tax
identification number and certifications. We may also close your account if the
IRS notifies us that your tax identification number is incorrect. If you
complete an "awaiting TIN" certification, we must receive a correct tax
identification number within 60 days of your initial purchase to keep your
account open.
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is $50 or less, except for investors
under categories (d), (e), (j) and (l) under "Opening Your Account." We will do
this if the value of your account falls below this minimum because you
voluntarily sold your shares and your account has been inactive (except for the
reinvestment of distributions) for at least six months. Before we close your
account, we will notify you and give you 30 days to increase the value of your
account to at least $100.
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
AUTOMATIC INVESTMENT PLAN
Our automatic investment plan offers a convenient way to invest in the Fund.
Under the plan, you can have money transferred automatically from your checking
account to the Fund each month to buy additional shares. If you are interested
in this program, please refer to the application included with this prospectus
or contact your investment representative. The market value of the Fund's shares
may fluctuate and a systematic investment plan such as this will not assure a
profit or protect against a loss. You may discontinue the program at any time by
notifying Investor Services by mail or phone.
SYSTEMATIC WITHDRAWAL PLAN
Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or annual
basis. The value of your account must be at least $5,000 and the minimum payment
amount for each withdrawal must be at least $50. For retirement plans subject to
mandatory distribution requirements, the $50 minimum will not apply.
If you would like to establish a systematic withdrawal plan, please complete the
systematic withdrawal plan section of the shareholder application included with
this prospectus and indicate how you would like to receive your payments. You
may choose to direct your payments to buy the same class of shares of another
Franklin Templeton Fund or have the money sent directly to you, to another
person, or to a checking account. You will generally receive your payment by the
fifth business day of the month in which a payment is scheduled. Beginning with
your February 1997 payment, however, you will generally receive your payment by
the end of the month in which a payment is scheduled. When you sell your shares
under a systematic withdrawal plan, it is a taxable transaction.
You may discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying us in writing at
least seven business days before the end of the month preceding a scheduled
payment. Please see "How Do I Buy, Sell and Exchange Shares? - Systematic
Withdrawal Plan" in the SAI for more information.
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your account,
including additional purchases and dividend reinvestments. Please verify the
accuracy of your statements when you receive them.
o Financial reports of the Fund will be sent every six months. To reduce Fund
expenses, we attempt to identify related shareholders within a household and
send only one copy of a report. Call Fund Information if you would like an
additional free copy of the Fund's financial reports or an interim quarterly
report.
BROKERS AND DEALERS AND PLAN ADMINISTRATORS
You may buy and sell Fund shares through registered broker-dealers. The Fund
does not impose a sales or service charge but your broker-dealer may charge you
a transaction fee. Transaction fees and services may vary among broker-dealers,
and your broker-dealer may impose higher initial or subsequent investment
requirements than those established by the Fund. Services provided by
broker-dealers may include allowing you to establish a margin account and borrow
on the value of the Fund's shares in that account. If your broker-dealer
receives your order before pricing on a given day, the broker-dealer is required
to forward the order to the Fund before pricing closes on that day. A
broker-dealer's failure to timely forward an order may give rise to a claim by
the investor against the broker.
Third party plan administrators of tax-qualified retirement plans and other
entities may provide sub-transfer agent services to the Fund. In such cases, the
Fund may pay the third party an annual sub-transfer agency fee that is not
greater than the Fund otherwise would have paid for such services.
INSTITUTIONAL ACCOUNTS
Institutional investors will likely be required to complete an institutional
account application. There may be additional methods of opening accounts and
purchasing, redeeming or exchanging shares of the Fund available for
institutional accounts. To obtain an institutional application or additional
information regarding institutional accounts, contact Franklin Templeton
Institutional Services at 1-800/321-8563 Monday through Friday, from 6:00 a.m.
to 5:00 p.m. Pacific time.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your shares
are held by a financial institution, in a street name account, or networked
through the NSCC, the Fund may not be able to offer these services directly to
you.
Please contact your investment representative.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Investor Services
at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California 94403-7777.
The Fund, Distributors and Advisers are also located at this address. You may
also contact us by phone at one of the numbers listed below.
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.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Plans 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.
GLOSSARY
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
CD - Certificate of deposit
Class I and Advisor Class - The Fund offers two classes of shares, designated
"Class I," and "Advisor Class." The two classes have proportionate interests in
the Fund's portfolio. Class I shares are purchased with a sales charge and have
a Rule 12b-1 plan. Advisor Class shares are purchased without a sales charge and
do not have a Rule 12b-1 plan.
Code - Internal Revenue Code of 1986, as amended
Contingency Period - For Class I shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. Regardless of when during the month
you purchased shares, they will age one month on the last day of that month and
each following month.
Contingent Deferred Sales Charge (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the Contingency Period.
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Trustees."
Franklin Funds - The mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin
Government Securities Trust
Franklin Templeton Funds - The Franklin Funds and the Templeton Funds
Franklin Templeton Group - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
Franklin Templeton Group of Funds - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds
FT Services - Franklin Templeton Services, Inc., the Fund's administrator
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., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
Major Currencies - As used in this prospectus, 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.
Market Timer(s) - Market Timers generally include market timing or allocation
services, accounts administered so as to buy, sell or exchange shares based on
predetermined market indicators, or any person or group whose transactions seem
to follow a timing pattern.
Moody's - Moody's Investors Service
Mutual Series - Franklin Mutual Series Fund Inc., a member of the Franklin Group
of funds, formerly the Mutual Series Fund Inc. Each series of Mutual Series
began offering three classes of shares on November 1, 1996, Class I, Class II
and Class Z. All shares sold before that time are designated Class Z shares.
NASD - National Association of Securities Dealers, Inc.
Net Asset Value (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
Non-Major Currencies - as used in this prospectus, currencies other than the
Major Currencies that are freely convertible into one or more of the Major
Currencies.
NSCC - National Securities Clearing Corporation
NYSE - New York Stock Exchange
Offering Price - The public offering price is based on the Net Asset Value per
share of the class and includes the front-end sales charge, if applicable. The
maximum front-end sales charge is 3.0% for Class I. Advisor Class has no
front-end sales charge.
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
Securities Dealer - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
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 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
GERMAN GOVERNMENT
BOND FUND-
ADVISOR CLASS
FRANKLIN TEMPLETON GLOBAL TRUST
STATEMENT OF
ADDITIONAL INFORMATION 777 MARINERS ISLAND BLVD., P.O. BOX 7777
JANUARY 1, 1997 SAN MATEO, CA 94403-7777 1-800/DIAL BEN
Contents
How does the Fund Invest its Assets?..................
Investment Restrictions...............................
Potential Benefits of Investing in
German Government Obligations........................
Officers and Trustees.................................
Investment Management
and Other Services...................................
How does the Fund Buy Securities
for its Portfolio?...................................
How Do I Buy, Sell and Exchange Shares?...............
How are Fund Shares Valued?...........................
Additional Information on
Distributions and Taxes..............................
The Fund's Underwriter................................
How does the Fund Measure Performance?................
Miscellaneous Information.............................
Financial Statements..................................
Useful Terms and Definitions..........................
When reading this SAI, you will see certain terms beginning with capital
letters. This means the term is explained under "Useful Terms and Definitions."
The Franklin Templeton German Government Fund (the "Fund") is a non-diversified
series of Franklin Templeton Global Trust (the "Trust"), an open-end management
investment company. This SAI relates to the Advisor Class shares of the Fund.
The Fund's investment objective is total return over the long term. Total return
consists of a combination of interest income, capital appreciation and currency
gains. The Fund seeks to achieve its objective by investing in a managed
portfolio of German government bonds. The Prospectus, dated January 1, 1997, as
may be amended from time to time, contains the basic information you should know
before investing in the Fund. For a free copy, call 1-800/DIAL BEN or write the
Fund at the address shown.
Advisor Class shares are only available for purchase by certain persons,
including, among others, certain financial institutions (such as banks, trust
companies, savings institutions and credit unions); government and tax-exempt
entities; pension, profit sharing and employee benefit plans; certain qualified
groups, including family trusts, endowments, foundations and corporations;
Franklin Templeton Fund Allocator Series; and directors, trustees, officers and
full time employees (and their family members) of Franklin Templeton Group and
the Franklin Templeton Group of Funds.
The Prospectus, dated January 1, 1997, as may be amended from time to time,
contains the basic information you should know before investing in the Fund. For
a free copy, call 1-800/DIAL BEN or write the Fund at the address shown.
This 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 Prospectus.
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
O ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
O ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK;
O ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
HOW DOES THE FUND INVEST ITS ASSETS?
The following provides more detailed information about some of the securities
the Fund may buy and its investment policies. You should read it together with
the section in the 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 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 bought 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.
Some of the foreign securities may be subject to transaction taxes charged by
foreign governments. This would have the effect of increasing the cost of the
investments and reduce the realized gain or increase the realized loss on the
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. If this
happened the Fund may need 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 Investment Managers to be of comparable quality to a triple A rated
instrument.
The Fund is permitted to invest in Pfandbriefe, both directly through those
issued by the German mortgage banks, known as Offentliche Pfandbriefe or in
alternative form as in global Pfandbriefe, which are single 144A book entry
bonds that represent a pool of underlying public sector Pfandbriefe and track
the ownership interest of all U.S. investors in the pool.
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 Investment Managers to
be of comparable quality to a triple A rated instrument; and (ii) cash and money
market instruments denominated in the German mark rated at time of purchase A-1+
by S&P and/or P-1 by Moody's or 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. The Fund may, however, enter into forward
currency contracts in combination with money market instruments to obtain an
investment result that is essentially the same as a direct investment in a
foreign currency-denominated instrument. A forward currency contract is an
agreement to buy or sell a specified currency at a specified future date and
price set at the time of the contract. Although not a fundamental policy, the
Fund does not currently intend to 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 essentially the same as 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 completion 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 the 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. Under certain
circumstances, the Fund may have to limit currency transactions to qualify as a
regulated investment company under 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 after enter
into a new forward contract to sell the currency. If 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. If 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 ones
described above. The Fund is not required to enter into forward contracts, and
will not do so unless deemed appropriate by the 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 the Fund can achieve at some future point in time. In addition,
although forward contracts tend to minimize the risk of loss due to fluctuations
in the value of the hedged currency, they also tend to limit any potential gain
that might result from the change in the value of the currency.
Because the Fund invests primarily in debt securities denominated in German
marks, it may hold German marks pending investment in such instruments or
conversion into U.S. dollars. Although the Fund values its assets daily, 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 induce policies with an
exchange rate target as the goal.
Illiquid Investments. The Board has authorized the Fund to invest in restricted
securities where the investment is consistent with the Fund's investment
objective and has authorized these securities to be considered liquid to the
extent the Investment Managers determine that there is a liquid institutional or
other market for these securities, for example, restricted securities which may
be freely transferred among qualified institutional buyers pursuant to Rule 144A
under the 1933 Act and for which a liquid institutional market has developed.
The Board reviews any determination by the Investment Managers to treat a
restricted security as liquid on a quarterly basis, including the Investment
Managers' assessment of current trading activity and the availability of
reliable price information. In determining whether a restricted security is
properly considered a liquid security, the Investment Managers and the Board
will take into account the following factors: (i) the frequency of trades and
quotes for the security; (ii) the number of dealers willing to buy or sell the
security and the number of other potential purchasers; (iii) dealer undertakings
to make a market in the security; and (iv) the nature of the security and the
nature of the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers and the mechanics of transfer). To the
extent the Fund invests in restricted securities that are deemed liquid, the
general level of illiquidity in the Fund may be increased if qualified
institutional buyers become uninterested in purchasing these securities or the
market for these securities contracts.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions as fundamental policies. These
restrictions may not be changed without the approval of a majority of the
outstanding voting securities of the Fund. Under the 1940 Act, this means the
approval of (i) more than 50% of the outstanding shares of the Fund or (ii) 67%
or more of the shares of the Fund present at a shareholder meeting if more than
50% of the outstanding shares of the Fund are represented at the meeting in
person or by proxy, whichever is less. The Fund may not:
1. 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. 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.
7. 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 Board, including maintenance of collateral of the
borrower equal at all times to at least the current market value of the
securities loaned.
8. 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.
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) (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.
10. Invest in companies for the purpose of exercising control.
11. Invest in securities of other investment companies.
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.
13. 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.
14. 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 is met at the time of investment, a later increase
or decrease in the percentage due to a change in value of the portfolio
securities or the amount of assets will not be considered a violation of any of
the foregoing restrictions.
POTENTIAL BENEFITS OF INVESTING
IN GERMAN GOVERNMENT OBLIGATIONS
As a general principle, the Investment Managers 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 equal 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. When available, however, 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 loss,
depending on the future movement of currency exchange rates, among other things.
OFFICERS AND TRUSTEES
The Board has the responsibility for the overall management of the Fund,
including general supervision and review of its investment activities. The
Board, in turn, elects the officers of the Fund who are responsible for
administering the Fund's day-to-day operations. The affiliations of the officers
and Board members and their principal occupations for the past five years are
shown below. Members of the Board who are considered "interested persons" of the
Fund under the 1940 Act are indicated by an asterisk (*).
Frank H. Abbott, III (75) 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 (64) 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 55 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 (64) 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 57 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 (38) 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 (55) 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 56 of the investment companies in
the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (56) 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 60 of the
investment companies in the Franklin
Templeton Group of Funds.
David P. Kraus (39) 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 (67) 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, trustee or
managing general partner, as the case
may be, of 26 of the investment
companies in the Franklin Group of
Funds.
Gordon S. Macklin (68) 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 Source One Mortgage
Services Corporation (information
services); and director, trustee or
managing general partner, as the case
may be, of 52 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 60 of the
investment companies in the Franklin
Templeton Group of Funds.
Kenneth V. Domingues (64) 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 (36) 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 60 of
the investment companies in the
Franklin Templeton Group of Funds.
Deborah R. Gatzek (48) Vice President
777 Mariners Island Blvd. and Secretary
San Mateo, CA 94404
Senior Vice President and General
Counsel, Franklin Resources, Inc.;
Senior Vice President, Franklin
Templeton Distributors, Inc.; Vice
President, Franklin Advisers, Inc. and
officer of 60 of the investment
companies in the Franklin Group of
Funds.
Charles E. Johnson (40) 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 39 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 (59) 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 table above shows the officers and Board members who are affiliated with
Distributors and The Investment Managers. Nonaffiliated members of the Board are
currently paid $800 per year plus $800 per meeting attended. As shown above,
some of the nonaffiliated Board members also serve as directors, trustees or
managing general partners of other investment companies in the Franklin
Templeton Group of Funds. They may receive fees from these funds for their
services. The following table provides the total fees paid to nonaffiliated
Board members by the Trust and by other funds in the Franklin Templeton Group of
Funds.
Number of Boards
Total Fees in the Franklin
Total Fees Received from the Templeton Group
Received from Franklin Templeton of Funds on Which
Name the Trust Group of Funds** Each Serves***
Frank H. Abbott, III.......... $5,000 $162,420 31
Harris J. Ashton.............. 5,000 327,925 55
David K. Eiteman.............. 3,400 2,400 1
S. Joseph Fortunato........... 5,000 344,745 57
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 52
*For the fiscal year ended October 31, 1995.
**For the calendar year ended December 31, 1995.
***We base the number of boards on the number of registered investment companies
in the Franklin Templeton Group of Funds. This number does not include the total
number of series or funds within each investment company for which the Board
members are responsible. The Franklin Templeton Group of Funds currently
includes 61 registered investment companies, with approximately 171 U.S. based
funds or series.
Nonaffiliated members of the Board 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 Board member received any other
compensation, including pension or retirement benefits, directly or indirectly
from the Fund or other funds in the Franklin Templeton Group of Funds. Certain
officers or Board members who are shareholders of Resources may be deemed to
receive indirect remuneration by virtue of their participation, if any, in the
fees paid to its subsidiaries.
As of December 6, 1996, the officers and Board members, as a group, owned of
record and beneficially the following shares of the Fund: approximately 65 Class
I shares, or less than 1% of the total outstanding Class I shares of the Fund.
Many of the Board members also own shares in other funds in the Franklin
Templeton Group of Funds. Charles B. Johnson and Rupert H. Johnson, Jr. are
brothers and the father and uncle, respectively, of Charles E. Johnson.
INVESTMENT MANAGEMENT
AND OTHER SERVICES
Investment Managers and Services Provided. The Fund's investment manager is
Advisers. The sub-advisor of the Fund is TICI. The Investment Managers provide
investment research and portfolio management services, including the selection
of securities for the Fund to buy, hold or sell and the selection of brokers
through whom the Fund's portfolio transactions are executed. The Investment
Managers' activities are subject to the review and supervision of the Board to
whom they render periodic reports of the Fund's investment activities. Advisers
is covered by fidelity insurance on its officers, directors and employees for
the protection of the Fund.
The Investment Managers and their affiliates act as investment managers to
numerous other investment companies and accounts. The Investment Managers may
give advice and take action with respect to any of the other funds they manage,
or for their own account, that may differ from action taken by them on behalf of
the Fund. Similarly, with respect to the Fund, the Investment Managers are not
obligated to recommend, buy or sell, or to refrain from recommending, buying or
selling any security that they and access persons, as defined by the 1940 Act,
may buy or sell for their own account or for the accounts of any other fund. The
Investment Managers are not obligated to refrain from investing in securities
held by the Fund or other funds that they manage. Of course, any transactions
for the accounts of the Investment Managers and other access persons will be
made in compliance with the Trust's Code of Ethics. Please see "Miscellaneous
Information - Summary of Code of Ethics."
Management Fees. Under its management agreement, the Fund pays Advisers a
management fee equal to an annual rate of 0.55% of the value of the average
daily net assets of the Fund. The fee is computed at the close of business on
the first business day of each month. Each class pays its proportionate share of
the management fee. Under the sub-advisory agreement, Advisers pays TICI a
sub-advisory fee, in U.S. dollars, equal to an annual rate of 0.25% of the value
of the average daily net assets of the Fund. This fee is not a separate expense
of the Fund but is paid by Advisers from the management fees it receives from
the Fund. TICI pays all expenses incurred by it through its activities under the
sub-advisory agreement with Advisers, other than the cost of securities
purchased for each Fund and brokerage commissions in connection with these
purchases.
Advisers has agreed in advance to waive or limit its management fees in order to
limit the expenses of the Fund to 1.25% of its average monthly net assets. 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. Management fees
paid by the Fund for the six-month period ended April 30, 1996 was $66,305.
Management Agreement. The management agreement is in effect until July 31, 1998.
It may continue in effect for successive annual periods thereafter if its
continuance is specifically approved at least annually by a vote of the Board or
by a vote of the holders of a majority of the Fund's outstanding voting
securities, and in either event by a majority vote of the Board members who are
not parties to the management agreement or interested persons of any such party
(other than as members of the Board), cast in person at a meeting called for
that purpose. The 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 Advisers on 60 days' written notice, and
will automatically terminate in the event of its assignment, as defined in the
1940 Act. The sub-advisory agreement may be terminated without penalty at any
time by the Board or by vote of the holders of a majority of the Fund's
outstanding voting securities, or by either Advisers or TICI on not less than 60
days' written notice, and will automatically terminate in the event of its
assignment, as defined in the 1940 Act.
Administrative Services. Under an agreement with Advisers, FT Services provides
certain administrative services and facilities for the Fund. These include
preparing and maintaining books, records, and tax and financial reports, and
monitoring compliance with regulatory requirements. FT Services is a wholly
owned subsidiary of Resources.
Under its administration agreement, Advisers pays FT Services a monthly
administration fee equal to an annual rate of 0.15% of the Fund's average daily
net assets up to $200 million, 0.135% of average daily net assets over $200
million up to $700 million, 0.10% of average daily net assets over $700 million
up to $1.2 billion, and 0.075% of average daily net assets over $1.2 billion.
The fee is paid by Advisers. It is not a separate expense of the Fund.
Shareholder Servicing Agent. Investor Services, a wholly-owned subsidiary of
Resources, is the Fund's shareholder servicing agent 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.
Custodians. 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.
Auditors. 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 fiscal year ended October 31, 1995. Advisor Class shares of
the Fund were not offered to the public before January 1, 1997.
Prior Services. 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.
HOW DOES THE FUND BUY
SECURITIES FOR ITS PORTFOLIO?
The selection of brokers and dealers to execute transactions in the Fund's
portfolio is made by the Investment Managers in accordance with criteria set
forth in the management agreement and any directions that 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 Investment Managers seek to obtain
prompt execution of orders at the most favorable net price. When portfolio
transactions are done on a securities exchange, the amount of commission paid by
the Fund is negotiated between the Investment Managers and the broker executing
the transaction. The determination and evaluation of the reasonableness of the
brokerage commissions paid in connection with portfolio transactions are based
to a large degree on the professional opinions of the persons responsible for
the placement and review of the transactions. These opinions are based on the
experience of these individuals in the securities industry and information
available to them about the level of commissions being paid by other
institutional investors of comparable size. The Investment Managers will
ordinarily place orders to buy and sell over-the-counter securities on a
principal rather than agency basis with a principal market maker unless, in the
opinion of the 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.
The amount of commission is not the only factor the Investment Managers consider
in the selection of a broker to execute a trade. If the Investment Managers
believe it is in the Fund's best interest, the Investment Managers 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 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 Fund or assist the Investment
Managers in carrying out its responsibilities to the Fund, or when it is
otherwise in the best interest of the Fund to do so, whether or not such
services may also be useful to the Investment Managers in advising other
clients.
When the Investment Managers believe several brokers are equally able to provide
the best net price and execution, they may decide to execute transactions
through brokers who provide quotations and other services to the Fund, in an
amount of total brokerage as may reasonably be required in light of these
services. Specifically, these services may include providing the quotations
necessary to determine the Fund's Net Asset Value, as well as research,
statistical and other data.
It is not possible to place a dollar value on the special executions or on the
research services received by the Investment Managers from dealers effecting
transactions in portfolio securities. The allocation of transactions in order to
obtain additional research services permits the 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 Investment Managers and their
affiliates may use this research and data in their investment advisory
capacities with other clients. If the Fund's officers are satisfied that the
best execution is obtained, consistent with internal policies the sale of Fund
shares, as well as shares of other funds in the Franklin Templeton Group of
Funds, may also be considered a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
Because Distributors is a member of the NASD, it may sometimes receive certain
fees when the Fund tenders portfolio securities pursuant to a tender-offer
solicitation. As a means of recapturing brokerage for the benefit of the Fund,
any portfolio securities tendered by the Fund will be tendered through
Distributors if it is legally permissible to do so. In turn, the next management
fee payable to Advisers will be reduced by the amount of any fees received by
Distributors in cash, less any costs and expenses incurred in connection with
the tender.
If purchases or sales of securities of the Fund and one or more other investment
companies or clients supervised by the Investment Managers are considered at or
about the same time, transactions in these securities will be allocated among
the several investment companies and clients in a manner deemed equitable to all
by the Investment Managers, taking into account the respective sizes of the
funds and the amount of securities to be purchased or sold. In some cases this
procedure could have a detrimental effect on the price or volume of the security
so far as the Fund is concerned. In other cases it is possible that the ability
to participate in volume transactions and to negotiate lower brokerage
commissions will be beneficial to the Fund.
During the fiscal year ended April 30, 1994, the period ended October 31, 1994,
the fiscal year ended October 31, 1995 and the six-month period ended April 30,
1996, 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, SELL AND EXCHANGE SHARES?
ADDITIONAL INFORMATION ON BUYING SHARES
Securities laws of states where the Fund offers
its shares may differ from federal law. Banks and financial institutions that
sell shares of the Fund may be required by state law to register as Securities
Dealers.
When you buy shares, if you submit a check or a draft that is returned unpaid to
the Fund we may impose a $10 charge against your account for each returned item.
Distributors and/or its affiliates provide financial support to various
Securities Dealers that sell shares of the Franklin Templeton Group of Funds.
This support is based primarily on the amount of sales of fund shares. The
amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a Securities Dealer's sales and marketing efforts
in the Franklin Templeton Group of Funds; a Securities Dealer's support of, and
participation in, Distributors' marketing programs; a Securities Dealer's
compensation programs for its registered representatives; and the extent of a
Securities Dealer's marketing programs relating to the Franklin Templeton Group
of Funds. Financial support to Securities Dealers may be made by payments from
Distributors' resources, from Distributors' retention of underwriting
concessions and, in the case of funds that have Rule 12b-1 plans, from payments
to Distributors under such plans. In addition, certain Securities Dealers may
receive brokerage commissions generated by fund portfolio transactions in
accordance with the NASD's rules.
Reinvestment Date. Shares acquired through the reinvestment of dividends will be
purchased at the Net Asset Value determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The processing
date for the reinvestment of dividends may vary and does not affect the amount
or value of the shares acquired.
ADDITIONAL INFORMATION ON EXCHANGING SHARES
If you request the exchange of the total value of your account, declared but
unpaid income dividends and capital gain distributions will be exchanged into
the new fund and will be invested at Net Asset Value. Backup withholding and
information reporting may apply. Information regarding the possible tax
consequences of an exchange is included in the tax section in this SAI and in
the Prospectus.
If a substantial number of shareholders should, within a short period, sell
their shares of the Fund under the exchange privilege, the Fund might have to
sell portfolio securities it might otherwise hold and incur the additional costs
related to such transactions. On the other hand, increased use of the exchange
privilege may result in periodic large inflows of money. If this occurs, it is
the Fund's general policy to initially invest this money in U.S. short-term,
interest-bearing money market instruments, unless it is believed that attractive
investment opportunities consistent with the Fund's investment objective exist
immediately. This money will then be withdrawn from the U.S. short-term money
market instruments and invested in portfolio securities in as orderly a manner
as is possible when attractive investment opportunities arise.
The proceeds from the sale of shares of an investment company are generally not
available until the fifth business day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange until
that fifth business day. The sale of Fund shares to complete an exchange will be
effected at Net Asset Value at the close of business on the day the request for
exchange is received in proper form. Please see "May I Exchange Shares for
Shares of Another Fund?" in the Prospectus.
ADDITIONAL INFORMATION ON SELLING SHARES
Systematic Withdrawal Plan. There are no service charges for establishing or
maintaining a systematic withdrawal plan. Once your plan is established, any
distributions paid by the Fund will be automatically reinvested in your account.
Payments under the plan will be made from the redemption of an equivalent amount
of shares in your account, generally on the first business day of the month in
which a payment is scheduled before February 1997 and on the 25th day of the
month beginning with your February 1997 payment. If the 25th falls on a weekend
or holiday, we will process the redemption on the prior business day.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you. Because the amount
withdrawn under the plan may be more than your actual yield or income, part of
the payment may be a return of your investment.
The Fund may discontinue a systematic withdrawal plan by notifying you in
writing and will automatically discontinue a systematic withdrawal plan if all
shares in your account are withdrawn or if the Fund receives notification of the
shareholder's death or incapacity.
Through Your Securities Dealer. If you sell shares through your Securities
Dealer, it is your dealer's responsibility to transmit the order to the Fund in
a timely fashion. Any loss to you resulting from your dealer's failure to do so
must be settled between you and your Securities Dealer.
Redemptions in Kind. The Fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the Fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior approval of the SEC. In the case of redemption
requests in excess of these amounts, the Board reserves the right to make
payments in whole or in part in securities or other assets of the Fund, in case
of an emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of the Fund. In these circumstances,
the securities distributed would be valued at the price used to compute the
Fund's net assets and you may incur brokerage fees in converting the securities
to cash. The Fund does not intend to redeem illiquid securities in kind. If this
happens, however, you may not be able to recover your investment in a timely
manner.
GENERAL INFORMATION
If dividend checks are returned to the Fund marked "unable to forward" by the
postal service, we will consider this a request by you to change your dividend
option to reinvest all distributions. The proceeds will be reinvested in
additional shares at Net Asset Value until we receive new instructions.
If mail is returned as undeliverable or we are unable to locate you or verify
your current mailing address, we may deduct the costs of our efforts to find you
from your account. These costs may include a percentage of the account when a
search company charges a percentage fee in exchange for its location services.
All checks, drafts, wires and other payment mediums used to buy or sell shares
of the Fund must be denominated in U.S. dollars. We may, in our sole discretion,
either (a) reject any order to buy or sell shares denominated in any other
currency or (b) honor the transaction or make adjustments to your account for
the transaction as of a date and with a foreign currency exchange factor
determined by the drawee bank.
Special Services. The Franklin Templeton Institutional Services Department
provides specialized services, including recordkeeping, for institutional
investors. The cost of these services is not borne by the Fund.
Investor Services may pay certain financial institutions that maintain omnibus
accounts with the Fund on behalf of numerous beneficial owners for recordkeeping
operations performed with respect to such owners. For each beneficial owner in
the omnibus account, the Fund may reimburse Investor Services an amount not to
exceed the per account fee that the Fund normally pays Investor Services. These
financial institutions may also charge a fee for their services directly to
their clients.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
HOW ARE FUND SHARES VALUED?
We calculate the Net Asset Value per share of each class as of the scheduled
close of the NYSE, generally 1:00 p.m. Pacific time, each day that the NYSE is
open for trading. As of the date of this SAI, the Fund is informed that the NYSE
observes the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
For the purpose of determining the aggregate net assets of the Fund, cash and
receivables are valued at their realizable amounts. Interest is recorded as
accrued and dividends are recorded on the ex-dividend date. Portfolio securities
listed on a securities exchange or on the NASDAQ National Market System for
which market quotations are readily available are valued at the last quoted sale
price of the day or, if there is no such reported sale, within the range of the
most recent quoted bid and ask prices. Over-the-counter portfolio securities are
valued within the range of the most recent quoted bid and ask prices. Portfolio
securities that are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market as
determined by the Investment Managers.
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 before the time when
assets are valued. Lacking any sales that day or if the last sale price is
outside the bid and ask prices, options are valued within the range of the
current closing bid and ask prices if the valuation is believed to fairly
reflect the contract's market value.
The value of a foreign security is determined as of the close of trading on the
foreign exchange on which it is traded or as of the scheduled close of trading
on the NYSE, if that is earlier. The value is then converted into its U.S.
dollar equivalent at the foreign exchange rate in effect at noon, New York time,
on the day the value of the foreign security is determined. If no sale is
reported at that time, the mean between the current bid and ask prices is used.
Occasionally events that affect the values of foreign securities and foreign
exchange rates may occur between the times at which they are determined and the
close of the exchange and will, therefore, not be reflected in the computation
of the Net Asset Value of each class. If events materially affecting the values
of these foreign securities occur during this period, the securities will be
valued in accordance with procedures established by the Board.
Generally, trading in U.S. government securities and money market instruments is
substantially completed each day at various times before the scheduled close of
the NYSE. The value of these securities used in computing the Net Asset Value of
each class is determined as of such times. Occasionally, events affecting the
values of these securities may occur between the times at which they are
determined and the scheduled close of the NYSE that will not be reflected in the
computation of the Net Asset Value of each class. If events materially affecting
the values of these securities occur during this period, the securities will be
valued at their fair value as determined in good faith by the Board.
Other securities for which market quotations are readily available are valued at
the current market price, which may be obtained from a pricing service, based on
a variety of factors including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific issues. Securities and other assets for which
market prices are not readily available are valued at fair value as determined
following procedures approved by the Board. With the approval of the Board, the
Fund may utilize a pricing service, bank or Securities Dealer to perform any of
the above described functions.
ADDITIONAL INFORMATION ON
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
You may receive two types of distributions from the Fund:
1. Income dividends. The Fund receives income generally in the form of interest
and other income derived from its investments. This income, less the expenses
incurred in the Fund's operations, is its net investment income from which
income dividends may be distributed. Thus, the amount of dividends paid per
share may vary with each distribution.
2. Capital gain distributions. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any capital loss carryforward or post October
loss deferral) may generally be made once a year in December to reflect any net
short-term and net long-term capital gains realized by the Fund as of October 31
of the current fiscal year and any undistributed capital gains from the prior
fiscal year. The Fund may make more than one distribution derived from net
short-term and net long-term capital gains in any year or adjust the timing of
these distributions for operational or other reasons.
TAXES
As stated in the Prospectus, the Fund has elected and qualified to be treated as
a regulated investment company under Subchapter M of the Code. The Board
reserves the right not to maintain the qualification of the Fund as a regulated
investment company if it determines this course of action to be beneficial to
shareholders. In that case, the Fund will be subject to federal and possibly
state corporate taxes on its taxable income and gains, and distributions to
shareholders will be taxable to the extent of the Fund's available earnings and
profits.
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 you until the following January, will be treated for
tax purposes as if paid by the Fund and received by you 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 buying 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 you reinvest the sales proceeds 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 the
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 advisor concerning the tax rules applicable to the sale or exchange of
fund shares.
All or a portion of a loss realized upon a redemption of shares will be
disallowed to the extent you buy other shares of the Fund (through reinvestment
of dividends or otherwise) within 30 days before or after the redemption. Any
loss disallowed under these rules will be added to your 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 or
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, Distributors acts as principal
underwriter in a continuous public offering for each class of the Fund's shares.
The underwriting agreement will continue in effect for successive annual periods
if its continuance is specifically approved at least annually by a vote of the
Board or by a vote of the holders of a majority of the Fund's outstanding voting
securities, and in either event by a majority vote of the Board members who are
not parties to the underwriting agreement or interested persons of any such
party (other than as members of the Board), cast in person at a meeting called
for that purpose. The underwriting agreement terminates automatically in the
event of its assignment and may be terminated by either party on 90 days'
written notice.
Distributors pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The Fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
Distributors will not receive compensation from the Fund for acting as
underwriter with respect to the Advisor Class shares.
HOW DOES THE FUND MEASURE PERFORMANCE?
Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Fund be accompanied by
certain standardized performance information computed as required by the SEC.
Average annual total return and current yield quotations used by the Fund are
based on the standardized methods of computing performance mandated by the SEC.
If a Rule 12b-1 plan is adopted, performance figures reflect fees from the date
of the plan's implementation. An explanation of these and other methods used by
the Fund to compute or express performance for the Advisor Class shares follows.
For any period prior to January 1, 1997, the standardized performance quotations
for Advisor Class will be calculated by substituting the performance of Class I
for the relevant time period, and excluding the effect of the maximum sales
charge and including the effect of Rule 12b-1 fees applicable to Class I.
Regardless of the method used, past performance does not guarantee future
results, and is an indication of the return to shareholders only for the limited
historical period used.
TOTAL RETURN
Average Annual Total Return. Average annual total return is determined by
finding the average annual rates of return over one-, five- and ten-year
periods, or fractional portion thereof, that would equate an initial
hypothetical $1,000 investment to its ending redeemable value. The calculation
assumes income dividends and capital gain distributions are reinvested at Net
Asset Value. The quotation assumes the account was completely redeemed at the
end of each one-, five- and ten-year period and the deduction of all applicable
charges and fees. The average annual total return for Advisor Class shares for
the one-year periods ended May 31, 1996 and the period from inception (12/31/92)
to April 30, 1996 would have been -0.87% and 9.19%.
These rates of return will be 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)
Cumulative Total Return. The Fund may also quote the cumulative total return for
each class, in addition to the average annual total return. These quotations are
computed the same way, except the cumulative total return will be based on the
actual return for each class for a specified period rather than on the average
return over one-, five- and ten-year periods, or fractional portion thereof. The
cumulative total return for Advisor Class shares for the one-year period ended
April 30, 1996 and for the period from inception (12/31/92) to April 30, 1996
would have been -0.87% and 34.07%.
YIELD
Current Yield. Current yield of each class shows the income per share earned by
the Fund. It is calculated by dividing the net investment income per share of
each class earned during a 30-day base period by the Net Asset Value 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 of the class during the
base period. The yield for the 30-day period ended May 31, 1996 for the Advisor
Class shares would have been 4.30%.
These rates of return will be calculated 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 Net Asset Value 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 a
class. Amounts paid to shareholders are reflected in the quoted current
distribution rate. For Advisor Class, the current distribution rate is usually
computed by annualizing the dividends paid per share by the class during a
certain period and dividing that amount by the current Net Asset Value. The
current distribution rate differs from the current yield computation because it
may include distributions to shareholders from sources other than interest, such
as premium income from option writing and short-term capital gains and is
calculated over a different period of time. The current distribution rate for
the 30-day period ended May 31, 1996 for the Advisor Class shares would have
been 5.56%.
VOLATILITY
Occasionally statistics may be used to show the Fund's volatility or risk.
Measures of volatility or risk are generally used to compare the Fund's Net
Asset Value or performance to a market index. One measure of volatility is beta.
Beta is the volatility of a fund relative to the total market, as represented by
an index considered representative of the types of securities in which the fund
invests. A beta of more than 1.00 indicates volatility greater than the market
and a beta of less than 1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation. Standard deviation is used
to measure variability of Net Asset Value or total return around an average over
a specified period of time. The idea is that greater volatility means greater
risk undertaken in achieving performance.
OTHER PERFORMANCE QUOTATIONS
For any period prior to January 1, 1997, sales literature about Advisor Class
may quote a current distribution rate, yield, cumulative total return, average
annual total return and other measures of performance as described elsewhere in
this SAI by substituting the performance of Class I for the relevant time period
and excluding the effect of the maximum sales charge and Rule 12b-1 fees
applicable to Class I.
Sales literature referring to the use of the Fund
as a potential investment for Individual Retirement Accounts (IRAs), Business
Retirement Plans, and other tax-advantaged retirement plans may quote a total
return based upon compounding of dividends on which it is presumed no federal
income tax applies.
The Fund may include in its advertising or sales material information relating
to investment objectives and performance results of funds belonging to the
Franklin Templeton Group of Funds. Resources is the parent company of the
advisors and underwriter of both the Franklin Group of Funds and Templeton Group
of Funds.
COMPARISONS
To help you better evaluate how an investment in the Fund may satisfy your
investment objective, advertisements and other materials about the Fund may
discuss certain measures of each class' 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.
These 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 NYSE composite or component indices - an unmanaged index of all
industrial, utilities, transportation, and finance stocks listed on the NYSE.
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 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 mutual 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.
n) Morningstar - information published by Morningstar, Inc., including
Morningstar proprietary mutual fund ratings. The ratings reflect Morningstar's
assessment of the historical risk adjusted performance of a fund over specified
time periods relative to other funds within its category.
From time to time, advertisements or information for the Fund may include a
discussion of certain attributes or benefits to be derived from an investment in
the Fund. The advertisements or information may include symbols, headlines, or
other material that highlights or summarizes the information discussed in more
detail in the communication.
Advertisements or information may also compare the performance of Advisor Class
to the return on CDs or other investments. You should be aware, however, that an
investment in the Fund involves the risk of fluctuation of principal value, a
risk generally not present in an investment in a CD issued by a bank. For
example, as the general level of interest rates rise, the value of the Fund's
fixed-income investments, as well as the value of its shares that are based upon
the value of such portfolio investments, can be expected to decrease.
Conversely, when interest rates decrease, the value of the Fund's shares can be
expected to increase. CDs are frequently insured by an agency of the U.S.
government. An investment in the Fund is not insured by any federal, state or
private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the Fund to calculate its figures. In addition,
there can be no assurance that the Fund will continue its performance as
compared to these other averages.
MISCELLANEOUS INFORMATION
The Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis in order to have
a projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by the
College Board.) The Franklin Retirement Planning Guide leads you through the
steps to start a retirement savings program. Of course, an investment in the
Fund cannot guarantee that these goals will be met.
The Fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 48 years and
now services more than 2.5 million shareholder accounts. In 1992, Franklin, a
leader in managing fixed-income mutual funds and an innovator in creating
domestic equity funds, joined forces with Templeton Worldwide, Inc., a pioneer
in international investing. Together, the Franklin Templeton Group has over $152
billion in assets under management for more than 4.2 million U.S. based mutual
fund shareholder and other accounts. The Franklin Templeton Group of Funds
offers 121 U.S. based open-end investment companies to the public. The Fund may
identify itself by its NASDAQ symbol or CUSIP number.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one in
service quality for five of the past eight years.
From time to time, the number of Fund shares held in the "street name" accounts
of various Securities Dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding. To the
best knowledge of the Fund, no other person holds beneficially or of record more
than 5% of the Fund's outstanding Advisor Class shares.
In the event of disputes involving multiple claims of ownership or authority to
control your account, the Fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all persons deemed by
the Fund to have a potential property interest in the account, prior to
executing instructions regarding the account; (b) interplead disputed funds or
accounts with a court of competent jurisdiction; or (c) surrender ownership of
all or a portion of the account to the IRS in response to a Notice of Levy.
Summary of Code of Ethics. Employees of Resources or its subsidiaries who are
access persons under the 1940 Act are permitted to engage in personal securities
transactions subject to the following general restrictions and procedures: (i)
the trade must receive advance clearance from a compliance officer and must be
completed within 24 hours after clearance; (ii) copies of all brokerage
confirmations must be sent to a compliance officer and, within 10 days after the
end of each calendar quarter, a report of all securities transactions must be
provided to the compliance officer; and (iii) access persons involved in
preparing and making investment decisions must, in addition to (i) and (ii)
above, file annual reports of their securities holdings each January and inform
the compliance officer (or other designated personnel) if they own a security
that is being considered for a fund or other client transaction or if they are
recommending a security in which they have an ownership interest for purchase or
sale by a fund or other client.
FINANCIAL STATEMENTS
The audited financial statements contained in the Annual Report to Shareholders
of the Trust, for the fiscal year ended October 31, 1995, including the
auditors' report, and the unaudited financial statements contained in the
Semiannual Report to Shareholders of the Trust for the six-month period ended
April 30, 1996, are incorporated herein by reference. These financial statements
do not include information for Advisor Class as these shares were not publicly
offered prior to the date of this SAI.
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
CD - Certificate of deposit
Class I and Advisor Class - The Fund offers two classes of shares, designated
"Class I," and "Advisor Class." The two classes have proportionate interests in
the Fund's portfolio. Class I shares are purchased with a sales charge and have
a Rule 12b-1 plan. Advisor Class shares are purchased without a sales charge and
do not have a Rule 12b-1 plan.
Code - Internal Revenue Code of 1986, as amended
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter
Franklin Funds - The mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin Government Securities Trust
Franklin Templeton Funds - The Franklin Funds and the Templeton Funds
Franklin Templeton Group - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
Franklin Templeton Group of Funds - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds
FT Services - Franklin Templeton Services, Inc., the Fund's administrator
Investment Managers - Advisers and TICI, the Fund's subadvisor
Investor Services - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
Moody's - Moody's Investors Service, Inc.
Mutual Series - Franklin Mutual Series Fund Inc., a member of the Franklin Group
of Funds, formerly the Mutual Series Fund. Each series of Mutual Series began
offering three classes of shares on November 1, 1996; Class I, Class II and
Class Z. All shares sold before that time are designated Class Z shares.
NASD - National Association of Securities Dealers, Inc.
Net Asset Value (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NYSE - New York Stock Exchange
Offering Price - The public offering price is based on the Net Asset Value per
share of the class and includes the front-end sales charge, if applicable. The
maximum front-end sales charge is 3% for Class I. Advisor Class shares have no
front-end sales charge.
Prospectus - The prospectus for Advisor Class of the Fund dated January 1, 1997,
as may be amended from time to time
Resources - Franklin Resources, Inc.
S&P - Standard & Poor's Corporation
SAI - Statement of Additional Information
SEC - U.S. Securities and Exchange Commission
Securities Dealer - A financial institution which, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
Templeton Funds - The U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund
TICI - Franklin Templeton Investment Counsel, Inc., the Fund's subadviser
U.S. - United States
We/Our/Us - Unless a different meaning is indicated by the context, these terms
refer to the Fund and/or Investor Services, Distributors, or other wholly-owned
subsidiaries of Resources.
FRANKLIN TEMPLETON HARD CURRENCY FUND
FRANKLIN TEMPLETON GLOBAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 1, 1997
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
TABLE OF CONTENTS
How does the Fund Invest its Assets?.........................
What are the Fund's Potential Risks?.........................
Investment Restrictions......................................
Officers and Trustees............................
Investment Management and Other Services.......................
How does the Fund Buy Securities for its Portfolio?..........
How Do I Buy, Sell and Exchange Shares?......................
How are Fund Shares Valued?..................................
Additional Information on Distributions and Taxes............
The Fund's Underwriter.......................................
How does the Fund Measure Performance?.......................
Miscellaneous Information....................................
Financial Statements.........................................
Useful Terms and Definitions.................................
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When reading this SAI, you will see certain terms beginning with capital
letters. This means the term is explained under "Useful Terms and
Definitions."
- -----------------------------------------------------------------------------
Franklin Templeton Hard Currency Fund (the "Fund") is a separate non-diversified
series of the Franklin Templeton Global Trust (the "Trust"), an open-end
management investment company. This SAI relates to the Advisor Class shares of
the Fund. The Fund's investment objective is to protect against depreciation of
the U.S. dollar relative to other currencies.
The Prospectus, dated January 1, 1997, as may be amended from time to time,
contains the basic information you should know before investing in the Fund. For
a free copy, call 1-800/DIAL BEN or write the Fund at the address shown.
Advisor Class shares are only available for purchase by certain persons,
including, among others, certain financial institutions (such as banks, trust
companies, savings institutions and credit unions); government and tax-exempt
entities; pension, profit sharing and employee benefit plans; certain qualified
groups, including family trusts, endowments, foundations and corporations;
Franklin Templeton Fund Allocator Series; and directors, trustees, officers and
full time employees (and their family members) of Franklin Templeton Group and
the Franklin Templeton Group of Funds.
THIS 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 PROSPECTUS.
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MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
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ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
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ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK;
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ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
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HOW DOES THE FUND INVEST ITS ASSETS?
The following provides more detailed information about some of the securities
the Fund may buy and its investment policies. You should read it together with
the section in the Fund's prospectus entitled "How does the Fund Invest its
Assets?"
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,
the Fund intends to invest 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 FOREIGN SECURITIES. Foreign 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 the Fund sells
instruments denominated in one currency and purchases instruments denominated in
another.
Some of the foreign securities may be subject to transaction taxes charged by
foreign governments. This would have the effect of increasing the cost of the
investments and reduce the realized gain or increase the realized loss on the
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 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.
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. However, the Fund
has authority and intends 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 Fund 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 the 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 Fund will not speculate in forward contracts;
however, the Fund will utilize forward contracts in conjunction with money
market instruments in a manner which is unrelated to the Fund's 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 the Fund enters into a position hedging transaction, its custodian bank will
place cash or readily marketable liquid 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.
The Fund may try to hedge up to 100% of its portfolio positions, but will enter
into hedging transactions only if considered appropriate by the Investment
Managers. The 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. Although not a fundamental policy, the Fund does not
currently intend to enter into a forward contract with a term of more than one
year; or to engage in position hedging with respect to the currency of a
particular country to more 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 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 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 retains the portfolio security and engages in an offsetting
transaction, it 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 later enter into a new forward contract to
sell the currency. If 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. If 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 will be limited to the transactions described
above. Of course, the Fund is not required to enter into forward contracts, and
will not do so unless deemed appropriate by the 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 the 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 Fund invests primarily in money market instruments denominated in
non-U.S. currencies, it may hold foreign currencies pending its investment in
the instruments or their conversion into U.S. dollars. Although the Fund values
its assets daily in terms of U.S. dollars, it does not convert its holdings of
foreign currencies into U.S. dollars on a daily basis. The Fund will convert its
holdings 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.
ILLIQUID INVESTMENTS. The Board has authorized the Fund to invest in restricted
securities where the investment is consistent with the Fund's investment
objective and has authorized these securities to be considered liquid to the
extent the Fund's Investment Managers determine that there is a liquid
institutional or other market for these securities (for example, restricted
securities which may be freely transferred among qualified institutional buyers
pursuant to Rule 144A under the 1933 Act and for which a liquid institutional
market has developed). The Board reviews any determination by the Investment
Managers to treat a restricted security as liquid on a quarterly basis,
including the Investment Managers' assessment of current trading activity and
the availability of reliable price information. In determining whether a
restricted security is properly considered a liquid security, the Investment
Managers and the Board will take into account the following factors: (i) the
frequency of trades and quotes for the security; (ii) the number of dealers
willing to buy or sell the security and the number of other potential
purchasers; (iii) dealer undertakings to make a market in the security; and (iv)
the nature of the security and the nature of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of transfer). To the extent the Fund invests in restricted securities
that are deemed liquid, the general level of illiquidity in the applicable Fund
may be increased if qualified institutional buyers become uninterested in buying
these securities or the market for these securities contracts.
WHAT ARE THE FUND'S POTENTIAL RISKS?
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. These
restrictions may not be changed without the approval of a majority of the
outstanding voting securities of the Fund. Under the 1940 Act, this means the
approval of (i) more than 50% of the outstanding shares of the Fund or (ii) 67%
or more of the shares of the Fund present at a shareholder meeting if more than
50% of the outstanding shares of the Fund are represented at the meeting in
person or by proxy, whichever is less. The Fund MAY NOT:
1. 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 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
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.
6. Purchase or sell real estate, securities of real estate investment trusts,
commodities, or oil and gas interests, 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.
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 SEC and the Board, including maintenance of collateral of the
borrower equal at all times to at least the current market value of the
securities loaned.
8. Invest more than 25% of its assets in the securities of issuers in any
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.
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 met at the time of investment, a later increase
or decrease in the percentage due to a change in value of portfolio securities
or the amount of assets will not be considered a violation of any of the
foregoing restrictions.
OFFICERS AND TRUSTEES
The Board has the responsibility for the overall management of the Fund,
including general supervision and review of its investment activities. The
Board, in turn, elects the officers of the Fund who are responsible for
administering the Fund's day-to-day operations. The affiliations of the officers
and Board members and their principal occupations for the past five years are
shown below. Members of the Board who are considered "interested persons" of the
Fund under the 1940 Act are indicated by an asterisk (*).
POSITIONS AND PRINCIPAL OCCUPATION DURING
NAME, AGE AND ADDRESS OFFICES WITH THE THE PAST FIVE YEARS
TRUST
Frank H. Abbott, III (74)
1045 Sansome St.
San Francisco, CA 94111
Trustee
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)
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045
Trustee
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 55 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 0796945
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 57 of the investment companies in the Franklin Templeton Group of Funds.
David W. Garbellano (81)
111 New Montgomery St., #402
San Francisco, CA 94105
Trustee
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)
777 Mariners Island Blvd.
San Mateo, CA 94404
President and Trustee
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)
5917 Cleveland Street
Morton Grove, IL 60053
Trustee
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)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of the Board 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 56 of the investment companies in the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (55)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Trustee
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 60 of the investment companies
in the Franklin Templeton Group of Funds.
David P. Kraus (38)
Bet Tzedek Legal Services
145 South Fairfax Ave., Suite 200
Los Angeles, CA 90036-2166
Trustee
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)
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
Trustee
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, trustee or managing general
partner, as the case may be, of 26 of the investment companies in the Franklin
Group of Funds.
Gordon S. Macklin (67)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
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 Source One Mortgage Services Corporation (information
services); and director, trustee or managing general partner, as the case may
be, of 52 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)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
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 60 of the investment companies in the Franklin Templeton Group of Funds.
Kenneth V. Domingues (63)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President - Financial Reporting 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)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Chief 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 60 of the investment companies in the Franklin Templeton Group of
Funds.
Deborah R. Gatzek (48)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; Vice President, Franklin
Advisers, Inc. and officer of 60 of the investment companies in the Franklin
Templeton Group of Funds.
Charles E. Johnson (39)
777 Mariners Island Blvd.
San Mateo CA 94404
Vice President
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 39 of the investment companies in the Franklin Templeton Group of Funds.
Diomedes Loo-Tam (57)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal 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)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
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 table above shows the officers and Board members who are affiliated with
Distributors and The Investment Managers. Nonaffiliated members of the Board are
currently paid $800 per year plus $800 per meeting attended. As shown above,
some of the nonaffiliated Board members also serve as directors, trustees or
managing general partners of other investment companies in the Franklin
Templeton Group of Funds. They may receive fees from these funds for their
services. The following table provides the total fees paid to nonaffiliated
Board members by the Trust and by other funds in the Franklin Templeton Group of
Funds.
NUMBER OF BOARDS
IN THE FRANKLIN
TOTAL FEES TEMPLETON GROUP
TOTAL FEES RECEIVED FROM THE OF FUNDS ON WHICH
RECEIVED FROM FRANKLIN TEMPLETON EACH SERVES***
THE TRUST* GROUP OF FUNDS**
NAME
Frank H. Abbott, III $5,000 $162,420 31
Harris J. Ashton 5,000 327,925 55
David K. Eiteman 3,400 2,400 1
S. Joseph Fortunato 5,000 344,745 57
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 52
*For the fiscal year ended October 31, 1995.
**For the calendar year ended December 31, 1995.
***We base the number of boards on the number of registered investment companies
in the Franklin Templeton Group of Funds. This number does not include the total
number of series or funds within each investment company for which the Board
members are responsible. The Franklin Templeton Group of Funds currently
includes 61 registered investment companies, with approximately 171 U.S. based
funds or series.
Nonaffiliated members of the Board 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 Board member received any other
compensation, including pension or retirement benefits, directly or indirectly
from the Fund or other funds in the Franklin Templeton Group of Funds. Certain
officers or Board members who are shareholders of Resources may be deemed to
receive indirect remuneration by virtue of their participation, if any, in the
fees paid to its subsidiaries.
As of December 6, 1996, the officers and Board members, as a group, owned of
record and beneficially approximately 708 Class I shares of the Fund, or less
than 1% of the total outstanding Class I shares of the Fund. Many of the Board
members also own shares in other funds in the Franklin Templeton Group of Funds.
Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the father and
uncle, respectively, of Charles E. Johnson.
INVESTMENT MANAGEMENT AND OTHER SERVICES
INVESTMENT MANAGERS AND SERVICES PROVIDED. The Fund's investment manager is
Advisers. The Fund's subadvisor is TICI. The Investment Managers provide
investment research and portfolio management services, including the selection
of securities for the Fund to buy, hold or sell and the selection of brokers
through whom the Fund's portfolio transactions are executed. The Investment
Managers' activities are subject to the review and supervision of the Board to
whom they render periodic reports of the Fund's investment activities. Advisers
is covered by fidelity insurance on its officers, directors and employees for
the protection of the Fund.
Advisers and its affiliates act as investment manager to numerous other
investment companies and accounts. The Investment Managers may give advice and
take action with respect to any of the other funds they manage, or for their own
account, that may differ from action taken by them on behalf of the Fund.
Similarly, with respect to the Fund, the Investment Managers are not obligated
to recommend, buy or sell, or to refrain from recommending, buying or selling
any security that they and access persons, as defined by the 1940 Act, may buy
or sell for their own account or for the accounts of any other fund. The
Investment Managers are not obligated to refrain from investing in securities
held by the Fund or other funds that they manage. Of course, any transactions
for the accounts of the Investment Managers and other access persons will be
made in compliance with the Trust's Code of Ethics. Please see "Miscellaneous
Information - Summary of Code of Ethics."
MANAGEMENT FEES. Under its management agreement, the Fund pays Advisers a
management 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 the Fund. TICI receives a fee from Advisers equal to an annual
rate of 0.25% of the value of the average daily net assets of the Fund. This fee
is not paid by the Fund. Each class pays its proportionate share of the
management fee.
TICI pays all expenses incurred by it through its activities under the
sub-advisory agreement with Advisers, other than the cost of securities
purchased for the Fund and brokerage commissions in connection with these
purchases.
For the periods ended April 31, 1994, October 31, 1994 and 1995 and April 31,
1996, management fees totaled $106,115, $179,397, $634,188 and 405,992,
respectively. Under an agreement by Advisers to limit its fees, the Fund paid
$13,792, $113,677, $634,188 and $405,992 for the same periods.
MANAGEMENT AGREEMENT. The management agreement is in effect until July 31, 1998.
It may continue in effect for successive annual periods thereafter if its
continuance is specifically approved at least annually by a vote of the Board or
by a vote of the holders of a majority of the Fund's outstanding voting
securities, and in either event by a majority vote of the Board members who are
not parties to the management agreement or interested persons of any such party
(other than as members of the Board), cast in person at a meeting called for
that purpose. The 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 Advisers on 60 days' written notice, and
will automatically terminate in the event of its assignment, as defined in the
1940 Act.
ADMINISTRATIVE SERVICES. Under an agreement with Advisers, FT Services provides
certain administrative services and facilities for the Fund. These include
preparing and maintaining books, records, and tax and financial reports, and
monitoring compliance with regulatory requirements. FT Services is a wholly
owned subsidiary of Resources.
Under its administration agreement, Advisers pays FT Services a monthly
administration fee equal to an annual rate of 0.15% of the Fund's average daily
net assets up to $200 million, 0.135% of average daily net assets over $200
million up to $700 million, 0.10% of average daily net assets over $700 million
up to $1.2 billion, and 0.075% of average daily net assets over $1.2 billion.
The fee is paid by Advisers. It is not a separate expense of the Fund.
SHAREHOLDER SERVICING AGENT. Investor Services, a wholly-owned subsidiary of
Resources, is the Fund's shareholder servicing agent 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.
CUSTODIANS. 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.
AUDITORS. 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 fiscal year ended October 31, 1995. Advisor Class shares of
the Fund were not offered to the public before January 1, 1997.
PRIOR SERVICES. 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.
HOW DOES THE FUND BUY SECURITIES FOR ITS PORTFOLIO?
The selection of brokers and dealers to execute transactions in the Fund's
portfolio is made by the Investment Managers in accordance with criteria set
forth in the management agreement and any directions that 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 Investment Managers seek to obtain
prompt execution of orders at the most favorable net price. When portfolio
transactions are done on a securities exchange, the amount of commission paid by
the Fund is negotiated between the Investment Managers and the broker executing
the transaction. The determination and evaluation of the reasonableness of the
brokerage commissions paid in connection with portfolio transactions are based
to a large degree on the professional opinions of the persons responsible for
the placement and review of the transactions. These opinions are based on the
experience of these individuals in the securities industry and information
available to them about the level of commissions being paid by other
institutional investors of comparable size. The Investment Managers will
ordinarily place orders to buy and sell over-the-counter securities on a
principal rather than agency basis with a principal market maker unless, in the
opinion of the 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.
The amount of commission is not the only factor the Investment Managers consider
in the selection of a broker to execute a trade. If the Investment Managers
believe it is in the Fund's best interest, the Investment Managers 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 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 Fund or assist the Investment
Managers in carrying out its responsibilities to the Fund, or when it is
otherwise in the best interest of the Fund to do so, whether or not such
services may also be useful to the Investment Managers in advising other
clients.
When the Investment Managers believe several brokers are equally able to provide
the best net price and execution, they may decide to execute transactions
through brokers who provide quotations and other services to the Fund, in an
amount of total brokerage as may reasonably be required in light of these
services. Specifically, these services may include providing the quotations
necessary to determine the Fund's Net Asset Value, as well as research,
statistical and other data.
It is not possible to place a dollar value on the special executions or on the
research services received by the Investment Managers from dealers effecting
transactions in portfolio securities. The allocation of transactions in order to
obtain additional research services permits the 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 Investment Managers and their
affiliates may use this research and data in their investment advisory
capacities with other clients. If the Fund's officers are satisfied that the
best execution is obtained, consistent with internal policies the sale of Fund
shares, as well as shares of other funds in the Franklin Templeton Group of
Funds, may also be considered a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
Because Distributors is a member of the National Association of Securities
Dealers, it may sometimes receive certain fees when the Fund tenders portfolio
securities pursuant to a tender-offer solicitation. As a means of recapturing
brokerage for the benefit of the Fund, any portfolio securities tendered by the
Fund will be tendered through Distributors if it is legally permissible to do
so. In turn, the next management fee payable to Advisers will be reduced by the
amount of any fees received by Distributors in cash, less any costs and expenses
incurred in connection with the tender.
If purchases or sales of securities of the Fund and one or more other investment
companies or clients supervised by the Investment Managers are considered at or
about the same time, transactions in these securities will be allocated among
the several investment companies and clients in a manner deemed equitable to all
by the Investment Managers, taking into account the respective sizes of the
funds and the amount of securities to be purchased or sold. In some cases this
procedure could have a detrimental effect on the price or volume of the security
so far as the Fund is concerned. In other cases it is possible that the ability
to participate in volume transactions and to negotiate lower brokerage
commissions will be beneficial to the Fund.
During the fiscal year ended April 30, 1994, the period ended October 31, 1994,
the fiscal year ended October 31, 1995 and the six-month period ended April 30,
1996, 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, SELL AND EXCHANGE SHARES?
ADDITIONAL INFORMATION ON BUYING SHARES
Securities laws of states where the Fund offers its shares may differ from
federal law. Banks and financial institutions that sell shares of the Fund may
be required by state law to register as Securities Dealers.
When you buy shares, if you submit a check or a draft that is returned unpaid to
the Fund, we may impose a $10 charge against your account for each returned
item.
REINVESTMENT DATE. Shares acquired through the reinvestment of dividends will be
purchased at the Net Asset Value determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The processing
date for the reinvestment of dividends may vary and does not affect the amount
or value of the shares acquired.
ADDITIONAL INFORMATION ON EXCHANGING SHARES
If you request the exchange of the total value of your account, declared but
unpaid income dividends and capital gain distributions will be exchanged into
the new fund and will be invested at Net Asset Value. Backup withholding and
information reporting may apply. Information regarding the possible tax
consequences of an exchange is included in the tax section in this SAI and in
the Prospectus.
If a substantial number of shareholders should, within a short period, sell
their shares of the Fund under the exchange privilege, the Fund might have to
sell portfolio securities it might otherwise hold and incur the additional costs
related to such transactions. On the other hand, increased use of the exchange
privilege may result in periodic large inflows of money. If this occurs, it is
the Fund's general policy to initially invest this money in U.S. short-term,
interest-bearing money market instruments unless it is believed that attractive
investment opportunities consistent with the Fund's investment objective exist
immediately. This money will then be withdrawn from the U.S. short-term money
market instruments and invested in portfolio securities in as orderly a manner
as is possible when attractive investment opportunities arise.
The proceeds from the sale of shares of an investment company are generally not
available until the fifth business day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange until
that fifth business day. The sale of Fund shares to complete an exchange will be
effected at Net Asset Value at the close of business on the day the request for
exchange is received in proper form. Please see "May I Exchange Shares for
Shares of Another Fund?" in the Prospectus.
ADDITIONAL INFORMATION ON SELLING SHARES
Systematic Withdrawal Plan. There are no service charges for establishing or
maintaining a systematic withdrawal plan. Once your plan is established, any
distributions paid by the Fund will be automatically reinvested in your account.
Payments under the plan will be made from the redemption of an equivalent amount
of shares in your account, generally on the first business day of the month in
which a payment is scheduled before February 1997 and on the 25th day of the
month beginning with your February 1997 payment. If the 25th falls on a weekend
or holiday, we will process the redemption on the prior business day.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you. Because the amount
withdrawn under the plan may be more than your actual yield or income, part of
the payment may be a return of your investment.
The Fund may discontinue a systematic withdrawal plan by notifying you in
writing and will automatically discontinue a systematic withdrawal plan if all
shares in your account are withdrawn or if the Fund receives notification of the
shareholder's death or incapacity.
THROUGH YOUR SECURITIES DEALER. If you sell shares through your Securities
Dealer, it is your dealer's responsibility to transmit the order to the Fund in
a timely fashion. Any loss to you resulting from your dealer's failure to do so
must be settled between you and your Securities Dealer.
Redemptions in Kind. The Fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the Fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior approval of the SEC. In the case of redemption
requests in excess of these amounts, the Board reserves the right to make
payments in whole or in part in securities or other assets of the Fund, in case
of an emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of the Fund. In these circumstances,
the securities distributed would be valued at the price used to compute the
Fund's net assets and you may incur brokerage fees in converting the securities
to cash. The Fund does not intend to redeem illiquid securities in kind. If this
happens, however, you may not be able to recover your investment in a timely
manner.
GENERAL INFORMATION
If dividend checks are returned to the Fund marked "unable to forward" by the
postal service, we will consider this a request by you to change your dividend
option to reinvest all distributions. The proceeds will be reinvested in
additional shares at Net Asset Value until we receive new instructions.
If mail is returned as undeliverable or we are unable to locate you or verify
your current mailing address, we may deduct the costs of our efforts to find you
from your account. These costs may include a percentage of the account when a
search company charges a percentage fee in exchange for its location services.
All checks, drafts, wires and other payment mediums used to buy or sell shares
of the Fund must be denominated in U.S. dollars. We may, in our sole discretion,
either (a) reject any order to buy or sell shares denominated in any other
currency or (b) honor the transaction or make adjustments to your account for
the transaction as of a date and with a foreign currency exchange factor
determined by the drawee bank.
SPECIAL SERVICES. The Franklin Templeton Institutional Services Department
provides specialized services, including recordkeeping, for institutional
investors. The cost of these services is not borne by the Fund.
Investor Services may pay certain financial institutions that maintain omnibus
accounts with the Fund on behalf of numerous beneficial owners for recordkeeping
operations performed with respect to such owners. For each beneficial owner in
the omnibus account, the Fund may reimburse Investor Services an amount not to
exceed the per account fee that the Fund normally pays Investor Services. These
financial institutions may also charge a fee for their services directly to
their clients.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
HOW ARE FUND SHARES VALUED?
We calculate the Net Asset Value per share of each class as of the scheduled
close of the 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 that are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market as
determined by the Investment Managers.
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, options are valued within the range of the
current closing bid and ask prices if the valuation is believed to fairly
reflect the contract's market value.
The value of a foreign security is determined as of the close of trading on the
foreign exchange on which it is traded or as of the scheduled close of trading
on the Exchange, if that is earlier. The value is then converted into its U.S.
dollar equivalent at the foreign exchange rate in effect at noon, New York time,
on the day the value of the foreign security is determined. If no sale is
reported at that time, the mean between the current bid and ask prices is used.
Occasionally events that affect the values of foreign securities and foreign
exchange rates may occur between the times at which they are determined and the
close of the exchange and will, therefore, not be reflected in the computation
of the Net Asset Value of each class. If events materially affecting the values
of these foreign securities occur during this period, the securities will be
valued in accordance with procedures established by the Board.
Generally, trading in U.S. government securities and money market instruments is
substantially completed each day at various times before the scheduled close of
the Exchange. The value of these securities used in computing the Net Asset
Value of each class is determined as of such times. Occasionally, events
affecting the values of these securities may occur between the times at which
they are determined and the scheduled close of the Exchange that will not be
reflected in the computation of the Net Asset Value of each class. If events
materially affecting the values of these securities occur during this period,
the securities will be valued at their fair value as determined in good faith by
the Board.
Other securities for which market quotations are readily available are valued at
the current market price, which may be obtained from a pricing service, based on
a variety of factors including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific issues. Securities and other assets for which
market prices are not readily available are valued at fair value as determined
following procedures approved by the Board. With the approval of the Board, the
Fund may utilize a pricing service, bank or Securities Dealer to perform any of
the above described functions.
ADDITIONAL INFORMATION ON DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
You may receive two types of distributions from the Fund:
1. INCOME DIVIDENDS. The Fund receives income generally in the form of interest
and other income derived from its investments. This income, less the expenses
incurred in the Fund's operations, is its net investment income from which
income dividends may be distributed. Thus, the amount of dividends paid per
share may vary with each distribution.
2. CAPITAL GAIN DISTRIBUTIONS. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any capital loss carryforward or post October
loss deferral) may generally be made once a year in December to reflect any net
short-term and net long-term capital gains realized by the Fund as of October 31
of the current fiscal year and any undistributed capital gains from the prior
fiscal year. The Fund may make more than one distribution derived from net
short-term and net long-term capital gains in any year or adjust the timing of
these distributions for operational or other reasons.
TAXES
As stated in the Prospectus, the Fund has elected and qualified to be treated as
a regulated investment company under Subchapter M of the Code. The Board
reserves the right not to maintain the qualification of the Fund as a regulated
investment company if it determines this course of action to be beneficial to
shareholders. In that case, the Fund will be subject to federal and possibly
state corporate taxes on its taxable income and gains, and distributions to
shareholders will be taxable to the extent of the Fund's available earnings and
profits.
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 you until the following January, will be treated for
tax purposes as if paid by the Fund and received by you on December 31 of the
calendar year in which they are declared. The Fund intends as a matter of policy
to declare such dividends, if any, in December or January 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.
For corporate shareholders, none of the distributions paid by the 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. Gain or loss will be recognized in an amount
equal to the difference between your basis in the shares and the amount you
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 your shares have been held for more
than one year.
All or a portion of the sales charge incurred in buying shares of the 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 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 the
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 advisor concerning the tax rules applicable to the redemption or
exchange of fund shares.
The Fund 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 you buy other shares of the Fund (through reinvestment
of dividends or otherwise) within 30 days before or after the redemption. Any
loss disallowed under these rules will be added to your 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, the 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 the Fund will be
marked-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 marked-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
marked-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.
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 you.
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 or
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, 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 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.
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 consists of securities of foreign corporations, it 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 Fund's fiscal
year whether the foreign taxes paid by the Fund will "pass through" for that
year.
Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed your U.S. tax attributable to foreign source taxable income. For this
purpose, if the pass-though election is made, the source of the Fund's income
flows through to you. With respect to the Fund, gains from the sale of
securities will be treated as derived from U.S. sources and certain currency
fluctuation gains, including fluctuation gains from foreign currency-denominated
debt securities, receivables and payables, will be treated as ordinary income
derived from U.S. sources. The limitation on the foreign tax credit is applied
separately to foreign source passive income (as defined for purposes of the
foreign tax credit), including the foreign source passive income passed through
by the Fund. 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 that Fund
will be treated as U.S. source income.
THE FUND'S UNDERWRITER
Pursuant to an underwriting agreement, Distributors acts as principal
underwriter in a continuous public offering for each class of the Fund's shares.
The underwriting agreement will continue in effect for successive annual periods
if its continuance is specifically approved at least annually by a vote of the
Board or by a vote of the holders of a majority of the Fund's outstanding voting
securities, and in either event by a majority vote of the Board members who are
not parties to the underwriting agreement or interested persons of any such
party (other than as members of the Board), cast in person at a meeting called
for that purpose. The underwriting agreement terminates automatically in the
event of its assignment and may be terminated by either party on 90 days'
written notice.
Distributors pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The Fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
Distributors will not receive compensation from the Fund for acting as
underwriter with respect to the Advisor Class shares.
HOW DOES THE FUND MEASURE PERFORMANCE?
Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Fund be accompanied by
certain standardized performance information computed as required by the SEC.
Current yield and average annual total return quotations used by the Fund are
based on the standardized methods of computing performance mandated by the SEC.
If a Rule 12b-1 plan is adopted, performance figures reflect fees from the date
of the plan's implementation. An explanation of these and other methods used by
the Fund to compute or express performance for the Advisor Class shares follows.
For any period prior to January 1, 1997, the standardized performance quotations
for Advisor Class will be calculated by substituting the performance of Class I
for the relevant time period, and excluding the effect of the maximum sales
charge and including the effect of Rule 12b-1 fees applicable to Class I.
Regardless of the method used, past performance does not guarantee future
results, and is an indication of the return to shareholders only for the limited
historical period used.
TOTAL RETURN
Average Annual Total Return. Average annual total return is determined by
finding the average annual rates of return over one-, five- and ten-year
periods, or fractional portion thereof, that would equate an initial
hypothetical $1,000 investment to its ending redeemable value. The calculation
assumes income dividends and capital gain distributions are reinvested at Net
Asset Value. The quotation assumes the account was completely redeemed at the
end of each one-, five- and ten-year period and the deduction of all applicable
charges and fees. The average annual total return for Advisor Class shares for
the one and three-year periods ended April 30, 1996 and for the period from
inception (11/17/89) to April 30, 1996 would have been -8.92%, 7.79% and 9.14%.
These rates of return will be calculated according to the SEC formula:
P(1+T)n = ERV
where:
P =a hypothetical initial payment of $1,000
T =average annual total return
n =number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five- or ten-year periods at the end of the one-, five-
or ten-year periods (or fractional portion thereof)
CUMULATIVE TOTAL RETURN. The Fund may also quote the cumulative total return for
each class, in addition to the average annual total return. These quotations are
computed the same way, except the cumulative total return will be based on the
actual return for each class for a specified period rather than on the average
return over one-, five- and ten-year periods, or fractional portion thereof. The
cumulative total return for the Advisor Class for the one- and three-year
periods ended April 30, 1996 and the period from inception(11/17/89) to April
30, 1996 would have been -8.92%, 7.79% and 78.88%.
YIELD
CURRENT YIELD. Current yield of each class shows the income per share earned by
the Fund. It is calculated by dividing the net investment income per share of
each class earned during a 30-day base period by the Net Asset Value 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 of the class during the
base period. The yield for the 30-day period ended April 30, 1996 for the
Advisor Class shares would have been 3.60%.
These rates of return will be calculated 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 Net Asset Value 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 a
class. Amounts paid to shareholders are reflected in the quoted current
distribution rate. For Advisor Class, the current distribution rate is usually
computed by annualizing the dividends paid per share by the class during a
certain period and dividing that amount by the current Net Asset Value. The
current distribution rate differs from the current yield computation because it
may include distributions to shareholders from sources other than interest, such
as premium income from option writing and short-term capital gains and is
calculated over a different period of time. The current distribution rate for
the 30-day period ended April 30, 1996 for the Advisor Class shares would have
been 4.82%.
VOLATILITY
Occasionally statistics may be used to show the Fund's volatility or risk.
Measures of volatility or risk are generally used to compare the Fund's Net
Asset Value or performance to a market index. One measure of volatility is beta.
Beta is the volatility of a fund relative to the total market, as represented by
an index considered representative of the types of securities in which the fund
invests. A beta of more than 1.00 indicates volatility greater than the market
and a beta of less than 1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation. Standard deviation is used
to measure variability of Net Asset Value or total return around an average over
a specified period of time. The idea is that greater volatility means greater
risk undertaken in achieving performance.
OTHER PERFORMANCE QUOTATIONS
For any period prior to January 1, 1997, sales literature about Advisor Class
may quote a current distribution rate, yield, cumulative total return, average
annual total return and other measures of performance as described elsewhere in
this SAI by substituting the performance of Class I for the relevant time period
and excluding the effect of the maximum sales charge and Rule 12b-1 fees
applicable to Class I.
Sales literature referring to the use of the Fund as a potential investment for
Individual Retirement Accounts (IRAs), Business Retirement Plans, and other
tax-advantaged retirement plans may quote a total return based upon compounding
of dividends on which it is presumed no federal income tax applies.
The Fund may include in its advertising or sales material information relating
to investment objectives and performance results of funds belonging to the
Franklin Templeton Group of Funds. Resources is the parent company of the
advisors and underwriter of both the Franklin Group of Funds and Templeton Group
of Funds.
COMPARISONS
To help you better evaluate how an investment in the Fund may satisfy your
investment objective, advertisements and other materials about the Fund may
discuss certain measures of each class' 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.
These 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 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 - 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 mutual 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.
n) Morningstar - information published by Morningstar, Inc., including
Morningstar proprietary mutual fund ratings. The ratings reflect Morningstar's
assessment of the historical risk adjusted performance of a fund over specified
time periods relative to other funds within its category.
From time to time, advertisements or information for the Fund may include a
discussion of certain attributes or benefits to be derived from an investment in
the Fund. The advertisements or information may include symbols, headlines, or
other material that highlights or summarizes the information discussed in more
detail in the communication.
Advertisements or information may also compare the performance of Advisor Class
to the return on CDs or other investments. You should be aware, however, that an
investment in the Fund involves the risk of fluctuation of principal value, a
risk generally not present in an investment in a CD issued by a bank. For
example, as the general level of interest rates rise, the value of the Fund's
fixed-income investments, as well as the value of its shares that are based upon
the value of such portfolio investments, can be expected to decrease.
Conversely, when interest rates decrease, the value of the Fund's shares can be
expected to increase. CDs are frequently insured by an agency of the U.S.
government. An investment in the Fund is not insured by any federal, state or
private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the Fund to calculate its figures. In addition,
there can be no assurance that the Fund will continue its performance as
compared to these other averages.
MISCELLANEOUS INFORMATION
The Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis in order to have
a projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by the
College Board.) The Franklin Retirement Planning Guide leads you through the
steps to start a retirement savings program. Of course, an investment in the
Fund cannot guarantee that these goals will be met.
The Fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 48 years and
now services more than 2.5 million shareholder accounts. In 1992, Franklin, a
leader in managing fixed-income mutual funds and an innovator in creating
domestic equity funds, joined forces with Templeton Worldwide, Inc., a pioneer
in international investing. Together, the Franklin Templeton Group has over $150
billion in assets under management for more than 4.2 million U.S. based mutual
fund shareholder and other accounts. The Franklin Templeton Group of Funds
offers 125 U.S. based open-end investment companies to the public. The Fund may
identify itself by its NASDAQ symbol or CUSIP number.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one in
service quality for five of the past eight years.
From time to time, the number of Fund shares held in the "street name" accounts
of various Securities Dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding. To the
best knowledge of the Fund, no other person holds beneficially or of record more
than 5% of the Fund's outstanding Advisor Class shares.
In the event of disputes involving multiple claims of ownership or authority to
control your account, the Fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all persons deemed by
the Fund to have a potential property interest in the account, prior to
executing instructions regarding the account; (b) interplead disputed funds or
accounts with a court of competent jurisdiction; or (c) surrender ownership of
all or a portion of the account to the IRS in response to a Notice of Levy.
SUMMARY OF CODE OF ETHICS. Employees of Resources or its subsidiaries who are
access persons under the 1940 Act are permitted to engage in personal securities
transactions subject to the following general restrictions and procedures: (i)
the trade must receive advance clearance from a compliance officer and must be
completed within 24 hours after clearance; (ii) copies of all brokerage
confirmations must be sent to a compliance officer and, within 10 days after the
end of each calendar quarter, a report of all securities transactions must be
provided to the compliance officer; and (iii) access persons involved in
preparing and making investment decisions must, in addition to (i) and (ii)
above, file annual reports of their securities holdings each January and inform
the compliance officer (or other designated personnel) if they own a security
that is being considered for a fund or other client transaction or if they are
recommending a security in which they have an ownership interest for purchase or
sale by a fund or other client.
FINANCIAL STATEMENTS
The audited financial statements contained in the Annual Report to Shareholders
of the Trust, for the fiscal year ended October 31, 1995, including the
auditors' report, and the unaudited financial statements contained in the
Semiannual Report to Shareholders of the Trust for the six-month period ended
April 30, 1996, are incorporated herein by reference. These financial statements
do not include information for Advisor Class as these shares were not publicly
offered prior to the date of this SAI.
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
CD - Certificate of deposit
CLASS I AND ADVISOR CLASS - The Fund offers two classes of shares, designated
"Class I," and "Advisor Class." The two classes have proportionate interests in
the Fund's portfolio. Class I shares are purchased with a sales charge and have
a Rule 12b-1 plan. Advisor Class shares are purchased without a sales charge and
do not have a Rule 12b-1 plan.
CODE - Internal Revenue Code of 1986, as amended
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 FundsAE except
Franklin Valuemark Funds and the Franklin Government Securities Trust
FRANKLIN TEMPLETON FUNDS - The Franklin Funds and the Templeton Funds
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of FundsAE and the Templeton Group of Funds
FT SERVICES - Franklin Templeton Services, Inc., the Fund's administrator
INVESTMENT MANAGERS - Advisers and TICI, the Fund's subadvisor
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
MUTUAL SERIES - Franklin Mutual Series Fund Inc., a member of the Franklin Group
of Funds, formerly the Mutual Series Fund
MOODY'S - Moody's Investors Service, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
OFFERING PRICE - The public offering price is based on the Net Asset Value per
share of the class and includes the front-end sales charge, if applicable. The
maximum front-end sales charge is 3% sales charge for Class I. Advisor Class
shares have no front-end sales charge.
PROSPECTUS - The prospectus for Advisor Class of the Fund dated January 1, 1997,
as may be amended from time to time
RESOURCES - Franklin Resources, Inc.
S&P - Standard & Poor's Corporation
SAI - Statement of Additional Information
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution which, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TEMPLETON FUNDS - The U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund
TICI - Franklin Templeton Investment Counsel, Inc., the Fund's subadviser
U.S. - United States
WE/OUR/US - Unless a different meaning is indicated by the context, these terms
refer to the Fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.
Franklin Templeton Global Trust
File Nos. 33-01212
811-4450
FORM N-1A
PART C
Other Information
Item 24 Financial Statements and Exhibits
a) Unaudited Financial Statements incorporated herein by reference to the
Registrant's Semi-Annual Report to Shareholders dated April 30, 1996, as
filed with the SEC electronically on Form Type N-30D on July 10, 1996.
(1) (i) Statement of Investments in Securities and Net Assets - April 30,
1996
(ii) Statement of Assets and Liabilities - April 30, 1996
(iii) Statements of Operations-for the six months ended April 30, 1996
(iv) Statements of Changes in Net Assets-for the six months ended
April 30, 1996 and the year ended October 31, 1995
(v) Notes to Financial Statements
(2) Financial Statements for the fiscal year ended October 31, 1995
incorporated herein by reference to the Registrant's Annual
Report to Shareholders as filed with the SEC electronically on Form
Type N-30D on December 27, 1995.
(i) Report of Independent Auditors - November 30, 1995
(ii) Statement of Investments in Securities and Net Assets - October
31, 1995
(iii) Statement of Assets and Liabilities - October 31, 1995
(iv) Statements of Operations - for the fiscal year ended October 31,
1995
(v) Statements of Changes in Net Assets - for the fiscal year ended
October 31, 1995 and for the six month period ended April 31, 1995
(vi) Notes to Financial Statements
b) Exhibits:
The following exhibits, where applicable, are incorporated by reference
with the exceptions of Exhibits 11(i), 18(i) and 18(ii) which are filed
herewith.
(1) Copies of the charter as now in effect;
(i) Certificate of Trust, dated May 14, 1996
Filing: Post-Effective Amendment No. 15 to Registration Statement
on Form N-1A
File No. 33-01212
Filing Date: August 2, 1996
(ii) Agreement and declaration of Trust, dated May 14, 1996
Filing: Post-Effective Amendment No. 15 to Registration Statement
on Form N-1A
File No. 33-01212
Filing Date: August 2, 1996
(2) copies of the existing By-Laws or instruments corresponding thereto;
(i) By-Laws
Filing: Post-Effective Amendment No. 15 to Registration Statement
on Form N-1A
File No. 33-01212
Filing Date: August 2, 1996
(3) copies of any voting trust agreement with respect to more than five
percent of any class of equity securities of the Registrant;
Not Applicable
(4) specimens or copies of each security issued by the Registrant,
including copies of all constituent instruments, defining the rights of
the holders of such securities, and copies of each security being
registered;
Not applicable
(5) copies of all investment advisory contracts relating to the management
of the assets of the Registrant;
(i) Form of Management agreement between the Registrant and Franklin
Advisers, Inc.
Filing: Post-Effective Amendment No. 15 to Registration Statement
on Form N-1A
File No. 33-01212
Filing Date: August 2, 1996
(ii) Form of Subadvisory agreement on behalf of Registrant between
Franklin Advisers, Inc., and Templeton Investment Counsel, Inc.
Filing: Post-Effective Amendment No. 15 to Registration Statement
on Form N-1A
File No. 33-01212
Filing Date: August 2, 1996
(6) copies of each underwriting or distribution contract between the
Registrant and a principal underwriter, and specimens or copies of all
agreements between principal underwriters and dealers;
(i) Form of Amended and Restated Distribution Agreement between the
Registrant and Franklin/Templeton Distributors, Inc.
Filing: Post-Effective Amendment No. 15 to Registration Statement
on Form N-1A
File No. 33-01212
Filing Date: August 2, 1996
(ii) Forms of Dealer Agreements between Franklin/Templeton
Distributors, Inc., and securities dealers
Registrant: Franklin Tax-Free Trust
Filing: Post-Effective Amendment No. 22 to Registration Statement
on Form N-1A
File No. 2-94222
Filing Date: March 14, 1996
(7) copies of all bonus, profit sharing, pension or other similar contracts
or arrangements wholly or partly for the benefit of Trustees or
officers of the Registrant in their capacity as such; any such plan
that is not set forth in a formal document, furnish a reasonably
detailed description thereof;
Not applicable
(8) copies of all custodian agreements and depository contracts under
Section 17(f) of the Investment Company Act of 1940 (the "1940 Act"),
with respect to securities and similar investments of the Registrant,
including the schedule of remuneration;
(i) Custody agreement between Registrant and Bank of America NT & SA
dated November 12, 1993
Filing: Post-Effective Amendment No. 14 to Registration Statement
on Form N-1A
File Nos. 33-01212 & 811-4450
Filing Date: December 29, 1995
(ii) Custody agreement between The Chase Manhattan Bank, N.A. and
Franklin/Templeton Global Trust dated November 15, 1993
Filing: Post-Effective Amendment No. 14 to Registration Statement
on Form N-1A
File Nos. 33-01212 & 811-4450
Filing Date: December 29, 1995
(iii)Copy of Custodian Agreements between Registrant and Citibank
Delaware:
1. Citicash Management ACH Customer Agreement
2. Citibank Cash Management Services Master Agreement
3. Short Form Bank Agreement - Deposits and Disbursements of Funds
Registrant: Franklin Asset Allocation Fund
Filing: Post-Effective Amendment No. 56 to Registration Statement
on Form N-1A
File No. 2-12647
Filing Date: May 17, 1996
(iv) Master Custody Agreement between Registrant and Bank of New York
dated February 16, 1996
Registrant: AGE High Income Fund
Filing: Post-Effective Amendment No. 35 to Registration Statement
on Form N-1A
File No. 2-30203
Filing Date: July 19, 1996
(v) Terminal Link Agreement between Registrant and Bank of New York
dated February 16, 1996
Registrant: AGE High Income Fund
Filing: Post-Effective Amendment No. 35 to Registration Statement
on Form N-1A
File No. 2-30203
Filing Date: July 19, 1996
(9) copies of all other material contracts not made in the ordinary course
of business which are to be performed in whole or in part at or after
the date of filing the Registration Statement;
Not Applicable
(10) an opinion and consent of counsel as to the legality of the securities
being registered, indicating whether they will when sold be legally
issued, fully paid and nonassessable;
Not Applicable
(11) Copies of any other opinions, appraisals or rulings and consents to the
use thereof relied on in the preparation of this registration statement
and required by Section 7 of the 1933 Act;
(i) Consent of Independent Auditors
(12) all financial statements omitted from Item 23;
Not applicable
(13) Copies of any agreements or understandings made in consideration for
providing the initial capital between or among the Registrant, the
underwriter, adviser, promoter or initial stockholders and written
assurances from promoters or initial stockholders that their purchases
were made for investment purposes without any present intention of
redeeming or reselling;
Not applicable
(14) Copies of the model plan used in the establishment of any retirement
plan in conjunction with which Registrant offers its securities, any
instructions thereto and any other documents making up the model plan.
Such form(s) should disclose the costs and fees charged in connection
therewith;
(i) Franklin IRA Form
Filing: Post-Effective Amendment No. 26 to
Registration Statement of Registrant on Form N-1A
File No. 2-30203
Filing Date: August 1, 1989
(ii) Franklin 403(b) Retirement Plan
Filing: Post Effective Amendment No. 26 to
Registration Statement of Registrant on Form N-1A
File No. 2-30203
Filing Date: August 1, 1989
(iii) Franklin Trust Company Insured CD IRA
Filing: Post Effective Amendment No. 26 to
Registration Statement of Registrant on Form N-1A
File No. 2-30203
Filing Date: August 1, 1989
(iv) Franklin Business Retirement Plans
Filing: Post Effective Amendment No. 26 to
Registration Statement of Registrant on Form N-1A
File No. 2-30203
Filing Date: August 1, 1989
(v) Franklin SEP-IRA (5305-SEP and 5305A-SEP)
Filing: Post Effective Amendment No. 26 to
Registration Statement of Registrant on Form N-1A
File No. 2-30203
Filing Date: August 1, 1989
(15) copies of any plan entered into by Registrant pursuant to Rule 12b-l
under the 1940 Act, which describes all material aspects of the
financing of distribution of Registrant's shares, and any agreements
with any person relating to implementation of such plan.
(i) Form of Distribution Plan pursuant to Rule 12b-1 between
Registrant and Franklin/Templeton Distributors, Inc.
Filing: Post-Effective Amendment No. 15 to Registration Statement
on Form N-1A
File No. 33-01212
Filing Date: August 2, 1996
(16) Schedule for computation of each performance quotation provided in the
registration statement in response to Item 22 (which need not be
audited).
(i) Schedule for Computation of Performance Quotation
Filing: Post-Effective Amendment No. 14 to Registration Statement
on Form N-1A
File Nos. 33-01212 & 811-4450
Filing Date: December 29, 1995
(17) Power of Attorney
(i) Power of Attorney dated May 14, 1996
Filing: Post-Effective Amendment No. 15 to Registration Statement
on Form N-1A
File No. 33-01212
Filing Date: August 2, 1996
(ii) Certificate of Secretary dated May 14, 1996
Filing: Post-Effective Amendment No. 15 to Registration Statement
on Form N-1A
File No. 33-01212
Filing Date: August 2, 1996
(18) Copies of any plan entered into by Registrant pursuant to Rule 18f-3
under the 1940 Act.
(i) Multiple Class Plan on behalf of Franklin Templeton German
Government Bond Fund
(ii) Multiple Class Plan on behalf of Franklin Templeton Hard
Currency Fund
ITEM 25 PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 26 NUMBER OF HOLDERS OF SECURITIES
As of October 31, 1996, the number of record holders of the only class of
securities of the Registrant are as follows:
Number of Record
Holders
Shares of Beneficial
Interest: Class I Advisor Class
Hard Currency Fund 7,400 N/A
stated value $.01 per share
German Government Bond Fund 1,599 N/A
stated value $.01 per share
ITEM 27 INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 28 BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The officers and directors of the Registrant's manager also serve as officers
and/or directors for (1) the manager's corporate parent, Franklin Resources,
Inc., and/or (2) other investment companies in the Franklin Group of Funds(R).
In addition, Mr. Charles B. Johnson is a director of General Host
Corporation. For additional information please see Part B and Schedules A
and D of Form ADV of the Funds' Investment Manager (SEC File 801-26292),
incorporated herein by reference, which sets forth the officers and directors
of the Investment Manager and information as to any business, profession,
vocation or employment of a substantial nature engaged in by those officers
and directors during the past two years.
ITEM 29 PRINCIPAL UNDERWRITERS
a) Franklin/Templeton Distributors, Inc., ("Distributors") also acts as
principal underwriter of shares of:
Franklin Asset Allocation Fund
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Gold Fund
Franklin High Income Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Mutual Series Inc.
Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund, Inc.
Franklin New York Tax-Free Trust
Franklin Real Estate Securities Trust
Franklin Strategic Mortgage Portfolio
Franklin Strategic Series
Franklin Tax-Advantaged High Yield Securities Fund
Franklin Tax-Advantaged International Bond Fund
Franklin Tax-Advantaged U.S. Government Securities Fund
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton International Trust
Franklin Templeton Money Fund Trust
Franklin Value Investors Trust
Institutional Fiduciary Trust
Franklin Templeton Japan Fund
Templeton American Trust, Inc.
Templeton Capital Accumulator Fund, Inc.
Templeton Developing Markets Trust
Templeton Funds, Inc.
Templeton Global Investment Trust
Templeton Global Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller Companies Fund, Inc.
Templeton Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
Templeton Variable Products Series Fund
(b) The information required by this Item 29 with respect to each director
and officer of Distributors is incorporated by reference to Part B of this
N-1A and Schedule A of Form BD filed by Distributors with the Securities and
Exchange Commission pursuant to the Securities Act of 1934 (SEC File No.
8-5889).
(c) Not Applicable. Registrant's principal underwriter is an affiliated
person of an affiliated person of the Registrant.
ITEM 30 LOCATION OF ACCOUNTS AND RECORDS
The accounts, books or other documents required to be maintained by Section
31 (a) of the Investment Company Act of 1940 are kept by the Fund or its
shareholder services agent, Franklin/Templeton Investor Services, Inc., both
of whose address is 777 Mariners Island Blvd., San Mateo, CA. 94404.
ITEM 31 MANAGEMENT SERVICES
There are no management-related service contracts not discussed in Part A or
Part B.
ITEM 32 UNDERTAKINGS
The Registrant hereby undertakes to comply with the information requirements
in Item 5A of the Form N-1A by including the required information in the
Trust's annual report and to furnish each person to whom a prospectus is
delivered a copy of the annual report upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of San Mateo, the State
of California, on the 30th day of December, 1996.
FRANKLIN TEMPLETON GLOBAL TRUST
(Registrant)
By: DONALD P. GOULD*
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
Donald P. Gould* President and Trustee
(Donald P. Gould) Dated: December 30, 1996
Frank H. Abbott, III* Trustee
(Frank H. Abbott, III) Dated: December 30, 1996
Harris J. Ashton* Trustee
(Harris J. Ashton) Dated: December 30, 1996
David K. Eiteman* Trustee
(David K. Eiteman) Dated: December 30, 1996
S. Joseph Fortunato* Trustee
(S. Joseph Fortunato) Dated: December 30, 1996
David W. Garbellano* Trustee
(David W. Garbellano) Dated: December 30, 1996
Gerald R. Healy* Trustee
(Gerald R. Healy) Dated: December 30, 1996
Martin L. Flanagan* Principal Financial
(Martin L. Flanagan) Officer
Dated: December 30, 1996
Diomedes Loo-Tam* Principal Accounting Officer
(Diomedes Loo-Tam) Dated December 30, 1996
Charles B. Johnson* Chairman of the Board and
(Charles B. Johnson) Trustee
Dated: December 30, 1996
Rupert H. Johnson, Jr.* Trustee
(Rupert H. Johnson, Jr.) Dated: December 30, 1996
David P. Kraus* Trustee
(David P. Kraus) Dated: December 30, 1996
Frank W. T. LaHaye* Trustee
(Frank W. T. LaHaye) Dated: December 30, 1996
Gordon S. Macklin* Trustee
(Gordon S. Macklin) Dated: December 30, 1996
*By: /s/ Larry L. Greene, Attorney-in-Fact
(pursuant to Power of Attorney previously filed)
FRANKLIN TEMPLETON GLOBAL TRUST
REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION LOCATION
EX-99.B1(i) Certificate of Trust dated May 14, 1996 *
EX-99.B1(ii) Agreement and Declaration of Trust dated *
May 14, 1996
EX-99.B2(i) By-Laws *
EX-99.B5(i) Form of Management Agreement between *
Registrant and Franklin Advisers, Inc.
EX-99.B5(ii) Form of Subadvisory agreement on behalf *
of Registrant between Franklin Advisers,
Inc., and Templeton Investment Counsel,
Inc.
EX-99.B6(i) Form of Amended and Restated Distribution *
Agreement between Registrant and
Franklin/Templeton Distributors, Inc.
EX-99.B6(ii) Forms of Dealer Agreements between *
Franklin/Templeton Distributors, Inc.,
and Securities Dealers
EX-99.B8(i) Custody Agreement between Registrant and *
Bank of America NT & SA dated November
12, 1993
EX-99.B8(ii) Custody Agreement between the Chase *
Manhattan Bank, N.A. and
Franklin/Templeton Global Trust Dated
November 15, 1993
EX-99.B8(iii) Copy of Custodian Agreements between *
Registrant and Citibank Delaware
EX-99.B8(iv) Form of Master Custody Agreement between *
Registrant and Bank of New York dated
February 16, 1996
EX-99.B8(v) Form of Terminal Link Agreement between *
Registrant and Bank of New York dated
February 16, 1996
EX-99.B11(i) Consent of Independent Auditors Attached
EX-99.B14(i) Franklin IRA Form *
EX-99.B14(ii) Franklin 403(b) Retirement Plan *
EX-99.B14(iii) Franklin Trust Company Insured CD IRA *
EX-99.B14(iv) Franklin Business Retirement Plans *
EX-99.B14(v) Franklin SEP-IRA (5305-SEP and 5305A-SEP) *
EX-99.B15(i) Form of Distribution Plan pursuant to *
Rule 12b-1 between Registrant and
Franklin/Templeton Distributors, Inc.
EX-99.B16(i) Schedule for Computation of Performance *
Quotation
EX-99.B17(i) Power of Attorney dated May 14, 1996 *
EX-99.B17(ii) Certificate of Secretary dated May 14, *
1996
EX-99.B18(i) Multiple Class Plan on behalf of Attached
Franklin Templeton German Government Bond
Fund
EX-99.B18(ii) Multiple Class Plan on behalf of Attached
Franklin Templeton Hard Currency Fund
* Incorporated by Reference
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Post-Effective Amendment No. 16
to the Registration Statement of Franklin Templeton Global Trust on Form N-1A
File Nos. 33-01212 and 811-4450 of our report dated November 30, 1995 on our
audit of the financial statements and financial highlights of Franklin Templeton
Global Trust, which report is included in the Annual Report to Shareholders for
the year ended October 31, 1995, which is incorporated by reference in the
Registration Statement.
/s/ COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 20, 1996
FRANKLIN TEMPLETON GLOBAL TRUST
on behalf of
FRANKLIN TEMPLETON GERMAN GOVERNMENT BOND FUND
Multiple Class Plan
This Multiple Class Plan (the "Plan") has been adopted by a majority of
the Board of Trustees of Franklin Templeton Global Trust (the "Investment
Company") for its series, Franklin Templeton German Government Bond Fund (the
"Fund"). The Board has determined that the Plan is in the best interests of
each class of the Fund and the Investment Company as a whole. The Plan sets
forth the provisions relating to the establishment of multiple classes of
shares of the Fund.
1. The Fund shall offer two classes of shares, to be known as Class
I shares and Class Z shares.
2. Class I Shares shall carry a front-end sales charge ranging from
0% - 4.5%. Class Z Shares shall not be subject to any front-end sales
charges.
3. Class I Shares shall not be subject to a contingent deferred
sales charge ("CDSC") except in the following limited circumstances. On
investments of $1 million or more, a contingent deferred sales charge of
1.00% of the lesser of the then-current net asset value or the original net
asset value at the time of purchase applies to redemptions of those
investments within the contingency period of 12 months from the calendar
month following their purchase. The CDSC is waived in certain circumstances,
as described in the Fund's prospectus.
Class Z Shares shall not be subject to any CDSC.
4. The distribution plan adopted by the Investment Company pursuant
to Rule 12b-1 under the Investment Company Act of 1940, as amended, (the
"Rule 12b-1 Plan") associated with the Class I Shares may be used to
reimburse Franklin/Templeton Distributors, Inc. (the "Distributor") or others
for expenses incurred in the promotion and distribution of the Class I
Shares. Such expenses include, but are not limited to, the printing of
prospectuses and reports used for sales purposes, expenses of preparing and
distributing sales literature and related expenses, advertisements, and other
distribution-related expenses, including a prorated portion of the
Distributor's overhead expenses attributable to the distribution of the Class
I Shares, as well as any distribution or service fees paid to securities
dealers of their firms or others who have executed a servicing agreement with
the Investment Company for the Class I Shares, the Distributor or its
affiliates.
No Rule 12b-1 Plan has been adopted on behalf of the Class Z Shares,
and therefore, the Class Z Shares shall not be subject to deductions relating
to rule 12b-1 fees.
The Rule 12b-1 Plan for the Class I Shares shall operate in accordance
with the Rules of Fair Practice of the National Association of Securities
Dealers, Inc., Article III, section 26(d).
5. The only difference in expenses as between Class I and Class Z
Shares shall relate to differences in Rule 12b-1 plan expenses, as described
in the applicable Rule 12b-1 Plan.
6. There shall be no conversion features associated with the Class I
and Class Z Shares.
7. Shares of Class I and may be exchanged for shares of another
investment company within the Franklin Templeton Group of Funds according to
the terms and conditions stated in each fund's prospectus, as it may be
amended from time to time, to the extent permitted by the Investment Company
Act of 1940 and the rules and regulations adopted thereunder. There is no
conversion feature applicable to Class Z Shares.
8. Each class will vote separately with respect to any Rule 12b-1
Plan related to that class.
9. On an ongoing basis, the Board members, pursuant to their
fiduciary responsibilities under the 1940 Act and otherwise, will monitor the
Fund for the existence of any material conflicts between the interests of the
various classes of shares. The Board members, including a majority of the
independent Board members, shall take such action as is reasonably necessary
to eliminate any such conflict that may develop. Franklin Advisers, Inc. and
Franklin Templeton Distributors, Inc. shall be responsible for alerting the
Board to any material conflicts that arise.
10. All material amendments to this Plan must be approved by a
majority of the Board members, including a majority of the Board members who
are not interested persons of the Investment Company.
11. I, Deborah R. Gatzek, Secretary of the Franklin Templeton Group
of Funds, do hereby certify that this Multiple Class Plan was adopted by
Franklin Templeton Global Trust, on behalf of its series Franklin Templeton
German Government Bond Fund, by a majority of the Trustees of the Trust on
September 17, 1996.
/s/ Deborah R. Gatzek
------------------
Deborah R. Gatzek
Secretary
FRANKLIN TEMPLETON GLOBAL TRUST
on behalf of
FRANKLIN TEMPLETON HARD CURRENCY FUND
Multiple Class Plan
This Multiple Class Plan (the "Plan") has been adopted by a majority of
the Board of Trustees of Franklin Templeton Global Trust (the "Investment
Company") for its series, Franklin Templeton Hard Currency Fund (the
"Fund"). The Board has determined that the Plan is in the best interests of
each class of the Fund and the Investment Company as a whole. The Plan sets
forth the provisions relating to the establishment of multiple classes of
shares of the Fund.
1. The Fund shall offer two classes of shares, to be known as Class
I shares and Class Z shares.
2. Class I Shares shall carry a front-end sales charge ranging from
0% - 4.5%. Class Z Shares shall not be subject to any front-end sales
charges.
3. Class I Shares shall not be subject to a contingent deferred
sales charge ("CDSC") except in the following limited circumstances. On
investments of $1 million or more, a contingent deferred sales charge of
1.00% of the lesser of the then-current net asset value or the original net
asset value at the time of purchase applies to redemptions of those
investments within the contingency period of 12 months from the calendar
month following their purchase. The CDSC is waived in certain circumstances,
as described in the Fund's prospectus.
Class Z Shares shall not be subject to any CDSC.
4. The distribution plan adopted by the Investment Company pursuant
to Rule 12b-1 under the Investment Company Act of 1940, as amended, (the
"Rule 12b-1 Plan") associated with the Class I Shares may be used to
reimburse Franklin/Templeton Distributors, Inc. (the "Distributor") or others
for expenses incurred in the promotion and distribution of the Class I
Shares. Such expenses include, but are not limited to, the printing of
prospectuses and reports used for sales purposes, expenses of preparing and
distributing sales literature and related expenses, advertisements, and other
distribution-related expenses, including a prorated portion of the
Distributor's overhead expenses attributable to the distribution of the Class
I Shares, as well as any distribution or service fees paid to securities
dealers of their firms or others who have executed a servicing agreement with
the Investment Company for the Class I Shares, the Distributor or its
affiliates.
No Rule 12b-1 Plan has been adopted on behalf of the Class Z Shares,
and therefore, the Class Z Shares shall not be subject to deductions relating
to rule 12b-1 fees.
The Rule 12b-1 Plan for the Class I Shares shall operate in accordance
with the Rules of Fair Practice of the National Association of Securities
Dealers, Inc., Article III, section 26(d).
5. The only difference in expenses as between Class I and Class Z
Shares shall relate to differences in Rule 12b-1 plan expenses, as described
in the applicable Rule 12b-1 Plan.
6. There shall be no conversion features associated with the Class I
and Class Z Shares.
7. Shares of Class I and may be exchanged for shares of another
investment company within the Franklin Templeton Group of Funds according to
the terms and conditions stated in each fund's prospectus, as it may be
amended from time to time, to the extent permitted by the Investment Company
Act of 1940 and the rules and regulations adopted thereunder. There is no
conversion feature applicable to Class Z Shares.
8. Each class will vote separately with respect to any Rule 12b-1
Plan related to that class.
9. On an ongoing basis, the Board members, pursuant to their
fiduciary responsibilities under the 1940 Act and otherwise, will monitor the
Fund for the existence of any material conflicts between the interests of the
various classes of shares. The Board members, including a majority of the
independent Board members, shall take such action as is reasonably necessary
to eliminate any such conflict that may develop. Franklin Advisers, Inc. and
Franklin Templeton Distributors, Inc. shall be responsible for alerting the
Board to any material conflicts that arise.
10. All material amendments to this Plan must be approved by a
majority of the Board members, including a majority of the Board members who
are not interested persons of the Investment Company.
11. I, Deborah R. Gatzek, Secretary of the Franklin Templeton Group
of Funds, do hereby certify that this Multiple Class Plan was adopted by
Franklin Templeton Global Trust, on behalf of its series Franklin Templeton
Hard Currency Fund, by a majority of the Trustees of the Trust on September
17, 1996.
/s/ Deborah R. Gatzek
------------------
Deborah R. Gatzek
Secretary
