Filed with the Securities and Exchange Commission on February 28, 1997.
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. 17 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 18 (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 March 1, 1997 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 20, 1996.
FRANKLIN TEMPLETON GLOBAL TRUST
CROSS REFERENCE SHEET
FORM N-1A
PART A: INFORMATION REQUIRED IN PROSPECTUS
Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
1. Cover Page Cover Page
2. Synopsis Expense Summary
3. Condensed Financial "Financial Highlights"; "How does
Information the Fund Measure 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";
"What If I have Questions About My
Account?"
7. Purchase of Securities "How Do I Buy Shares?"; "May I
Being 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 German Government Bond Fund
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
1. Cover Page Cover Page
2. Synopsis Expense Summary
3. Condensed Financial "Financial Highlights"; "How does the
Information Fund Measure 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 the Fund and its
Shareholders"; "What If I Have
Questions About My Account?"
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 the Fund and its
Shareholders"; "What If I Have
Questions About My Account?"
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 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 the Fund and its
Shareholders"; "What If I Have
Questions About My Account?"
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 Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and Not Applicable
History
13. Investment Objectives and "How does the Fund Invest its
Policies Assets?"; "Investment Restrictions"
14. Management of the Fund "Officers and Trustees";
"Investment Management and Other
Services"
15. Control Persons and "Officers and Trustees";
Principal Holders of "Investment Management and Other
Securities Services"; "Miscellaneous Information"
16. Investment Advisory and "Investment Management and Other
Other Services Services"; "The Fund's Underwriter"
17. Brokerage Allocation "How does the Fund Buy
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 "How does the Fund Measure
Data Performance?"
23. Financial Statements Financial Statements
FRANKLIN TEMPLETON GLOBAL TRUST
CROSS REFERENCE SHEET
FORM N-1A
Part B: Information Required in
STATEMENT OF ADDITIONAL INFORMATION
Franklin Templeton German Government Bond Fund
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and Not Applicable
History
13. Investment Objectives and "How does the Fund Invest its
Policies Assets?"; "Investment Restrictions"
14. Management of the Fund "Officers and Trustees";
"Investment Management and Other
Services"
15. Control Persons and "Officers and Trustees";
Principal Holders of "Investment Management and Other
Securities Services"; "Miscellaneous Information"
16. Investment Advisory and "Investment Management and Other
Other Services Services"; "The Fund's Underwriter"
17. Brokerage Allocation "How does the Fund Buy
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 "How does the Fund Measure
Data 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 Not Applicable
History
13. Investment Objectives and "How does the Fund Invest its
Policies Assets?"; "Investment Restrictions"
14. Management of the Fund "Officers and Trustees";
"Investment Management and Other
Services"
15. Control Persons and "Officers and Trustees";
Principal Holders of "Investment Management and Other
Securities Services"; "Miscellaneous Information"
16. Investment Advisory and "Investment Management and Other
Other Services Services"; "The Fund's Underwriter"
17. Brokerage Allocation "How does the Fund Buy 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 "How does the Fund Measure
Data 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 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 Not Applicable
History
13. Investment Objectives and "How does the Fund Invest its
Policies Assets?"; "Investment Restrictions"
14. Management of the Fund "Officers and Trustees";
"Investment Management and Other
Services"
15. Control Persons and "Officers and Trustees";
Principal Holders of "Investment Management and Other
Securities Services"; "Miscellaneous Information"
16. Investment Advisory and "Investment Management and Other
Other Services Services"; "The Fund's Underwriter"
17. Brokerage Allocation "How does the Fund Buy
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 "How does the Fund Measure
Data Performance?"
23. Financial Statements Financial Statements
PROSPECTUS & APPLICATION
FRANKLIN TEMPLETON
INTERNATIONAL CURRENCY FUNDS
MARCH 1, 1997
FRANKLIN TEMPLETON GLOBAL CURRENCY FUND
FRANKLIN TEMPLETON HARD CURRENCY FUND
FRANKLIN TEMPLETON HIGH INCOME CURRENCY FUND
INVESTMENT STRATEGY
GLOBAL GROWTH
AND INCOME
This prospectus describes Class I shares of the Franklin Templeton Global
Currency Fund (the "Global Currency Fund"), the Franklin Templeton Hard
Currency Fund (the "Hard Currency Fund"), and the Franklin Templeton High
Income Currency Fund (the "High Income Fund") (individually or collectively
the "Fund," "Funds" or the "Currency Funds"). It contains information you
should know before investing in the Fund. Please keep it for future reference.
The Hard Currency Fund currently offers another class of shares with a
different sales charge and expense structure, which affects performance. This
class is described in a separate prospectus. For more information, contact
your investment representative or call 1-800/DIAL BEN.
The Fund has a Statement of Additional Information ("SAI") for its Class I
shares, dated March 1, 1997, which may be amended from time to time. It
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.
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, JURISDICTION OR COUNTRY 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.
The Currency Funds may invest in money market instruments, both foreign and
domestic. Investments in foreign securities involve certain considerations
that are not normally involved in investments in securities of U.S.
companies. The Currency Funds should not be considered money market funds.
Please see "What are the Fund's Potential Risks?"
FRANKLIN
TEMPLETON INTERNATIONAL CURRENCY FUNDS
MARCH 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 .................................................. 2
Financial Highlights ............................................. 3
How does the Fund Invest its Assets? ............................. 8
What are the Fund's Potential Risks? ............................. 18
Who Manages the Fund? ............................................ 21
How does the Fund Measure Performance? ........................... 23
How Taxation Affects the Fund and its Shareholders ............... 23
How is the Trust Organized? ...................................... 25
About Your Account
How Do I Buy Shares? ............................................. 26
May I Exchange Shares for Shares of Another Fund? ................ 31
How Do I Sell Shares? ............................................ 33
What Distributions Might I Receive from the Fund? ................ 35
Transaction Procedures and Special Requirements .................. 36
Services to Help You Manage Your Account ......................... 40
What If I Have Questions About My Account? ....................... 43
Glossary
Useful Terms and Definitions ..................................... 43
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. It is based on the Fund's historical expenses for the fiscal year ended
October 31, 1996. The Fund's actual expenses may vary.
GLOBAL HARD HIGH
CURRENCY CURRENCY INCOME
FUND FUND FUND
A. SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Charge Imposed on Purchases++
(as a percentage of Offering Price) 3.00% 3.00% 3.00%
Deferred Sales Charge+++ NONE NONE NONE
Exchange Fee (per transaction) $5.00* $5.00* $5.00*
B. ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.65% 0.65% 0.65%**
Rule 12b-1 Fees*** 0.21% 0.24% 0.20%
Other Expenses 0.13% 0.21% 0.44%
Total Fund Operating Expenses0.99% 1.10% 1.29%**
C.EXAMPLE
Assume the Fund's annual return is 5%, operating expenses are as described
above, and you sell your shares after the number of years shown. These are
the projected expenses for each $1,000 that you invest in the Fund.
GLOBAL HARD HIGH
CURRENCY CURRENCY INCOME
FUND FUND FUND
One Year**** $ 40 $ 41 $ 43
Three Years 61 64 70
Five Years 83 89 99
Ten Years 148 160 181
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 its Net Asset Value or dividends and are not directly charged
to your account.
+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
++There is no front-end sales charge if you invest $1 million or more.
+++A Contingent Deferred Sales Charge of 1% may apply to purchases of $1
million or more if you sell the shares within one year. See "How Do I Sell
Shares? - Contingent Deferred Sales Charge" for details.
*$5.00 fee is only for Market Timers. We process all other exchanges without
a fee.
**For the period shown, Advisers had agreed in advance to limit its
management fees and make certain payments to reduce the Fund's expenses. With
this reduction, management fees were 0.61% and total Fund operating expenses
were 1.25%.
***These fees may not exceed 0.45%. The combination of front-end sales
charges and Rule 12b-1 fees could cause long-term shareholders to pay more
than the economic equivalent of the maximum front-end sales charge permitted
under the NASD's rules.
****Assumes a Contingent Deferred Sales Charge will not apply.
FINANCIAL HIGHLIGHTS
This table summarizes the Fund's financial history. The information for the
most recent four periods has been audited by Coopers & Lybrand L.L.P., the
Fund's independent auditors. Their audit report covering each of the most
recent four periods appears in the financial statements in the Trust's Annual
Report to Shareholders for the fiscal year ended October 31, 1996. The
information for the fiscal year ended April 30, 1993 was audited by other
independent auditors whose opinions are not included herein. The Annual
Report to Shareholders also includes more information about the Fund's
performance. For a free copy, please call Fund Information.
<TABLE>
<CAPTION>
Global Currency Fund
SIX-MONTH
PERIOD ENDED
YEAR ENDED OCTOBER 31,OCTOBER 31, YEAR ENDED APRIL 30,
1996 1995 1994 19942 1993 1992 1991 1990 1989 1988
PER SHARE OPERATING PERFORMANCE+
Net Asset Value at
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of Period $13.67 $14.14 $13.85 $13.96 $14.01 $14.23 $13.66 $13.71 $14.76 $13.86
Net Investment Income .69 1.29 .25 .57 .67 .80 1.07 .97 .85 .52
Net Realized &
Unrealized Gain (Loss) (.54) (.49) .32 (.11) 1.01 (.22) .57 .07 (.54) 1.10
Total From
Investment Operations .15 .80 .57 .46 1.68 .58 1.64 1.04 .31 1.62
Distributions From
Net Investment Income (.71) (1.27) (.28) (.57) (.69) (.80) (1.07) (.99) (.89) (.57)
Distributions From
Capital Gains - - - - (1.04) - - (.10) (.47) (.15)
Distributions From
Return of Capital+++ (.31) - - - - - - - - -
Total Distributions (1.02) (1.27) (.28) (.57) (1.73) (.80) (1.07) (1.09) (1.36) (.72)
Net Asset Value at
End of Period $12.80 $13.67 $14.14 $13.85 $13.96 $14.01 $14.23 $13.66 $13.71 $14.76
Total Return++ 1.27% 6.05% 4.14% 3.41% 13.28% 4.29% 12.21% 8.19% 1.97% 12.12%
RATIOS/SUPPLEMENTAL DATA
Net Assets at
End of Period (in 000's) $50,773 $59,942 $56,098 $51,539 $62,355 $63,589 $72,186 $71,615 $112,009 $138,609
Ratio of Expenses to
Average Net Assets** .99% 0.99% 1.04%* 1.41% 1.67% 1.82% 1.82% 2.09% 2.10% 2.00%
Ratio of Net
Investment Income
to Average Net Assets 4.30% 5.29% 3.55%* 2.78% 4.64% 5.77% 7.36% 7.16% 6.10% 3.70%
Portfolio Turnover Rate - 46.05% 50.82%* 37.16% 10.39% - - - - -
Hard Currency Fund
SIX-MONTH
PERIOD ENDED
YEAR ENDED OCTOBER 31,OCTOBER 31, YEAR ENDED APRIL 30,
1996 1995 1994 19942 1993 1992 1991 19901
PER SHARE OPERATING PERFORMANCE+
Net Asset Value
at Beginning of Period $13.09 $13.95 $12.95 $13.00 $13.12 $12.83 $13.18 $12.50
Net Investment Income .57 1.84 .26 .50 .71 .77 .92 .42
Net Realized
& Unrealized Gain (Loss) (1.34) (1.02) .99 (.05) 1.20 .28 .64 .69
Total From
Investment Operations (.77) .82 1.26 .45 1.91 1.05 1.56 1.11
Distributions From
Net Investment Income (.06) (1.68) (.25) (.13) (.69) (.76) (.95) (.35)
Distributions
From Capital Gains - - - - (1.34) - (.96) (.08)
Distributions From
Return of Capital+++ (0.62) - - (.37) - - - -
Total Distributions (.68) (1.68) (.25) (.50) (2.03) (.76) (1.91) (.43)
Net Asset Value at
End of Period $11.64 $13.09 $13.95 $12.95 $13.00 $13.12 $12.83 $13.18
Total Return++ (5.99)% 6.68% 9.74% 3.62% 17.11% 8.40% 11.04% 8.88%
RATIOS/SUPPLEMENTAL DATA
Net Assets at
End of Period (in 000's) $124,666 $132,089 $61,228 $35,739 $49,569 $31,757 $33,599 $26,280
Ratio of Expenses to
Average Net Assets** 1.10% 1.15% 1.05%* 1.47% 1.75% 1.86% 1.66% 1.65%*
Ratio of Net Investment
Income to Average Net Assets 4.50% 4.68% 3.80%* 3.83% 5.23% 5.85% 6.46% 6.21%*
Portfolio Turnover Rate - 15.72% 55.91%* - 4.88% - - -
High Income Fund
SIX-MONTH
PERIOD ENDED
YEAR ENDED OCTOBER 31,OCTOBER 31, YEAR ENDED APRIL 30,
1996 1995 1994 19942 1993 1992 1991 19901
PER SHARE OPERATING PERFORMANCE+
Net Asset Value at
Beginning of Period $11.56 $11.59 $11.28 $12.13 $12.90 $12.92 $12.84 $12.50
Net Investment Income .58 1.47 .31 .59 .90 1.09 1.34 .73
Net Realized
& Unrealized Gain (Loss) - (.51) .31 (.85) (.40) (.03) .43 .24
Total From
Investment Operations .58 .96 .62 (.26) .50 1.06 1.77 .97
Distributions From
Net Investment Income (1.08) (.99) (.31) - (.94) (1.08) (1.38) (.62)
Distributions From
Capital Gains (0.01) - - - (.33) - (.31) (.01)
Distributions From
Return of Capital+++ (0.03) - - (.59) - - - -
Total Distributions (1.12) (.99) (.31) (.59) (1.27) (1.08) (1.69) (.63)
Net Asset Value at
End of Period $11.02 $11.56 $11.59 $11.28 $12.13 $12.90 $12.92 $12.84
Total Return++ 5.56% 8.90% 5.60% (2.03)% 4.49% 8.51% 14.09% 7.82%
RATIOS/SUPPLEMENTAL DATA
Net Assets at
End of Period (in 000's) $10,113 $10,902 $16,878 $16,706 $32,341 $46,575 $52,364 $11,808
Ratio of Expenses to
Average Net Assets** 1.25% 1.25% 1.04%* 1.59% 1.81% 1.83% 1.59% 1.73%*
Ratio of Net Investment
Income to Average Net Assets 4.83% 5.56% 5.44%* 4.80% 6.86% 8.38% 9.85% 11.01%*
Portfolio Turnover Rate - 115.05% 1,588.38%* - - - - -
</TABLE>
+Selected data for a share of beneficial interest outstanding throughout the
periods indicated.
++Total return measures the change in value of an investment over the periods
indicated and is not annualized. It does not include the maximum front-end sales
charge or Contingent Deferred Sales Charge and assumes reinvestment of dividends
and capital gains at Net Asset Value.
+++Certain distributions have been reclassed to conform with SOP 93-2.
*Annualized
**During the periods indicated Advisers had agreed in advance to waive a
portion of its management fee and to make certain payments to reduce expenses
of the Funds. Had such action not been taken, the ratios of expenses to
average net assets would have been as follows:
Ratio of Expenses
to Average Net Assets
Global Currency Fund
1994 1.61%
19943 1.12*
Hard Currency Fund
1994 1.71%
19943 1.28*
High Income Fund
19901 2.04%
1994 1.82
19943 1.45*
19954 1.45
1996 1.29
1For the period November 17, 1989 (effective date of registration) to April
30, 1990.
2On November 12, 1993, the investment advisor changed to Advisers.
3For the six months ended October 31, 1994, reflecting a change in fiscal
year from April 30.
4For the year ended October 31, 1995.
HOW DOES THE FUND INVEST ITS ASSETS?
The investment objective of the Fund is a fundamental policy and may not be
changed without shareholder approval. Of course there is no assurance that
the Fund's objective will be achieved.
GLOBAL CURRENCY FUND
The investment objective of the Global Currency Fund is to maximize the
investor's total return through a combination of interest income and changes
in the Fund's Net Asset Value due to changes in currency exchange rates. The
Fund seeks to achieve its objective by investing in interest-earning money
market instruments denominated in three or more Major Currencies. Under
normal market conditions, at least 65% of the Fund's total assets will be
invested in instruments denominated in three or more Major Currencies,
including the U.S. dollar.
HARD CURRENCY FUND
The investment objective of the Hard Currency Fund is to protect against
depreciation of the U.S. dollar relative to other currencies. The Fund seeks
to achieve its objective by investing in high-quality money market
instruments (and forward contracts) denominated in foreign Major Currencies
which historically have experienced low rates of inflation and which, in the
view of the 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.
The Investment Managers actively manage the Hard Currency 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.
HIGH INCOME FUND
The investment objective of the High Income Fund is to achieve high current
income at a level significantly above that available on U.S. dollar money
market funds. Subject to this investment objective, a secondary consideration
of the Fund is preservation of capital. The Fund seeks to achieve its
objective by investing in interest-bearing money market instruments
denominated in Major and Non-Major Currencies.
Under normal market conditions, at least 65% of this Fund's total assets will
be invested in instruments denominated in three or more of the ten highest
yielding Major Currencies (excluding the ECU) and the U.S. dollar (whether or
not the U.S. dollar is one of those ten highest yielding Major Currencies).
As a non-fundamental policy, the Fund intends, under normal market conditions
not to invest (i) more than 25% of its total assets in instruments
denominated in one Major Currency other than the U.S. dollar, (ii) more than
5% of its total assets in instruments denominated in one Non-Major Currency,
or (iii) more than 25% of its total assets in instruments denominated in
Non-Major Currencies. The Fund may, for defensive purposes, or temporarily to
preserve capital, invest up to 100% of its net assets in U.S. dollar
denominated instruments.
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
for each year from 1989 through 1995 are listed below:
1996* 1995 1994 1993 1992 1991 1990 1989
Sweden** 6.00% 8.10% 7.64% 8.62% 11.96% - - -
Italy 8.69% 10.29% 8.48% 10.22% 13.86% 11.83% 11.98% 12.41%
Spain 7.49% 9.37% 8.04% 11.77% 13.21% 12.60% - -
Denmark 3.94% 6.22% 6.21% 10.89% 11.12% 9.78% 10.96% 9.65%
France 3.87% 6.60% 5.79% 8.44% 10.22% 9.55% 10.24% 9.33%
United Kingdom 6.02% 6.69% 5.50% 5.92% 9.60% 11.50% 14.76% 13.88%
Germany - - 5.29% 7.21% 9.42% 9.21% - -
Belgium - - 5.65% 8.12% 9.32% 9.32% 9.69% 8.51%
Netherlands - - - 6.81% 9.31% 9.25% 8.59% 7.29%
Switzerland - - - - 7.82% - 8.89% -
Australia** 7.15% 7.76% - - - 9.84% 13.71% 16.59%
New Zealand 9.29% 9.04% 6.41% 6.14% - 9.49% 13.71% 12.64%
Canada** 4.41% 7.08% 5.35% - - - 12.54% 11.79%
U.S. 5.41% 5.99% - - - - - 9.21%
*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. The High Income Fund
may also invest in money market instruments of Non-Major Currencies.
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 FUNDS MAY INVEST
The Global Currency Fund. This Fund uses the most flexible investment
strategy and is designed for investors seeking the greatest degree of active
management among the Major Currencies. The Fund invests in money market
instruments denominated in any combination of three or more Major Currencies,
including the U.S. dollar, with the objective of maximizing total return. The
Investment Managers may, therefore, vary their emphasis between currency
appreciation and interest income from time to time. The Fund's ability to
achieve its objective may be limited by its restrictive universe of
investments as well as the high quality of the investments. During periods of
actual or anticipated appreciation of the U.S. dollar relative to other
currencies, or for temporary defensive purposes, the Fund may invest up to
100% of its net assets in U.S. dollar-denominated instruments.
The Hard Currency Fund. This 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 High Income Fund. This Fund invests in Major Currencies and Non-Major
Currencies. Under normal market conditions, the Fund will invest at least 65%
of its total assets in money market instruments denominated in three or more
of the ten highest yielding Major Currencies (excluding the ECU) and the U.S.
dollar (whether or not the U.S. dollar is one of those ten highest yielding
Major Currencies).
As a non-fundamental policy, it is the Fund's intention under normal market
conditions not to invest (i) more than 25% of its total assets in instruments
denominated in one Major Currency, other than the U.S. dollar, (ii) more than
5% of its total assets in instruments denominated in one Non-Major Currency,
or (iii) more than 25% of its total assets in instruments denominated in
Non-Major Currencies.
For defensive purposes or to preserve capital, the Fund may temporarily
invest up to 100% of its net assets in U.S. dollar instruments. The Fund is
designed for investors seeking high current income at a level significantly
above that available on U.S. dollar money market funds. Because the
Investment Managers emphasize interest income rather than currency
appreciation, you should expect income to constitute the primary component of
total return for the Fund.
GENERAL
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 Economic Community, 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's 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. The 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), CDs, 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 NYSE). 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 that 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 bank 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 Hard Currency
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 Global Currency Fund and High Income Fund may hedge up to 100% of
their portfolio positions and each 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 the Fund is non-diversified under the 1940 Act,
as a non-fundamental policy, the 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's policy is not to invest more than 10% of its
net assets 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.
Portfolio Turnover. The High Income Fund's portfolio turnover rate for the
fiscal year ended October 31, 1995 was 115.05%. The high portfolio turnover
rate for the fiscal year ended October 31, 1995 was due to certain long-term
securities held by the High Income Fund. Only long-term securities are
considered when calculating the portfolio turnover rate. Although the High
Income Fund generally does not invest in long-term securities, its few
transactions involving such securities resulted in a higher portfolio
turnover rate for the fiscal year ended October 31, 1995 than might otherwise
be expected. High portfolio turnover may increase the Fund's transaction
costs.
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 the value or liquidity 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?
General. 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 Hard Currency 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.
Because the High Income Fund invests primarily in instruments denominated in
the Major Currencies that have the highest yield, there is a significant
possibility that the countries represented by the high-yield Major Currencies
may have recently experienced or may be expected to experience relatively
high rates of inflation, which may cause such Major Currencies to depreciate
relative to other Major Currencies, including the U.S. dollar. It is
possible, however, that the higher yields of the instruments in which the
Fund invests will more than offset any such depreciation, in which case the
Fund could provide a higher total return 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 NYSE 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."
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 Hard Currency Fund to ensure no material
conflicts exist between the Hard Currency Fund's classes of shares. While
none is expected, the Board will act appropriately to resolve any material
conflict that may arise.
Investment Managers. The Investment Managers manage the Fund's assets and
make its investment decisions. The Investment Managers also perform 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 $179 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.
Under an agreement with Advisers, TICI is the sub-advisor of the Fund. TICI
provides Advisers with investment management advice and assistance. TICI also
provides day-to-day portfolio management for the Fund. TICI's activities are
subject to the Board's review and control, as well as Advisers' instruction
and supervision.
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 is a Chartered Financial Analyst and holds a bachelor of arts
degree in economics and philosophy from Brandeis University. Mr. Devlin
joined the Franklin Templeton Group in 1987.
Thomas J. Dickson
Portfolio Manager of TICI
Mr. Dickson received his bachelor of science degree in managerial economics
from the University of California at Davis. Mr. Dickson joined the Franklin
Templeton Group in 1992.
Donald P. Gould, a Portfolio Manager with Advisers, is founder and president
of Franklin Templeton Global Trust (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, 1996, management
fees and total expenses of the Fund, including fees paid to Advisers were as
follows:
TOTAL
OPERATING
MANAGEMENT FEESEXPENSES
Global Currency Fund 0.65% 0.99%
Hard Currency Fund 0.65% 1.10%
High Income Fund* 0.65% 1.29%
*Under an agreement by Advisers to limit its fees, the High Income Fund paid
management fees totaling 0.61% and total operating expenses totaling 1.25%.
Advisers may end this arrangement at any time upon notice to the Board.
During the same period, Advisers paid TICI a sub-advisory fee totaling 0.25%
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.
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.
THE RULE 12B-1 PLAN
The Fund has a distribution plan or "Rule 12b-1 Plan" for its Class I shares
under which it may reimburse Distributors or others for activities primarily
intended to sell shares of the class. These expenses may include, among
others, distribution or service fees paid to Securities Dealers or others who
have executed a servicing agreement with the Fund, Distributors or its
affiliates, printing prospectuses and reports used for sales purposes,
preparing and distributing sales literature and advertisements, and a
prorated portion of Distributors' overhead expenses.
Payments by the Fund under the plan may not exceed 0.45% per year of Class
I's average daily net assets. Of this amount, the Fund may reimburse up to
0.25% to Distributors or others and may reimburse an additional 0.20% to
Distributors for distribution expenses. All distribution expenses over this
amount will be borne by those who have incurred them. During the first year
after certain purchases made without a sales charge, Distributors may keep
the Rule 12b-1 fees associated with the purchase. For more information,
please see "The Fund's Underwriter" in the SAI.
HOW DOES THE FUND MEASURE PERFORMANCE?
From time to time, 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, but certain figures may not include the sales charge.
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 shows
the income per share earned by the Fund. The current distribution rate shows
the dividends or distributions paid to shareholders by the Fund. 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. Unlike current
yield, the current distribution rate may include income distributions from
sources other than dividends and interest received by the Fund.
The Fund's investment results 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.
The Hard Currency Fund also offers another share class and, from time to
time, will advertise its performance in a manner described in the prospectus
for that class.
HOW TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS
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 mark-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 deemed a U.S. person for purposes of federal income taxation,
you should consult with your financial or tax advisors regarding the
applicability of U.S. withholding or other taxes to distributions received by
you from the Fund and the application of foreign tax laws to these
distributions.
HOW IS THE TRUST ORGANIZED?
The Fund is a non-diversified series of 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. Shares of each series of the Trust have equal and exclusive rights
to dividends and distributions declared by that series and the net assets of
the series in the event of liquidation or dissolution. Shares of the Global
Currency Fund and the High Income Fund are considered Class I shares for
redemption, exchange and other purposes.
As of January 1, 1997, the Hard Currency Fund began offering a new class of
shares designated Franklin Templeton Hard Currency Fund - Advisor Class. All
shares outstanding before the offering of Advisor Class shares have been
designated Franklin Templeton Hard Currency Fund - Class I. Additional series
and classes of shares may be offered in the future.
Shares of each class of the Hard Currency Fund 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 Hard Currency Fund for matters that
affect the Fund as a whole. For matters that only affect one class, however,
only shareholders of that class may vote. 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 of a series have the same voting and other
rights and preferences as the other classes and series of the Trust for
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.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
To open your account, contact your investment representative or complete and
sign the enclosed shareholder application and return it to the Fund with your
check.
MINIMUM
INVESTMENTS*
To Open Your Account $100
To Add to Your Account $ 25
*We may waive these minimums for retirement plans. We may also refuse any
order to buy shares.
SALES CHARGE REDUCTIONS AND WAIVERS
- - If you qualify to buy shares under one of the sales charge reduction or
waiver categories described below, please include a written statement with
each purchase order explaining which privilege applies. If you don't include
this statement, we cannot guarantee that you will receive the sales charge
reduction or waiver.
Quantity Discounts. The sales charge you pay depends on the dollar amount you
invest, as shown in the table below.
TOTAL SALES CHARGE AMOUNT PAID
AS A PERCENTAGE OF TO DEALER AS A
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE
Less than $50,000 3.00% 3.09% 2.60%
$50,000 but less than $100,000 2.50% 2.56% 2.25%
$100,000 but less than $250,000 2.00% 2.04% 1.85%
$250,000 but less than $500,000 1.50% 1.52% 1.40%
$500,000 but less than $750,000 1.00% 1.01% 1.00%
$750,000 but less than $1,000,000 0.75% 0.76% 0.75%
$1,000,000 or more* None None None
*If you invest $1 million or more, a Contingent Deferred Sales Charge may be
imposed on an early redemption. Please see "How Do I Sell Shares? -
Contingent Deferred Sales Charge." Please also see "Other Payments to
Securities Dealers" below for a discussion of payments Distributors may make
out of its own resources to Securities Dealers for certain purchases.
Cumulative Quantity Discounts. To determine if you may pay a reduced sales
charge, the amount of your current purchase is added to the cost or current
value, whichever is higher, of your existing shares in the Franklin Templeton
Funds, as well as those of your spouse, children under the age of 21 and
grandchildren under the age of 21. If you are the sole owner of a company,
you may also add any company accounts, including retirement plan accounts.
Companies with one or more retirement plans may add together the total plan
assets invested in the Franklin Templeton Funds to determine the sales charge
that applies.
Letter of Intent. You may buy shares at a reduced sales charge by completing
the Letter of Intent section of the shareholder application. A Letter of
Intent is a commitment by you to invest a specified dollar amount during a 13
month period. The amount you agree to invest determines the sales charge you
pay.
By completing the Letter of Intent section of the shareholder application,
you acknowledge and agree to the following:
o You authorize Distributors to reserve 5% of your total intended purchase in
Fund shares registered in your name until you fulfill your Letter.
o You give Distributors a security interest in the reserved shares and
appoint Distributors as attorney-in-fact.
o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the Letter.
o Although you may exchange your shares, you may not sell reserved shares
until you complete the Letter or pay the higher sales charge.
Your periodic statements will include the reserved shares in the total shares
you own. We will pay or reinvest dividend and capital gain distributions on
the reserved shares as you direct. Our policy of reserving shares does not
apply to certain retirement plans.
If you would like more information about the Letter of Intent privilege,
please see "How Do I Buy, Sell and Exchange Shares? - Letter of Intent" in
the SAI or call Shareholder Services.
Group Purchases. If you are a member of a qualified group, you may buy Fund
shares at a reduced sales charge that applies to the group as a whole. The
sales charge is based on the combined dollar value of the group members'
existing investments, plus the amount of the current purchase.
A qualified group 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 Franklin Templeton Fund sales and other 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.
Sales Charge Waivers. The Fund's sales charges (front-end and contingent
deferred) will not apply to certain purchases. For waiver categories 1, 2 or
3 below: (i) the distributions or payments must be reinvested within 365 days
of their payment date, and (ii) Class II distributions may be reinvested in
either Class I or Class II shares. Class I distributions may only be
reinvested in Class I shares.
The Fund's sales charges will not apply if you are buying shares with money
from the following sources:
1. Dividend and capital gain distributions from any Franklin Templeton Fund
or a REIT sponsored or advised by Franklin Properties, Inc.
2. Distributions from an existing retirement plan invested in the Franklin
Templeton Funds
3. Annuity payments received under either an annuity option or from death
benefit proceeds, only if the annuity contract offers as an investment option
the Franklin Valuemark Funds, the Templeton Variable Annuity Fund, the
Templeton Variable Products Series Fund, or the Franklin Government
Securities Trust. You should contact your tax advisor for information on any
tax consequences that may apply.
4. Redemptions from any Franklin Templeton Fund if you:
o Originally paid a sales charge on the shares,
o Reinvest the money within 365 days of the redemption date, and
o Reinvest the money in the same class of shares.
An exchange is not considered a redemption for this privilege. The Contingent
Deferred Sales Charge will not be waived if the shares were subject to a
Contingent Deferred Sales Charge when sold. We will credit your account in
shares, at the current value, in proportion to the amount reinvested for any
Contingent Deferred Sales Charge paid in connection with the earlier
redemption, but a new Contingency Period will begin.
If you immediately placed your redemption proceeds in a Franklin Bank CD, you
may reinvest them as described above. The proceeds must be reinvested within
365 days from the date the CD matures, including any rollover.
5. Redemptions from other mutual funds
If you sold shares of a fund that is not a Franklin Templeton Fund within
the past 60 days, you may invest the proceeds without any sales charge if (a)
the investment objectives were similar to the Fund's, and (b) your shares in
that fund were subject to any front-end or contingent deferred sales charges
at the time of purchase. You must provide a copy of the statement showing
your redemption.
The Fund's sales charges will also not apply to purchases by:
6. Trust companies and bank trust departments agreeing to invest in Franklin
Templeton Funds over a 13 month period at least $1 million of assets held in
a fiduciary, agency, advisory, custodial or similar capacity and over which
the trust companies and bank trust departments or other plan fiduciaries or
participants, in the case of certain retirement plans, have full or shared
investment discretion. We will accept orders for these accounts by mail
accompanied by a check or by telephone or other means of electronic data
transfer directly from the bank or trust company, with payment by federal
funds received by the close of business on the next business day following
the order.
7. Group annuity separate accounts offered to retirement plans
8. Retirement plans that (i) are sponsored by an employer with at least 100
employees, (ii) have plan assets of $1 million or more, or (iii) agree to
invest at least $500,000 in the Franklin Templeton Funds over a 13 month
period. Retirement plans that are not Qualified Retirement Plans or SEPS,
such as 403(b) or 457 plans, must also meet the requirements described under
"Group Purchases" above.
9. An Eligible Governmental Authority. Please consult your legal and
investment advisors to determine if an investment in the Fund is permissible
and suitable for you and the effect, if any, of payments by the Fund on
arbitrage rebate calculations.
10. Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for clients
participating in comprehensive fee programs
11. Registered Securities Dealers and their affiliates, for their
investment accounts only
12. Current employees of Securities Dealers and their affiliates and their
family members, as allowed by the internal policies of their employer
13. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family members,
consistent with our then-current policies
14. Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer
15. Accounts managed by the Franklin Templeton Group
16. Certain unit investment trusts and their holders reinvesting
distributions from the trusts
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.
OTHER PAYMENTS TO SECURITIES DEALERS
The payments described below may be made to Securities Dealers who initiate
and are responsible for certain purchases made without a sales charge. The
payments described below may be made to Securities Dealers who initiate and
are responsible for certain purchases made without a sales charge. The
payments are subject to the sole discretion of Distributors, and are paid by
Distributors or one of its affiliates and not by the Fund or its shareholders.
1. Purchases of $1 million or more - up to 0.75% of the purchase price.
2. Purchases by certain retirement plans - up to 1% of the purchase price.
3. Purchases by trust companies and bank trust departments, Eligible
Governmental Authorities, and broker-dealers or others on behalf of clients
participating in comprehensive fee programs - up to 0.25% of the purchase
price.
A Securities Dealer may only receive one of these payments for each
qualifying purchase. Securities Dealers who receive payments in connection
with investments described in paragraphs 1 or 2 above will be eligible to
receive the Rule 12b-1 fee associated with the purchase starting in the
thirteenth calendar month after the purchase.
FOR BREAKPOINTS THAT MAY APPLY AND INFORMATION ON ADDITIONAL COMPENSATION
PAYABLE TO SECURITIES DEALERS IN CONNECTION WITH THE SALE OF FUND SHARES,
PLEASE SEE "HOW DO I BUY, SELL AND EXCHANGE SHARES? - OTHER PAYMENTS TO
SECURITIES DEALERS" IN THE SAI.
May I Exchange Shares for Shares of Another Fund?
We offer a wide variety of funds. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and
a purchase of shares, an exchange is a taxable transaction.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund, its investment
objective and policies, and its rules and requirements for exchanges. For
example, some Franklin Templeton Funds do not accept exchanges and others may
have different investment minimums.
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.
WILL SALES CHARGES APPLY TO MY EXCHANGE?
You generally will not pay a front-end sales charge on exchanges. If you have
held your shares less than six months, however, you will pay the percentage
difference between the sales charge you previously paid and the applicable
sales charge of the new fund. If you have never paid a sales charge on your
shares because, for example, they have always been held in a money fund, you
will pay the Fund's applicable sales charge no matter how long you have held
your shares. These charges may not apply if you qualify to buy shares without
a sales charge.
Contingent Deferred Sales Charge. We will not impose a Contingent Deferred
Sales Charge when you exchange shares. Any shares subject to a Contingent
Deferred Sales Charge at the time of exchange, however, will remain so in the
new fund. For accounts with shares subject to a Contingent Deferred Sales
Charge, shares are exchanged into the new fund in the order they were
purchased. If you exchange shares into one of our money funds, the time your
shares are held in that fund will not count towards the completion of any
Contingency Period. For more information about the Contingent Deferred Sales
Charge, please see that section under "How Do I Sell Shares?"
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
o You may only exchange shares within the same class, except as noted below.
o The accounts must be identically registered. You may, however, 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. 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 if we give you 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.
LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES
Certain funds in the Franklin Templeton Funds offer classes of shares not
offered by the Global Currency Fund and the High Income Fund, such as
"Advisor Class" or with respect to all the Currency Funds, "Class Z" shares.
Because the Global Currency Fund and the High Income Fund does not currently
offer an Advisor Class, you may exchange Advisor Class shares of any Franklin
Templeton Fund for shares of those Funds at Net Asset Value. If you do so and
you later decide you would like to exchange into a fund that offers an
Advisor Class, you may exchange your Fund shares for Advisor Class shares of
that fund. Beginning on or about May 1, 1997, you may also exchange Class Z
shares of Franklin Mutual Series Fund Inc. for shares of the Fund at Net
Asset Value.
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 other requirements.
By Phone
(Only available if you have completed and sent to us the telephone redemption
agreement included with this prospectus)
Call Shareholder Services
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
Through Your Dealer Call your investment representative
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 in writing 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, with a signature guarantee.
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 recently 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.
CONTINGENT DEFERRED SALES CHARGE
If you did not pay a front-end sales charge because you invested $1 million
or more or agreed to invest $1 million or more under a Letter of Intent, a
Contingent Deferred Sales Charge may apply if you sell all or a part of your
investment within the Contingency Period. Once you have invested $1 million
or more, any additional investments you make without a sales charge may also
be subject to a Contingent Deferred Sales Charge if they are sold within the
Contingency Period. The charge is 1% of the value of the shares sold or the
Net Asset Value at the time of purchase, whichever is less.
We will first redeem any shares in your account that are not subject to the
charge. If there are not enough of these to meet your request, we will redeem
shares subject to the charge in the order they were purchased.
Unless otherwise specified, when you request to sell a stated dollar amount,
we will redeem additional shares to cover any Contingent Deferred Sales
Charge. For requests to sell a stated number of shares, we will deduct the
amount of the Contingent Deferred Sales Charge, if any, from the sale
proceeds.
Waivers. We waive the Contingent Deferred Sales Charge for:
o Exchanges
o Account fees
o Sales of shares purchased pursuant to a sales charge waiver
o Redemptions by the Fund when an account falls below the minimum required
account size
o Redemptions following the death of the shareholder or beneficial owner
o Redemptions through a systematic withdrawal plan set up before February 1,
1995
o Redemptions through a systematic withdrawal plan set up on or after
February 1, 1995, up to 1% a month of an account's Net Asset Value (3%
quarterly, 6% semiannually or 12% annually). For example, if you maintain an
annual balance of $1 million, you can withdraw up to $120,000 annually
through a systematic withdrawal plan free of charge.
o Distributions from individual retirement plan accounts due to death or
disability or upon periodic distributions based on life expectancy
o Tax-free returns of excess contributions from employee benefit plans
o Distributions from employee benefit plans, including those due to
termination or plan transfer
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.
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 and you will then receive a portion of the price you paid
back in the form of a taxable 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 (without a sales charge or imposition of a Contingent
Deferred Sales Charge) by reinvesting capital gain distributions, or both
dividend and capital gain distributions. This is a convenient way to
accumulate additional shares and maintain or increase your earnings base.
2. Buy shares of other Franklin Templeton Funds - You may direct your
distributions to buy the same class of shares of another Franklin Templeton
Fund (without a sales charge or imposition of a Contingent Deferred Sales
Charge). Many shareholders find this a convenient way to diversify their
investments.
3. Receive distributions in cash - You may 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. If you send the money to a checking account, please see
"Electronic Fund Transfers" under "Services to Help You Manage Your Account."
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 the
same class 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 before the record date for us to process the new
option.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
HOW AND WHEN SHARES ARE PRICED
The Fund is open for business each day the NYSE is open. We determine the Net
Asset Value per share as of the scheduled close of the NYSE, generally 1:00
p.m. Pacific time. You can find the prior day's closing Net Asset Value and
Offering Price of the Fund in many newspapers.
The Net Asset Value of all outstanding shares of each class is calculated on
a pro rata basis. It is based on each class' proportionate participation in
the Fund, determined by the value of the shares of each class. Class I,
however, bears the Rule 12b-1 fees payable under its Rule 12b-1 plan. 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 at the Offering Price, unless you qualify to buy shares at a
reduced sales charge or with no sales charge. The Offering Price is based on
the Net Asset Value per share and includes the maximum sales charge. We
calculate it to two decimal places using standard rounding criteria. You sell
shares at Net Asset Value.
The Net Asset Value we use when you buy or sell shares is the one 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 before 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.
If our lines are busy or you are otherwise unable to reach us by phone, you
may wish to ask your investment representative for assistance or send us
written instructions, as described elsewhere in this prospectus. If you are
unable to execute a transaction by telephone, we will not be liable for any
loss.
Trust Company Retirement Plan Accounts. We cannot accept instructions to 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, we need you 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, we cannot accept instructions 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. You should register your account as a trust, only if you have a valid
written trust document. This avoids 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 cannot 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. We will accept electronic instructions
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
The IRS requires us to 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 less than $50. We will only do
this if the value of your account fell below this amount 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 $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.
AUTOMATIC PAYROLL DEDUCTION
You may have money transferred from your paycheck to the Fund to buy
additional Class I shares. Your investments will continue automatically until
you instruct the Fund and your employer to discontinue the plan. To process
your investment, we must receive both the check and payroll deduction
information in required form. Due to different procedures used by employers
to handle payroll deductions, there may be a delay between the time of the
payroll deduction and the time we receive the money.
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. If you choose to have the
money sent to a checking account, please see "Electronic Fund Transfers"
below.
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.
To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if
you plan to buy shares on a regular basis. Shares sold under the plan may
also be subject to a Contingent Deferred Sales Charge. Please see "Contingent
Deferred Sales Charge" under "How Do I Sell Shares?"
You may 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.
ELECTRONIC FUND TRANSFERS
You may choose to have dividend and capital gain distributions from Class I
shares of the Fund or payments under a systematic withdrawal plan sent
directly to a checking account. If the checking account is with a bank that
is a member of the Automated Clearing House, the payments may be made
automatically by electronic funds transfer. If you choose this option, please
allow at least fifteen days for initial processing. We will send any payments
made during that time to the address of record on your account.
TELEFACTS(R)
From a touch-tone phone, you may call our TeleFACTS system (day or night) at
1-800/247-1753 to:
o obtain information about your account;
o obtain price and performance information about any Franklin Templeton Fund;
o exchange shares between identically registered Franklin accounts; and
o request duplicate statements and deposit slips for Franklin accounts.
You will need the Fund's code number to use TeleFACTS. The Funds' codes are
211 for the Global Currency Fund, 212 for the Hard Currency Fund, and 213 for
the High Income Fund.
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.
INSTITUTIONAL ACCOUNTS
Additional methods of buying, selling or exchanging shares of the Fund may be
available to institutional accounts. Institutional investors may also be
required to complete an institutional account application. For more
information, call Institutional Services.
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. TICI is located at 500 E. Broward Blvd., Suite 2100, Fort
Lauderdale, Florida 33394-3091. 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, Class II and Advisor Class - The Hard Currency Fund offers two
classes of shares, designated "Class I" and "Advisor Class." The two classes
have proportionate interests in the Fund's portfolio. They differ, however,
primarily in their sales charge and expense structures. Certain funds in the
Franklin Templeton Funds also offer a share class designated "Class II."
Code - Internal Revenue Code of 1986, as amended
Contingency Period - 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."
Eligible Governmental Authority - Any state or local government or any
instrumentality, department, authority or agency thereof that has determined
the Fund is a legally permissible investment and that can only buy shares of
the Fund without paying sales charges.
Franklin Templeton Funds - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Franklin Government Securities Trust, Templeton Capital Accumulator
Fund, Inc., Templeton Variable Annuity Fund, and Templeton Variable Products
Series Fund
Franklin Templeton Group - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
Franklin Templeton Group of Funds - All U.S. registered investment companies
in the Franklin Group of Funds(R) and the Templeton Group of Funds
FT Services - Franklin Templeton Services, Inc., the Fund's administrator
Investor Services - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
Investment Managers - Franklin Advisers, Inc., the Fund's investment manager,
and Templeton Investment Counsel, Inc., the Fund's subadvisor.
IRS - Internal Revenue Service
Letter - Letter of Intent
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 Timers - 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.
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 and includes the 3.0% sales charge.
Qualified Retirement Plans - An employer sponsored pension or profit-sharing
plan that qualifies under section 401 of the Code. Examples include 401(k),
money purchase pension, profit sharing and defined benefit plans.
REIT - Real Estate Investment Trust
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
Securities Dealer - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
SEP - An employer sponsored simplified employee pension plan established
under section 408(k) of the Code
TeleFACTS(R) - Franklin Templeton's automated customer servicing system
TICI - Templeton Investment Counsel, Inc., the Fund's sub-advisor.
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
GERMAN GOVERNMENT
BOND FUND
INVESTMENT STRATEGY
GLOBAL GROWTH AND INCOME
MARCH 1, 1997
FRANKLIN TEMPLETON GLOBAL TRUST
This prospectus describes Class I shares of the 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 currently offers another class of shares with a different sales charge
and expense structure, which affects performance. This class is described in a
separate prospectus. For more information, contact your investment
representative or call 1-800/DIAL BEN.
The Fund has a Statement of Additional Information ("SAI") for its Class I
shares, dated March 1, 1997, which may be amended from time to time. It 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.
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, JURISDICTION OR COUNTRY 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
FRANKLIN TEMPLETON GERMAN
GOVERNMENT BOND FUND
MARCH 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................................................... 2
Financial Highlights.............................................. 3
How does the Fund Invest its Assets?.............................. 4
What are the Fund's Potential Risks?.............................. 10
Who Manages the Fund?............................................. 15
How does the Fund Measure Performance?............................ 17
How Taxation Affects the Fund and its Shareholders ............... 17
How is the Trust Organized?....................................... 19
About Your Account
How Do I Buy Shares?.............................................. 20
May I Exchange Shares for Shares of Another Fund?................. 26
How Do I Sell Shares?............................................. 28
What Distributions Might I Receive from the Fund?................. 31
Transaction Procedures and Special Requirements .................. 32
Services to Help You Manage Your Account.......................... 36
What If I Have Questions About My Account?........................ 38
Glossary
Useful Terms and Definitions ..................................... 39
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777
1-800/DIAL BEN
Franklin Templeton German Government Bond Fund
ABOUT THE FUND
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in the
Fund. It is based on the Fund's historical expenses for the fiscal year ended
October 31, 1996. The Fund's actual expenses may vary.
A. SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Charge Imposed on Purchases
(as a percentage of Offering Price) 3.00%++
Deferred Sales Charge None+++
Exchange Fee (per transaction) $5.00*
B. ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.55%
Rule 12b-1 Fees 0.19%**
Other Expenses 0.36%
Total Fund Operating Expenses 1.10%
C. EXAMPLE
Assume the Fund's annual return is 5%, operating expenses are as described
above, and you sell your shares after the number of years shown. These are the
projected expenses for each $1,000 that you invest in the Fund.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$41*** $64 $89 $160
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
its Net Asset Value or dividends and are not directly charged to your account.
+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
++There is no front-end sales charge if you invest $1 million or more.
+++A Contingent Deferred Sales Charge of 1% may apply to purchases of $1 million
or more if you sell the shares within one year. See "How Do I Sell Shares? -
Contingent Deferred Sales Charge" for details.
*$5.00 fee is only for Market Timers. We process all other exchanges without a
fee.
**These fees may not exceed 0.25%. The combination of front-end sales charges
and Rule 12b-1 fees could cause long-term shareholders to pay more than the
economic equivalent of the maximum front-end sales charge permitted under the
NASD's rules.
***Assumes a Contingent Deferred Sales Charge will not apply.
FINANCIAL HIGHLIGHTS
This table summarizes the Fund's financial history. The information for the
fiscal year ended October 31, 1996, 1995, the six-month period ended October 31,
1994 and the fiscal year ended April 30, 1994 has been audited by Coopers &
Lybrand L.L.P., the Fund's independent auditors. Their audit report covering
each of the most recent four periods appears in the financial statements in the
Trust's Annual Report to Shareholders for the fiscal year ended October 31,
1996. The previous periods' information was audited by other independent
auditors whose opinions are not included herein. The Annual Report to
Shareholders also includes more information about the Fund's performance. For a
free copy, please call Fund Information.
<TABLE>
<CAPTION>
FOR THE SIX FOR THE FOR THE FOUR
MONTHS YEAR MONTHS
ENDED ENDED ENDED
FOR THE YEAR ENDED OCTOBER 31, OCTOBER 31, APRIL 30, APRIL 30,
1996 1995 1994 19942 19931
Per Share Operating Performance+
<S> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of Period $14.31 $13.26 $12.29 $13.08 $12.50
Net Investment Income .66 1.53 .41 .78 .27
Net Realized & Unrealized Gain (Loss) (.69) .71 .92 (.72) .56
Total From Investment Operations (.03) 2.24 1.33 .06 .83
Distributions From Net Investment Income(1.00) (1.19) (.36) (.39) (.25)
Distributions from Capital Gains (.06) - - (.06) -
Distributions From Return of Capital (.06) - - (.40) -
Total Distributions (1.12)(1.19) (.36) (.85) (.25)
Net Asset Value at End of Period $13.16$14.31 $13.26 $12.29 $13.08
Total Return++ (.14)%18.28%10.92% .64% 6.15%
Ratios/Supplemental Data
Net Assets at End of Period (in 000's) $17,552 $24,113 $13,236 $13,341 $10,738
Ratio of Expenses to Average Net Assets** 1.10% 1.25% 1.04%* 1.00% .87%*
Ratio of Net Investment Income
to Average Net Assets 5.25% 5.17% 6.37%* 4.74% 6.06%*
Portfolio Turnover Rate 57.59% 67.77%301.60%* 185.66% 190.89%*
</TABLE>
1For the period December 31, 1992 (effective date of registration) to April 30,
1993.
2On November 12, 1993, the investment advisor changed to Advisers.
3Six month period ended October 31, 1994, reflecting a change in fiscal year.
+Selected data for a share of beneficial interest outstanding throughout the
period.
++Total return measures the change in value of an investment over the periods
indicated. It is not annualized, except where indicated. It does not include the
maximum front-end sales charge or Contingent Deferred Sales Charge and assumes
reinvestment of dividends and capital gains, if any, at Net Asset Value.
*Annualized
**During the periods indicated, Advisers agreed in advance to limit its
management fees to reduce expenses of the Fund. Had such action not been taken,
the ratios of expenses to average net assets would have been as follows:
Ratio of Expenses
to Average Net Assets
1993 1.73%*
1994 1.83%
19943 1.77%*
1995 1.29%
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, 1995, was approximately 4.38 trillion marks (U.S.
$2.82 trillion). Of this total, German government and agency bonds accounted for
1.273 trillion marks (U.S. $821 billion), or about 41% 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, 1995. 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 $ 704.5 $2,546.5
Central government agency
& government guaranteed 116.8 2,606.1
State and local 445.7 1,029.6
Corporates 1,038.2 2,485.2
Other, foreign, international and Euros 519.7 956.9
Total $2,824.9 $9,624.3
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.
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 the value or liquidity 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?
The value of your shares will increase as the value of the securities owned by
the Fund increases and will decrease as the value of the Fund's investments
decrease. In this way, you participate in any change in the value of the
securities owned by the Fund. In addition to the factors that affect the value
of any particular security that the Fund owns, the value of Fund shares may also
change with movements in the bond market as a whole.
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 and Aaa, respectively, 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 the Fund and its Shareholders" in this
prospectus and "Additional Information on Distributions and Taxes," in the SAI.
The Fund is a "non-diversified" fund, which means there are no restrictions
under the 1940 Act on the percentage of assets that may be invested at any time
in the securities of any one issuer. However, as a non-diversified fund, and as
a fund that concentrates its investments primarily in German government
obligations denominated in German marks, the Fund may be subject to greater risk
with respect to its portfolio securities than a mutual fund that has a broader
range of investments. Although the Fund is "non-diversified" for purposes of the
1940 Act, it 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
Fund's classes of shares. While none is expected, the Board will act
appropriately to resolve any material conflict that may arise.
Investment Managers. The Investment Managers manage the Fund's assets and make
its investment decisions. 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. Together, the Investment Managers and their
affiliates manage over $179 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.
Under an agreement with Advisers, TICI is the sub-advisor of the Fund. TICI
provides Advisers with investment management advice and assistance. TICI's
activities are subject to the Board's review and control, as well as Advisers'
instruction and supervision.
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 Franklin Tempelton Global Trust (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, 1996, management fees
totaling 0.55% of the average monthly net assets of the Fund were paid to the
Investment Managers. Total expenses of the Fund, including fees paid to the
Investment Managers, were 1.10%. During the same period, Advisers paid TICI a
sub-advisory fee totaling 0.25% 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.
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.
THE RULE 12B-1 PLAN
The Fund has a distribution plan or "Rule 12b-1 Plan" for its Class I shares
under which it may reimburse Distributors or others for activities primarily
intended to sell shares of the class. These expenses may include, among others,
distribution or service fees paid to Securities Dealers or others who have
executed a servicing agreement with the Fund, Distributors or its affiliates,
printing prospectuses and reports used for sales purposes, preparing and
distributing sales literature and advertisements, and a prorated portion of
Distributors' overhead expenses.
Payments by the Fund under the plan may not exceed 0.25% per year of Class I's
average daily net assets. All distribution expenses over this amount will be
borne by those who have incurred them. During the first year after certain
purchases made without a sales charge, Distributors may keep the Rule 12b-1 fees
associated with the purchase. For more information, please see "The Fund's
Underwriter" in the SAI.
HOW DOES THE FUND MEASURE PERFORMANCE?
From time to time, 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,
but certain figures may not include the sales charge.
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 shows the
income per share earned by the Fund. The current distribution rate shows the
dividends or distributions paid to shareholders by the Fund. 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. Unlike current
yield, the current distribution rate may include income distributions from
sources other than dividends and interest received by the Fund.
The Fund's investment results 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.
The Fund also offers another share class and, from time to time, will advertise
its performance in a manner described in the prospectus for that class.
HOW TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS
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 mark-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 purposes of 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.
HOW IS THE TRUST ORGANIZED?
The Fund is a non-diversified series of 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, and is registered with the SEC under the 1940
Act. Shares of each series of the Trust have equal and exclusive rights to
dividends and distributions declared by that series and the net assets of the
series in the event of liquidation or dissolution. Shares of the Fund are
considered Class I shares for redemption, exchange and other purposes.
Additional series and classes of shares may be offered in the future. As of
January 1, 1997, the Fund began offering a new class of shares designated
Franklin Templeton German Government Bond Fund - Advisor Class. All shares
outstanding before the offering of Advisor Class shares have been designated
Franklin Templeton German Government Bond Fund - Class I. Additional series and
classes of shares may be offered in the future.
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 for matters that affect the Fund as a whole. For matters that only
affect one class, however, only shareholders of that class may vote. 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 of a series have the same
voting and other rights and preferences as the other classes and series of the
Trust for 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.
As of February 3, 1997, Franklin Resources, Inc. and Franklin Templeton Fund
Allocator Series - Franklin Templeton Growth Target Fund owned of record and
beneficially more than 25% of the outstanding shares of the Advisor Class of the
Fund.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
To open your account, contact your investment representative or complete and
sign the enclosed shareholder application and return it to the Fund with your
check.
MINIMUM
INVESTMENTS*
To Open Your Account $100
To Add to Your Account $ 25
*We may waive these minimums for retirement plans. We may also refuse any order
to buy shares.
SALES CHARGE REDUCTIONS AND WAIVERS
- - If you qualify to buy shares under one of the sales charge reduction or
waiver categories described below, please include a written statement with each
purchase order explaining which privilege applies. If you don't include this
statement, we cannot guarantee that you will receive the sales charge reduction
or waiver.
Quantity Discounts. The sales charge you pay depends on the dollar amount you
invest, as shown in the table below.
TOTAL SALES CHARGE AMOUNT PAID
AS A PERCENTAGE OF TO DEALER AS A
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE
Less than $50,000 3.00% 3.09% 2.60%
$50,000 but less than $100,000 2.50% 2.56% 2.25%
$100,000 but less than $250,000 2.00% 2.04% 1.85%
$250,000 but less than $500,000 1.50% 1.52% 1.40%
$500,000 but less than $750,000 1.00% 1.01% 1.00%
$750,000 but less than $1,000,000 0.75% 0.76% 0.75%
$1,000,000 or more* None None None
*If you invest $1 million or more, a Contingent Deferred Sales Charge may be
imposed on an early redemption. Please see "How Do I Sell Shares? - Contingent
Deferred Sales Charge." Please also see "Other Payments to Securities Dealers"
below for a discussion of payments Distributors may make out of its own
resources to Securities Dealers for certain purchases.
Cumulative Quantity Discounts. To determine if you may pay a reduced sales
charge, the amount of your current purchase is added to the cost or current
value, whichever is higher, of your existing shares in the Franklin Templeton
Funds, as well as those of your spouse, children under the age of 21 and
grandchildren under the age of 21. If you are the sole owner of a company, you
may also add any company accounts, including retirement plan accounts. Companies
with one or more retirement plans may add together the total plan assets
invested in the Franklin Templeton Funds to determine the sales charge that
applies.
Letter of Intent. You may buy shares at a reduced sales charge by completing the
Letter of Intent section of the shareholder application. A Letter of Intent is a
commitment by you to invest a specified dollar amount during a 13 month period.
The amount you agree to invest determines the sales charge you pay.
BY COMPLETING THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION, YOU
ACKNOWLEDGE AND AGREE TO THE FOLLOWING:
o You authorize Distributors to reserve 5% of your total intended purchase in
Fund shares registered in your name until you fulfill your Letter.
o You give Distributors a security interest in the reserved shares and appoint
Distributors as attorney-in-fact.
o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the Letter.
o Although you may exchange your shares, you may not sell reserved shares until
you complete the Letter or pay the higher sales charge.
Your periodic statements will include the reserved shares in the total shares
you own. We will pay or reinvest dividend and capital gain distributions on the
reserved shares as you direct. Our policy of reserving shares does not apply to
certain retirement plans.
If you would like more information about the Letter of Intent privilege, please
see "How Do I Buy, Sell and Exchange Shares? - Letter of Intent" in the SAI or
call Shareholder Services.
Group Purchases. If you are a member of a qualified group, you may buy Fund
shares at a reduced sales charge that applies to the group as a whole. The sales
charge is based on the combined dollar value of the group members' existing
investments, plus the amount of the current purchase.
A qualified group 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 Franklin Templeton Fund sales and other 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.
Sales Charge Waivers. The Fund's sales charges (front-end and contingent
deferred) will not apply to certain purchases. For waiver categories 1, 2 or 3
below: (i) the distributions or payments must be reinvested within 365 days of
their payment date, and (ii) Class II distributions may be reinvested in either
Class I or Class II shares. Class I distributions may only be reinvested in
Class I shares.
The Fund's sales charges will not apply if you are buying shares with money from
the following sources:
1. Dividend and capital gain distributions from any Franklin Templeton Fund or
a REIT sponsored or advised by Franklin Properties, Inc.
2. Distributions from an existing retirement plan invested in the Franklin
Templeton Funds
3. Annuity payments received under either an annuity option or from death
benefit proceeds, only if the annuity contract offers as an investment option
the Franklin Valuemark Funds, the Templeton Variable Annuity Fund, the Templeton
Variable Products Series Fund, or the Franklin Government Securities Trust. You
should contact your tax advisor for information on any tax consequences that may
apply.
4. Redemptions from any Franklin Templeton Fund if you:
o Originally paid a sales charge on the shares,
o Reinvest the money within 365 days of the redemption date, and
o Reinvest the money in the same class of shares.
An exchange is not considered a redemption for this privilege. The Contingent
Deferred Sales Charge will not be waived if the shares were subject to a
Contingent Deferred Sales Charge when sold. We will credit your account in
shares, at the current value, in proportion to the amount reinvested for any
Contingent Deferred Sales Charge paid in connection with the earlier redemption,
but a new Contingency Period will begin.
If you immediately placed your redemption proceeds in a Franklin Bank CD, you
may reinvest them as described above. The proceeds must be reinvested within 365
days from the date the CD matures, including any rollover.
5. Redemptions from other mutual funds
If you sold shares of a fund that is not a Franklin Templeton Fund within the
past 60 days, you may invest the proceeds without any sales charge if (a) the
investment objectives were similar to the Fund's, and (b) your shares in that
fund were subject to any front-end or contingent deferred sales charges at the
time of purchase. You must provide a copy of the statement showing your
redemption.
The Fund's sales charges will also not apply to purchases by:
6. Trust companies and bank trust departments agreeing to invest in Franklin
Templeton Funds over a 13 month period at least $1 million of assets held in a
fiduciary, agency, advisory, custodial or similar capacity and over which the
trust companies and bank trust departments or other plan fiduciaries or
participants, in the case of certain retirement plans, have full or shared
investment discretion. We will accept orders for these accounts by mail
accompanied by a check or by telephone or other means of electronic data
transfer directly from the bank or trust company, with payment by federal funds
received by the close of business on the next business day following the order.
7. Group annuity separate accounts offered to retirement plans
8. Retirement plans that (i) are sponsored by an employer with at least 100
employees, (ii) have plan assets of $1 million or more, or (iii) agree to invest
at least $500,000 in the Franklin Templeton Funds over a 13 month period.
Retirement plans that are not Qualified Retirement Plans or SEPS, such as 403(b)
or 457 plans, must also meet the requirements described under "Group Purchases"
above.
9. An Eligible Governmental Authority. Please consult your legal and investment
advisors to determine if an investment in the Fund is permissible and suitable
for you and the effect, if any, of payments by the Fund on arbitrage rebate
calculations.
10. Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for clients
participating in comprehensive fee programs
11. Registered Securities Dealers and their affiliates, for their investment
accounts only
12. Current employees of Securities Dealers and their affiliates and their
family members, as allowed by the internal policies of their employer
13. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family members,
consistent with our then-current policies
14. Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer
15. Accounts managed by the Franklin Templeton Group
16. Certain unit investment trusts and their holders reinvesting distributions
from the trusts
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 Credit for 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.
OTHER PAYMENTS TO SECURITIES DEALERS
The payments described below may be made to Securities Dealers who initiate and
are responsible for certain purchases made without a sales charge. The payments
are subject to the sole discretion of Distributors, and are paid by Distributors
or one of its affiliates and not by the Fund or its shareholders.
1. Purchases of $1 million or more - up to 0.75% of the purchase price.
2. Purchases by certain retirement plans - up to 1% of the purchase price.
3. Purchases by trust companies and bank trust departments, Eligible
Governmental Authorities, and broker-dealers or others on behalf of clients
participating in comprehensive fee programs - up to 0.25% of the purchase price.
A Securities Dealer may only receive one of these payments for each qualifying
purchase. Securities Dealers who receive payments in connection with investments
described in paragraphs 1 or 2 above will be eligible to receive the Rule 12b-1
fee associated with the purchase starting in the thirteenth calendar month after
the purchase.
FOR BREAKPOINTS THAT MAY APPLY AND INFORMATION ON ADDITIONAL COMPENSATION
PAYABLE TO SECURITIES DEALERS IN CONNECTION WITH THE SALE OF FUND SHARES, PLEASE
SEE "HOW DO I BUY, SELL AND EXCHANGE SHARES? - OTHER PAYMENTS TO SECURITIES
DEALERS" IN THE SAI.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund, its investment objective
and policies, and its rules and requirements for exchanges. For example, some
Franklin Templeton Funds do not accept exchanges and others may have different
investment minimums.
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
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.
WILL SALES CHARGES APPLY TO MY EXCHANGE?
You generally will not pay a front-end sales charge on exchanges. If you have
held your shares less than six months, however, you will pay the percentage
difference between the sales charge you previously paid and the applicable sales
charge of the new fund. If you have never paid a sales charge on your shares
because, for example, they have always been held in a money fund, you will pay
the Fund's applicable sales charge no matter how long you have held your shares.
These charges may not apply if you qualify to buy shares without a sales charge.
Contingent Deferred Sales Charge. We will not impose a Contingent Deferred Sales
Charge when you exchange shares. Any shares subject to a Contingent Deferred
Sales Charge at the time of exchange, however, will remain so in the new fund.
For accounts with shares subject to a Contingent Deferred Sales Charge, shares
are exchanged into the new fund in the order they were purchased. If you
exchange shares into one of our money funds, the time your shares are held in
that fund will not count towards the completion of any Contingency Period. For
more information about the Contingent Deferred Sales Charge, please see that
section under "How Do I Sell Shares?"
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
o You may only exchange shares within the same class, except as noted below.
o The accounts must be identically registered. You may, however, 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 if we give you 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.
LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES
Certain funds in the Franklin Templeton Funds offer classes of shares not
offered by the Fund, such as "Class Z" shares. Beginning on or about May 1,
1997, you may exchange Class Z shares of Franklin Mutual Series Fund Inc. for
shares of the Fund at Net Asset Value.
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 other requirements.
By Phone
(Only available if you have completed and sent to us the telephone redemption
agreement included with this prospectus.) Call Shareholder Services
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
Through Your Dealer Call your investment representative
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 in writing 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, with a signature guarantee.
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 recently 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.
CONTINGENT DEFERRED SALES CHARGE
If you did not pay a front-end sales charge because you invested $1 million or
more or agreed to invest $1 million or more under a Letter of Intent, a
Contingent Deferred Sales Charge may apply if you sell all or a part of your
investment within the Contingency Period. Once you have invested $1 million or
more, any additional investments you make without a sales charge may also be
subject to a Contingent Deferred Sales Charge if they are sold within the
Contingency Period. The charge is 1% of the value of the shares sold or the Net
Asset Value at the time of purchase, whichever is less.
We will first redeem any shares in your account that are not subject to the
charge. If there are not enough of these to meet your request, we will redeem
shares subject to the charge in the order they were purchased.
Unless otherwise specified, when you request to sell a stated dollar amount, we
will redeem additional shares to cover any Contingent Deferred Sales Charge. For
requests to sell a stated number of shares, we will deduct the amount of the
Contingent Deferred Sales Charge, if any, from the sale proceeds.
Waivers. We waive the Contingent Deferred Sales Charge for:
o Exchanges
o Account fees
o Sales of shares purchased pursuant to a sales charge waiver
o Redemptions by the Fund when an account falls below the minimum required
account size
o Redemptions following the death of the shareholder or beneficial owner
o Redemptions through a systematic withdrawal plan set up before February 1,
1995
o Redemptions through a systematic withdrawal plan set up on or after February
1, 1995, up to 1% a month of an account's Net Asset Value (3% quarterly, 6%
semiannually or 12% annually). For example, if you maintain an annual balance of
$1 million, you can withdraw up to $120,000 annually through a systematic
withdrawal plan free of charge.
o Distributions from individual retirement plan accounts due to death or
disability or upon periodic distributions based on life expectancy
o Tax-free returns of excess contributions from employee benefit plans
o Distributions from employee benefit plans, including those due to termination
or plan transfer
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
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 and you will then receive a portion of the price you paid back in
the form of a taxable 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 (without a sales charge or imposition of a Contingent Deferred
Sales Charge) by reinvesting capital gain distributions, or both dividend and
capital gain distributions. This is a convenient way to accumulate additional
shares and maintain or increase your earnings base.
2. Buy shares of other Franklin Templeton Funds - You may direct your
distributions to buy the same class of shares of another Franklin Templeton Fund
(without a sales charge or imposition of a Contingent Deferred Sales Charge).
Many shareholders find this a convenient way to diversify their investments.
3. Receive distributions in cash - You may 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. If you send
the money to a checking account, please see "Electronic Fund Transfers" under
"Services to Help You Manage Your Account."
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 the same class
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 before
the record date for us to process the new option.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
HOW AND WHEN SHARES ARE PRICED
The Fund is open for business each day the NYSE is open. We determine the Net
Asset Value per share as of the scheduled close of the NYSE, generally 1:00 p.m.
Pacific time. You can find the prior day's closing Net Asset Value and Offering
Price of the Fund in many newspapers.
The Net Asset Value of all outstanding shares of each class is calculated on a
pro rata basis. It is based on each class' proportionate participation in the
Fund, determined by the value of the shares of each class. Class I, however,
bears the Rule 12b-1 fees payable under its Rule 12b-1 plan. 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 at the Offering Price, unless you qualify to buy shares at a
reduced sales charge or with no sales charge. The Offering Price is based on the
Net Asset Value per share and includes the maximum sales charge. We calculate it
to two decimal places using standard rounding criteria. You sell shares at Net
Asset Value.
The Net Asset Value we use when you buy or sell shares is the one 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 before 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.
If our lines are busy or you are otherwise unable to reach us by phone, you may
wish to ask your investment representative for assistance or send us written
instructions, as described elsewhere in this prospectus. If you are unable to
execute a transaction by telephone, we will not be liable for any loss.
Trust Company Retirement Plan Accounts. We cannot accept instructions to 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, we need you 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, we cannot accept
instructions 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. You should register your account as a trust only if you have a valid
written trust document. This avoids 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 cannot 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. We will accept electronic instructions 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
The IRS requires us to 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 less than $50. We will only do this
if the value of your account fell below this amount 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 $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.
AUTOMATIC PAYROLL DEDUCTION
You may have money transferred from your paycheck to the Fund to buy additional
Class I shares. Your investments will continue automatically until you instruct
the Fund and your employer to discontinue the plan. To process your investment,
we must receive both the check and payroll deduction information in required
form. Due to different procedures used by employers to handle payroll
deductions, there may be a delay between the time of the payroll deduction and
the time we receive the money.
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. If you choose to have the money sent to a
checking account, please see "Electronic Fund Transfers" below.
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.
To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if you
plan to buy shares on a regular basis. Shares sold under the plan may also be
subject to a Contingent Deferred Sales Charge. Please see "Contingent Deferred
Sales Charge" under "How Do I Sell Shares?"
You may 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.
ELECTRONIC FUND TRANSFERS
You may choose to have dividend and capital gain distributions from Class I
shares of the Fund or payments under a systematic withdrawal plan sent directly
to a checking account. If the checking account is with a bank that is a member
of the Automated Clearing House, the payments may be made automatically by
electronic funds transfer. If you choose this option, please allow at least
fifteen days for initial processing. We will send any payments made during that
time to the address of record on your account.
TELEFACTS(R)
From a touch-tone phone, you may call our TeleFACTS system (day or night) at
1-800/247-1753 to:
o obtain information about your account;
o obtain price and performance information about any Franklin Templeton Fund;
o exchange shares between identically registered Franklin accounts; and
o request duplicate statements and deposit slips for Franklin accounts.
You will need the Fund's code number to use TeleFACTS. The Fund's code number is
210.
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.
INSTITUTIONAL ACCOUNTS
Additional methods of buying, selling or exchanging shares of the Fund may be
available to institutional accounts. Institutional investors may also be
required to complete an institutional account application. For more information,
call Institutional Services.
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. TICI is
located at 500 E. Broward Blvd. Suite 2100, Fort Lauderdale, Florida 33394-3091.
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, Class II 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. They differ, however, primarily in their
sales charge and expense structures. Certain funds in the Franklin Templeton
Funds also offer a share class designated "Class II."
Code - Internal Revenue Code of 1986, as amended
Contingency Period - 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."
Eligible Governmental Authority - Any state or local government or any
instrumentality, department, authority or agency thereof that has determined the
Fund is a legally permissible investment and that can only buy shares of the
Fund without paying sales charges.
Franklin Templeton Funds - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Franklin Government Securities Trust, Templeton Capital Accumulator Fund,
Inc., Templeton Variable Annuity Fund, and Templeton Variable Products Series
Fund
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 sub-advisor.
Investor Services - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
Letter - Letter of Intent
Market Timers - 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.
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 and includes the 3.00% sales charge.
Qualified Retirement Plans - An employer sponsored pension or profit-sharing
plan that qualifies under section 401 of the Code. Examples include 401(k),
money purchase pension, profit sharing and defined benefit plans.
REIT - Real Estate Investment Trust
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
Securities Dealer - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
SEP - An employer sponsored simplified employee pension plan established under
section 408(k) of the Code
TeleFACTS(R) - Franklin Templeton's automated customer servicing system
Templeton Funds - The U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund
TICI - Templeton Investment Counsel, Inc., the Fund's sub-advisor.
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
ADVISOR CLASS
INVESTMENT STRATEGY: GLOBAL GROWTH & INCOME
ADVISOR CLASS
MARCH 1, 1997
FRANKLIN TEMPLETON GLOBAL TRUST
This prospectus describes the Advisor Class shares of the 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 currently offers another class of shares with a different sales
charge and expense structure, which affects performance. This class is
described in a separate prospectus. For more information, contact your
investment representative or call 1-800/DIAL BEN.
The Fund has a Statement of Additional Information ("SAI") for its Advisor
Class, dated March 1, 1997, which may be amended from time to time. It
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.
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.
THE FUND MAY INVEST IN MONEY MARKET INSTRUMENTS, BOTH FOREIGN AND DOMESTIC.
INVESTMENTS IN FOREIGN SECURITIES INVOLVE CERTAIN CONSIDERATIONS THAT ARE NOT
NORMALLY INVOLVED IN INVESTMENTS IN SECURITIES OF U.S. COMPANIES. THE
CURRENCY FUNDS SHOULD NOT BE CONSIDERED MONEY MARKET FUNDS. PLEASE SEE "WHAT
ARE THE FUND'S POTENTIAL RISKS?"
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, JURISDICTION OR COUNTRY 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
MARCH 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 Taxation Affects the Fund and its Shareholders
How is the Trust Organized?
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
What If I Have Questions About My 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, 1996. The Fund's
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 0.21%
Total Fund Operating Expenses 0.85%
C. EXAMPLE
Assume the annual return for the class is 5%, operating expenses are as
described above and you sell your shares after the number of years shown.
These are the projected expenses for each $1,000 that you invest in the
Fund.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$9 $27 $48 $106
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
The Fund pays its operating expenses. The effects of these expenses are
reflected in the Net Asset Value or dividends of the class and are not
directly charged to your account.
+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
++$5.00 fee is only for Market Timers. We process all other exchanges without
a fee.
HOW DOES THE FUND INVEST ITS ASSETS?
THE FUND'S INVESTMENT OBJECTIVE
The Fund's investment objective is to protect against depreciation of the
U.S. dollar relative to other currencies. 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.
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
for each year from 1989 through 1995 are listed below:
1995* 1994 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------
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%
*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's policy is not to invest more than 10% of its
net assets in illiquid securities. 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 the value or liquidity 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 33 1/3% of the value of its total
assets, or pledge, hypothecate, or mortgage more than
33 1/3% 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
between the Fund's 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. The Investment Managers also perform 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
$171 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.
Under a sub-advisory agreement between Advisers and TICI, TICI provides
Advisers with investment management advice and assistance. TICI's activities
are subject to the Board's review and control, as well as Advisers'
instruction and supervision.
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 the Franklin
Templeton Group in 1992.
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, 1996, management
fees totaling 0.65% of the average daily net assets of the Fund were paid to
Advisers. Total expenses of the Fund, including fees paid to Advisors, were
0.80%.
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, the Advisor Class of the Fund advertises its performance.
The more commonly used measures of performance are total return, current
yield and current distribution rate.
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 shows
the income per share earned by Advisor Class. The current distribution rate
shows the dividends or distributions paid to shareholders of Advisor Class.
This rate is usually computed by annualizing the dividends paid per share
during a certain period and dividing that amount by the current 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 the Advisor 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 TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS
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.
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. 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.
As of January 1, 1997, the Fund began offering a new class of shares
designated Franklin Templeton Hard Currency Fund - Advisor Class. All shares
outstanding before the offering of Advisor Class shares have been designated
Franklin Templeton Hard Currency Fund - Class I. Additional classes and
series may be offered in the future.
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 for matters that affect the Trust as a whole. For matters
that only affect one class, however, only shareholders of that class may
vote. 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 of a series have the same voting and other rights and
preferences as the other classes and series of the Trust for 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.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
Shares of the Fund may be purchased without a sales charge. To open your
account, contact your investment representative or complete and sign the
enclosed shareholder application and return it to the Fund with your check.
MINIMUM
INVESTMENTS*
To Open Your Account...... $5,000,000
To Add to Your Account.... $ 25
*We waive or lower these minimums for certain investors listed below. We may
also refuse any order to buy shares. [Currently, the Fund does not allow
investments by Market Timers.]
To determine if you meet the minimum investment requirement, the amount of
your current purchase is added to the cost or current value, whichever is
higher, of your existing shares in the Franklin Templeton Funds. At least $1
million of this amount, however, must be invested in Advisor Class or Class Z
shares of any of the Franklin Templeton Funds.
The Fund's minimum initial investment requirement will not apply to purchases
by:
1. Broker-dealers, registered investment advisors or certified financial
planners, who have entered into an agreement with Distributors for
clients participating in comprehensive fee programs
2. Qualified registered investment advisors or certified financial
planners who have clients invested in the Franklin Mutual Series Fund
Inc. on October 31, 1996, or who buy through a broker-dealer or service
agent who has entered into an agreement with Distributors
3. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group and their immediate
family members, subject to a $100 minimum investment requirement
4. Accounts managed by the Franklin Templeton Group
5. Effective on or about February 1, 1997, the Franklin Templeton Profit
Sharing 401(k) Plan
6. Each series of the Franklin Templeton Fund Allocator Series, subject to
a $1,000 minimum initial and subsequent investment requirement
7. 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, and
that (i) are sponsored by an employer with at least 5,000 employees, or
(ii) have plan assets of $50 million or more
8. Trust companies and bank trust departments initially investing in 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 and bank trust departments or other plan
fiduciaries or participants, in the case of certain retirement plans,
have full or shared investment discretion
9. Defined benefit plans or governments, municipalities, and tax-exempt
entities that meet the requirements for qualification under Section 501
of the Code, subject to a $1 million initial investment in Advisor
Class shares
10. Any other investor, including a private investment vehicle such as a
family trust or foundation, who is a member of a qualified group, if
the group as a whole meets the $5 million minimum investment
requirement. A qualified group is one that:
Was formed at least six months ago,
Has a purpose other than buying Fund shares at a discount,
Has more than 10 members,
Can arrange for meetings between our representatives and group
members,
Agrees to include Franklin Templeton Fund sales and other materials
in publications and mailings to its members at reduced or no cost to
Distributors,
Agrees to arrange for payroll deduction or other bulk transmission
of investments to the Fund, and
Meets other uniform criteria that allow Distributors to achieve
cost savings in distributing shares.
If you currently own Class I shares of the Fund and you qualify to buy
Advisor Class shares, you may invest your existing Class I shares into the
Fund's Advisor Class by June 30, 1997. If you would like to do this, please
send us written instructions. Generally, for federal income tax purposes,
there will be no recognition of gain or loss on this transaction. You may
want to consult with your tax advisor to determine the effect of this
transaction, if any, on state income taxes.
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.
PAYMENTS TO SECURITIES DEALERS
Securities Dealers who initiate and are responsible for purchases of Advisor
Class shares may receive up to 0.25% of the purchase price. The payment is
subject to the sole discretion of Distributors, and is paid by Distributors
or one of its affiliates and not by the Fund or its shareholders.
Securities Dealers may receive additional compensation from Distributors or
an affiliated company in connection with selling shares of the Franklin
Templeton Funds. Compensation may include financial assistance for
conferences, shareholder services, automation, sales or training programs, or
promotional activities. Registered representatives and their families may be
paid for travel expenses, including lodging, in connection with business
meetings or seminars. In some cases, this compensation may only be available
to Securities Dealers whose representatives have sold or are expected to sell
significant amounts of shares. Securities Dealers may not use sales of the
Fund's shares to qualify for this compensation if prohibited by the laws of
any state or self-regulatory agency, such as the NASD.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and
a purchase of shares, an exchange is a taxable transaction.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund, its investment
objective and policies, and its rules and requirements for exchanges. For
example, some Franklin Templeton Funds do not accept exchanges and some 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.
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
You may only exchange shares within the SAME CLASS, except as noted below.
The accounts must be identically registered. You may exchange shares from
a Fund account requiring two or more signatures into an identically
registered money fund account requiring only one signature for all
transactions. Please notify us in writing if you do not want this option
to be available on your account(s). Additional procedures may apply.
Please see "Transaction Procedures and Special Requirements."
Trust Company IRA or 403(b) retirement plan accounts may exchange shares
as described above. Restrictions may apply to other types of retirement
plans. Please contact our Retirement Plans Department for information on
exchanges within these plans.
The fund you are exchanging into must be eligible for sale in your state.
We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
Your exchange may be restricted or refused if you: (i) request an
exchange out of the Fund within two weeks of an earlier exchange request,
(ii) exchange shares out of the Fund more than twice in a calendar
quarter, or (iii) exchange shares equal to at least $5 million, or more
than 1% 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.
LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES
If you want to exchange into a fund that does not currently offer an Advisor
Class, you may exchange your Advisor Class shares for Class I shares of that
fund at Net Asset Value. You may also exchange your Advisor Class shares for
Class Z shares of Franklin Mutual Series Fund Inc. If you do not qualify to
buy Advisor Class shares of Templeton Developing Markets Trust, Templeton
Foreign Fund or Templeton Growth Fund, you may exchange your Advisor Class
shares for Class I shares of those funds or of Templeton Institutional Funds,
Inc. at Net Asset Value.
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 other requirements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BY PHONE Call Shareholder Services
(Only available if you Telephone requests will be accepted:
have completed and sent
to us the telephone If the request is $50,000 or less. Institutional
redemption agreement accounts may exceed $50,000 by completing a
included with this separate agreement. Call Institutional Services
prospectus) to receive a copy.
If there are no share certificates issued for
the shares you want to sell or you have already
returned them to the Fund
Unless you are selling shares in a Trust Company
retirement plan account
Unless the address on your account was changed
by phone within the last 30 days
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- --------------------------------------------------------------------------------
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 IN WRITING 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.
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 recently 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.
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 and you will then receive a portion of the price you paid
back in the form of a taxable 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 the same class of shares of another Franklin Templeton
Fund. You may also direct your distributions to buy 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 THE
SAME CLASS 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 before the record date for us to process the new option.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
HOW AND WHEN SHARES ARE PRICED
The Fund is open for business each day the NYSE is open. We determine the Net
Asset Value per share as of the scheduled close of the NYSE, generally 1:00
p.m. Pacific time. You can find the prior day's closing Net Asset Value 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 and sell Advisor Class shares at the Net Asset Value per share. We
calculate it to two decimal places using standard rounding criteria.
The Net Asset Value we use when you buy or sell shares is the one 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 BEFORE 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.
If our lines are busy or you are otherwise unable to reach us by phone, you
may wish to ask your investment representative for assistance or send us
written instructions, as described elsewhere in this prospectus. If you are
unable to execute a transaction by telephone, we will not be liable for any
loss.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS. We cannot accept instructions to 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, we need you 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, we cannot accept instructions 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. You should register your account as a trust only if you have a valid
written trust document. This avoids 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 cannot 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. We will accept electronic instructions
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
The IRS requires us to 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 less than $50. We will only do
this if the value of your account fell below this amount 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 $100. These minimums do not apply if you fall within
categories 4, 5, 6 or 7 under "How Do I Buy Shares? - Opening Your Account."
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 shareholder 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 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.
INSTITUTIONAL ACCOUNTS
Additional methods of buying, selling or exchanging shares of the Fund may be
available to institutional accounts. Institutional investors may also be
required to complete an institutional account application. For more
information, call Institutional Services.
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. They differ, however, primarily in their sales
charge and expense structures.
CODE - Internal Revenue Code of 1986, as amended
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
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
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
GERMAN GOVERNMENT
BOND FUND
INVESTMENT STRATEGY
GLOBAL GROWTH
AND INCOME
ADVISOR CLASS
Advisor
MARCH 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 currently offers another class of shares with a different sales charge
and expense structure, which affects performance. This class is described in a
separate prospectus. For more information, contact your investment
representative or call 1-800/DIAL BEN.
The Fund has a Statement of Additional Information ("SAI") for its Advisor
Class, dated March 1, 1997, which may be amended from time to time. It 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.
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, JURISDICTION OR COUNTRY 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
MARCH 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 ............................................ 2
How does the Fund Invest its Assets ........................ 3
What are the Fund's Potential Risks? ....................... 9
Who Manages the Fund? ...................................... 14
How does the Fund Measure Performance? ..................... 15
How Taxation Affects the Fund and its Shareholders ......... 16
How is the Trust Organized? ................................ 17
About Your Account
How Do I Buy Shares? ....................................... 18
May I Exchange Shares for Shares of Another Fund? .......... 22
How Do I Sell Shares? ...................................... 24
What Distributions Might I Receive from the Fund? .......... 25
Transaction Procedures and Special Requirements ............ 26
Services to Help You Manage Your Account ................... 31
What If I Have Questions About My Account? ................. 32
Glossary
Useful Terms and Definitions ............................... 33
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. Since Advisor Class shares were not offered until January 1, 1997, the
table is based on the historical expenses of the Fund's Class I shares for the
fiscal year ended October 31, 1996. The Fund's 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 0.55%
Rule 12b-1 Fees None
Other Expenses 0.36%
Total Fund Operating Expenses 0.91%
C.EXAMPLE
Assume the annual return for the class is 5%, operating expenses are as
described above, and you sell your shares after the number of years shown. These
are the projected expenses for each $1,000 that you invest in the Fund.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$9 $29 $50 $112
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. The
Fund pays its operating expenses. The effects of these expenses are reflected in
the Net Asset Value or dividends of the class and are not directly charged to
your account.
+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
*$5.00 fee is only for Market Timers. We process all other exchanges without a
fee.
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, 1995, was approximately 4.38 trillion marks (U.S.
$2.82 trillion). Of this total, German government and agency bonds accounted for
1.273 trillion marks (U.S. $821 billion), or about 41% 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, 1995. 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 $ 704.5 $2,546.5
Central government agency
& government guaranteed 116.8 2,606.1
State and local 445.7 1,029.6
Corporates 1,038.2 2,485.2
Other, foreign,
international and Euros 519.7 956.9
Total $2,824.9 $9,624.3
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.
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 the value or liquidity 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?
The value of your shares will increase as the value of the securities owned by
the Fund increases and will decrease as the value of the Fund's investments
decrease. In this way, you participate in any change in the value of the
securities owned by the Fund. In addition to the factors that affect the value
of any particular security that the Fund owns, the value of Fund shares may also
change with movements in the bond market as a whole.
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 and Aaa, respectively 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 the Fund and its Shareholders" in this
prospectus and "Additional Information on Distributions and Taxes," in the SAI.
The Fund is a "non-diversified" fund, which means there are no restrictions
under the 1940 Act on the percentage of assets that may be invested at any time
in the securities of any one issuer. However, as a non-diversified fund, and as
a fund that concentrates its investments primarily in German government
obligations denominated in German marks, the Fund may be subject to greater risk
with respect to its portfolio securities than a mutual fund that has a broader
range of investments. Although the Fund is "non-diversified" for purposes of the
1940 Act, it 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
Fund's classes of shares. While none is expected, the Board will act
appropriately to resolve any material conflict that may arise.
Investment Managers. The Investment Managers manage the Fund's assets and make
its investment decisions. 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. Together, the Investment Managers and their
affiliates manage over $179 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.
Under an agreement with Advisers, TICI is the sub-advisor of the Fund. TICI
provides Advisers with investment management advice and assistance. TICI's
activities are subject to the Board's review and control, as well as Advisers'
instruction and supervision.
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 Franklin Templeton Global Trust (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, 1996, management fees
totaling 0.55% of the average monthly net assets of the Fund were paid to the
Investment Managers. During the same period, Advisers paid TICI a sub-advisory
fee totaling 0.25% 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.
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, the Advisor Class of the Fund advertises its performance. The
more commonly used measures of performance are total return, current yield and
current distribution rate.
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 shows the
income per share earned by Advisor Class. The current distribution rate shows
the dividends or distributions paid to shareholders of Advisor Class. This rate
is usually computed by annualizing the dividends paid per share during a certain
period and dividing that amount by the current 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 the Advisor 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 TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS
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 mark-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.
HOW IS THE TRUST ORGANIZED?
The Fund is a non-diversified series of 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. As of January 1, 1997, the Fund began offering a new class of shares
designated Franklin Templeton German Government Bond Fund - Advisor Class. All
shares outstanding before the offering of Advisor Class shares have been
designated Franklin Templeton German Government Bond Fund - Class I. Additional
series and classes of shares may be offered in the future.
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 for matters that affect the Fund as a whole. For matters that only
affect one class, however, only shareholders of that class may vote. 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 of a series have the same
voting and other rights and preferences as the other classes and series of the
Trust for 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.
As of February 3, 1997, Franklin Resources, Inc. and Franklin Templeton Fund
Allocator Series - Franklin Templeton Growth Target Fund owned of record and
beneficially more than 25% of the outstanding shares of the Advisor Class of the
Fund.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
Shares of the Fund may be purchased without a sales charge. To open your
account, contact your investment representative or complete and sign the
enclosed shareholder application and return it to the Fund with your check.
MINIMUM
INVESTMENTS*
To Open Your Account $5,000,000
To Add to Your Account $ 25
*We waive or lower these minimums for certain investors listed below. We may
also refuse any order to buy shares.
To determine if you meet the minimum investment requirement, the amount of your
current purchase is added to the cost or current value, whichever is higher, of
your existing shares in the Franklin Templeton Funds. At least $1 million of
this amount, however, must be invested in Advisor Class or Class Z shares of any
of the Franklin Templeton Funds.
The Fund's minimum initial investment requirement will not apply to purchases
by:
1. Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for clients
participating in comprehensive fee programs
2. Qualified registered investment advisors or certified financial planners who
have clients invested in the Franklin Mutual Series Fund Inc. on October 31,
1996, or who buy through a broker-dealer or service agent who has entered into
an agreement with Distributors
3. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group and their immediate family
members, subject to a $100 minimum investment requirement
4. Accounts managed by the Franklin Templeton Group
5. The Franklin Templeton Profit Sharing 401(k) Plan
6. Each series of the Franklin Templeton Fund Allocator Series, subject to a
$1,000 minimum initial and subsequent investment requirement
7. 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, and that (i) are
sponsored by an employer with at least 5,000 employees, or (ii) have plan assets
of $50 million or more
8. Trust companies and bank trust departments initially investing in 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 and bank trust departments or other plan fiduciaries or participants,
in the case of certain retirement plans, have full or shared investment
discretion
9. Defined benefit plans or governments, municipalities, and tax-exempt entities
that meet the requirements for qualification under Section 501 of the Code,
subject to a $1 million initial investment in Advisor Class shares
10. Any other investor, including a private investment vehicle such as a family
trust or foundation, who is a member of a qualified group, if the group as a
whole meets the $5 million minimum investment requirement. A qualified group 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 Franklin Templeton Fund sales and other 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 currently own Class I shares of the Fund and you qualify to buy Advisor
Class shares, you may invest your existing Class I shares into the Fund's
Advisor Class by June 30, 1997. If you would like to do this, please send us
written instructions. Generally, for federal income tax purposes, there will be
no recognition of gain or loss on this transaction. You may want to consult with
your tax advisor to determine the effect of this transaction, if any, on state
income taxes.
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 Credit for 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.
PAYMENTS TO SECURITIES DEALERS
Securities Dealers who initiate and are responsible for purchases of Advisor
Class shares may receive up to 0.25% of the purchase price. The payment is
subject to the sole discretion of Distributors, and is paid by Distributors or
one of its affiliates and not by the Fund or its shareholders.
For information on additional compensation payable to Securities Dealers in
connection with the sale of Fund shares, please see "How Do I Buy, Sell and
Exchange Shares? - Other Payments to Securities Dealers" in the SAI.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund, its investment objective
and policies, and its rules and requirements for exchanges. For example, some
Franklin Templeton Funds do not accept exchanges and some 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.
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
o You may only exchange shares within the same class, except as noted below.
o The accounts must be identically registered. You may, however, 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. 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 if we give you 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.
LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES
If you want to exchange into a fund that does not currently offer an Advisor
Class, you may exchange your Advisor Class shares for Class I shares of that
fund at Net Asset Value. If you do not qualify to buy Advisor Class shares of
Templeton Developing Markets Trust, Templeton Foreign Fund or Templeton Growth
Fund, you may exchange the Advisor Class shares you own for Class I shares of
those funds or of Templeton Institutional Funds, Inc. at Net Asset Value. If you
do so and you later decide you would like to exchange into a fund that offers an
Advisor Class, you may exchange your Class I shares for Advisor Class shares of
that fund. You may also exchange your Advisor Class shares for Class Z shares of
Franklin Mutual Series Fund Inc.
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
other requirements.
By Phone
(Only available if you have completed and sent to us the telephone redemption
agreement included with this prospectus)
Call Shareholder Services
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
Through Your Dealer Call your investment representative
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 in writing 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, with a signature guarantee.
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 recently 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 and you will then receive a portion of the price you paid back in
the form of a taxable 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 the same class of shares of another Franklin Templeton
Fund. You may also direct your distributions to buy 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 the same class
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 before
the record date for us to process the new option.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
HOW AND WHEN SHARES ARE PRICED
The Fund is open for business each day the NYSE is open. We determine the Net
Asset Value per share as of the scheduled close of the NYSE, generally 1:00 p.m.
Pacific time. You can find the prior day's closing Net Asset Value 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 and sell Advisor Class shares at the Net Asset Value per share. We
calculate it to two decimal places using standard rounding criteria. The Net
Asset Value we use when you buy or sell shares is the one 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 before 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.
If our lines are busy or you are otherwise unable to reach us by phone, you may
wish to ask your investment representative for assistance or send us written
instructions, as described elsewhere in this prospectus. If you are unable to
execute a transaction by telephone, we will not be liable for any loss.
Trust Company Retirement Plan Accounts. We cannot accept instructions to 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, we need you 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, we cannot accept
instructions 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. You should register your account as a trust only if you have a valid
written trust document. This avoids 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 cannot 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. We will accept electronic instructions 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
The IRS requires us to 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 less than $50. We will only do this
if the value of your account fell below this amount 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 $100.
These minimums do not apply if you fall within categories 4, 5, 6 or 7 under
"How Do I Buy Shares? - Opening Your Account."
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 shareholder 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 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.
INSTITUTIONAL ACCOUNTS
Additional methods of buying, selling or exchanging shares of the Fund may be
available to institutional accounts. Institutional investors may also be
required to complete an institutional account application. For more information,
call Institutional Services.
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. TICI is
located at 500 E. Broward Blvd., Suite 2100, Fort Lauderdale, Florida
33394-3091. 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. They differ, however, primarily in their sales charge and
expense structures.
Code - Internal Revenue Code of 1986, as amended
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 Templeton Funds - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Franklin Government Securities Trust, Templeton Capital Accumulator Fund,
Inc., Templeton Variable Annuity Fund, and Templeton Variable Products Series
Fund
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 sub-advisor.
Investor Services - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
Market Timers - 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.
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
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.
TICI - Templeton Investment Counsel, Inc., the Fund's sub-advisor.
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.
FRANKLIN TEMPLETON
INTERNATIONAL
CURRENCY FUNDS
Franklin Templeton Global Currency Fund
Franklin Templeton High Income Currency Fund
Franklin Templeton Hard Currency Fund
STATEMENT OF
ADDITIONAL INFORMATION
MARCH 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?.............................. 2
What are the Fund's Potential Risks?.............................. 4
Investment Restrictions........................................... 5
Officers and Trustees............................................. 6
Investment Management
and Other Services............................................... 10
How does the Fund Buy Securities
for its Portfolio?............................................... 12
How Do I Buy, Sell and Exchange Shares?........................... 13
How are Fund Shares Valued?....................................... 16
Additional Information on
Distributions and Taxes.......................................... 17
The Fund's Underwriter............................................ 19
How does the Fund Measure Performance?............................ 21
Miscellaneous Information......................................... 24
Financial Statements.............................................. 25
Useful Terms and Definitions...................................... 25
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 Global Currency Fund (the "Global Currency Fund"), the
Franklin Templeton Hard Currency Fund (the "Hard Currency Fund"), and the
Franklin Templeton High Income Currency Fund (the "High Income Fund")
(individually or collectively the "Fund," "Funds" or the "Currency Funds"),
are each a separate non-diversified series of the Franklin Templeton Global
Trust (the "Trust"), an open-end management investment company. The Global
Currency Fund's investment objective is to maximize total return, the Hard
Currency Fund's investment objective is to protect against depreciation of
the U.S. dollar relative to other currencies and the High Income Fund's
investment objective is to obtain high current income at a level
significantly above that available on U.S. dollar money market funds.
The Prospectus, dated March 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 describes the Fund's Class I shares. The Hard Currency Fund
currently offers another class of shares with a different sales charge and
expense structure, which affects performance. This class is described in a
separate SAI and prospectus. For more information, contact your investment
representative or call 1-800/DIAL BEN.
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:
OARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
OARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK;
OARE 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?"
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.
Financial Services Obligations. Under normal market conditions, the Fund may
invest up to 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. CDs 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
CD of each bank held by the Fund) 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 reducing the realized gain or increasing 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 temporarily invest 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 purchasing 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 33 1/3% 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 33 1/3% 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 the value or
liquidity 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 Offices
Name, Age and Address with the Trust Principal Occupations During the
Past Five Years
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 32 of the investment companies in
the Franklin Templeton 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 (a meat packing
company); and director, trustee or
managing general partner, as the
case may be, of 56 of the investment
companies in the Franklin Templeton
Group of Funds.
David K. Eiteman (67) Trustee
9 Jewett Lane
South Hadley, MA 01075-1359
From 1959 to 1991, Professor of
Finance in the John E. Anderson
Graduate School of Management,
University of California, Los
Angeles. Professor Emeritus since
1991. 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 58 of the
investment companies in the Franklin
Templeton Group of Funds.
David W. Garbellano (82) 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 31 of the investment companies in
the Franklin Templeton 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;
trustee of two of the investment
companies in the Franklin Templeton
Group of Funds.
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; trustee of one
investment company in the Franklin
Templeton Group of Funds.
*Charles B. Johnson (64) Chairman of the
777 Mariners Island Blvd. Board and
San Mateo, CA 94404 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 of the subsidiaries of
Franklin Resources, Inc. and of 57
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.; Senior Vice
President and Director, Franklin
Advisory Services, Inc. and Franklin
Investment
Advisory Services, Inc.; Director,
Franklin/Templeton Investor
Services, Inc.; and officer and/or
director, trustee or managing
general partner, as the case may be,
of most of the other subsidiaries of
Franklin Resources, Inc. and of 61
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; trustee of one investment
company in the Franklin Templeton
Group of Funds.
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.
(software firm); Director,
FischerImaging Corporation (medical
imaging systems); and director or
trustee, as the case may be, of 27
of the investment companies in the
Franklin Templeton Group of Funds.
Gordon S. Macklin (68) Trustee
8212 Burning Tree Road
Bethesda, MD 20817
Chairman, White River Corporation
(information and financial
services); Director, Fund American
Enterprises Holdings, Inc.
(financial services), MCI
Communications Corporation, CCC
Information Services Group, Inc.
(information services), MedImmune,
Inc. (biotechnology), Source One
Mortgage Services Corporation
(financial services), Shoppers
Express (home shopping), Spacehab,
Inc. (aerospace services); and
director, trustee or managing
general partner, as the case may be,
of 53 of the investment companies in
the Franklin Templeton Group of
Funds; formerly Chairman, Hambrecht
and Quist Group (venture capital and
investment banking); Director, H & Q
Healthcare Investors (investment
trust); and President, National
Association of Securities Dealers,
Inc.
Harmon E. Burns (52) 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.
and Franklin Templeton Services,
Inc.; Director, Franklin/Templeton
Investor Services, Inc.; officer
and/or director, as the case may be,
of most of the other subsidiaries of
Franklin Resources, Inc.; and
officer and/or director or trustee
of 61 of the in-
vestment companies in the Franklin
Templeton 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.; President,
Franklin Templeton Services, 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.; Treasurer,
Franklin Advisory Services, Inc. and
Franklin Investment Advisory
Services, Inc.; officer of most of
the other subsidiaries of Franklin
Resources, Inc.; and officer,
director and/or trustee of 61 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 Services, Inc. and
Franklin Templeton Distributors,
Inc.; Vice President, Franklin
Advisers, Inc., Franklin Advisory
Services, Inc., Franklin
Investment Advisory Services, Inc.,
and officer of 61 of the investment
companies in the Franklin Templeton
Group of Funds.
Charles E. Johnson (40) Vice President
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
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 (58) Treasurer and
777 Mariners Island Blvd. Principal
San Mateo, CA 94404 Accounting
Officer
Employee of Franklin Advisers, Inc.;
and officer of 38 of the investment
companies in the Franklin Templeton
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
33 of the investment companies in
the Franklin Templeton 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....... $4,800 $165,236 32
Harris J. Ashton........... 4,800 343,591 56
David K. Eiteman........... 800 800 1
S. Joseph Fortunato........ 4,800 360,411 58
David Garbellano........... 4,800 148,916 31
Gerald R. Healy............ 4,800 3,200 1
David P. Kraus............. 4,800 4,000 1
Frank W.T. LaHaye.......... 4,800 139,233 27
Gordon S. Macklin.......... 4,800 335,541 53
*For the fiscal year ended October 31, 1996.
**For the calendar year ended December 31, 1996.
***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 62 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 February 3, 1997 the officers and Board members, as a group, owned of
record and beneficially approximately the following shares of the Fund: 4,200
shares of the Global Currency Fund, 492 shares of the Hard Currency Fund -
Class I and 179 shares of the High Income Fund, or less than 1% of each
Fund's total outstanding shares. Many of the Board members also own shares in
other funds in the Franklin Templeton Group of Funds. Charles B. Johnson and
Rupert H. Johnson, Jr. are brothers and the father and uncle, respectively,
of Charles E. Johnson.
Investment Management and Other Services
Investment Managers and Services Provided. The Fund's investment manager is
Advisers. Under an agreement with Advisers, TICI is the Fund's sub-advisor.
The Investment Managers provides investment research and portfolio management
services, including the selection of securities for the Fund to buy, hold or
sell and the selection of brokers through whom the Fund's portfolio
transactions are executed. 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 the
Investment Managers 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 the
Investment Managers 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 Fund's Code of Ethics. Please see "Miscellaneous
Information - Summary of Code of Ethics."
TICI provides Advisers with investment management advice and assistance. TICI
also provides a continuous investment program for the Fund, including
allocation of the Fund's assets among the various securities markets of the
world and investment research and advice with respect to securities and
investments and cash equivalents in the Fund.
Management Fees. Under its management agreement, the Fund pays Advisers a
management fee equal to an annual rate of 0.65% 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 of the Hard Currency Fund
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 the Fund and brokerage commissions in connection with these
purchases.
For the fiscal years ended October 31, 1996 and 1995 and for the six-month
periods ended April 30, 1994, and October 31, 1994, management fees, before
any advance waiver, and the fees paid by the Fund were as follows:
Management Management
Fiscal Year Fees (before Fees Paid
ended October 31 fee waiver) by the Fund
1996
Global Currency Fund $351,768 $351,768
Hard Currency Fund 811,115 811,115
High Income Fund.. 66,069 61,796
1995
Global Currency Fund 379,524 379,524
Hard Currency Fund 634,188 634,188
High Income Fund.. 82,819 57,812
1994*
Global Currency Fund 173,619 152,156
Hard Currency Fund 179,397 113,677
High Income Fund.. 56,657 20,585
1994**
Global Currency Fund $188,301 $71,399
Hard Currency Fund 106,115 13,792
High Income Fund.. 68,831 20,699
*Six-month period ended October 31, 1994, resulting from a change in fiscal
year end.
**Six-month period ended April 30, 1994, resulting from a change in fiscal
year end.
Management Agreements. The management and sub-advisory agreements are in
effect until February 28, 1998. They may continue in effect for successive
annual periods if their 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 either 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. Chase Manhattan Bank, Global Securities Service, Chase MetroTech
Center, Brooklyn, New York 11245, acts as custodian of 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., 200 East Las Olas Boulevard, Ft.
Lauderdale, Florida 33301, are the Fund's independent auditors. During the
fiscal year ended October 31, 1996, their auditing services consisted of
rendering an opinion on the financial statements of the Trust included in the
Trust's Annual Report to Shareholders for the fiscal year ended October 31,
1996.
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 Investment Managers may pay certain brokers commissions that are higher
than those another broker may charge, if they determine in good faith that
the amount paid is reasonable in relation to the value of the brokerage and
research services they receive. This may be viewed in terms of either the
particular transaction or the Investment Managers' overall responsibilities
to client accounts over which they exercise investment discretion. The
services that brokers may provide to the Investment Managers include, among
others, supplying information about particular companies, markets, countries,
or local, regional, national or transnational economies, statistical data,
quotations and other securities pricing information, and other information
that provides lawful and appropriate assistance to the Investment Managers in
carrying out their investment advisory responsibilities. These services may
not always directly benefit the Fund. They must, however, be of value to the
Investment Managers in carrying out their overall responsibilities to their
clients.
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 periods ended April 30, 1994 and October 31, 1994 and the fiscal
years ended October 31, 1995 and 1996, the Fund paid no brokerage commissions.
As of October 31, 1996, the Fund did not own securities of its regular
broker-dealers.
How Do I Buy, Sell and Exchange Shares?
Additional Information on Buying Shares
The Fund continuously offers its shares through Securities Dealers who have
an agreement with Distributors. Securities Dealers may at times receive the
entire sales charge. A Securities Dealer who receives 90% or more of the
sales charge may be deemed an underwriter under the Securities Act of 1933,
as amended.
Securities laws of states where the Fund offers its shares may differ from
federal law. Banks and financial institutions that sell shares of the Fund
may be required by state law to register as Securities Dealers. Financial
institutions or their affiliated brokers may receive an agency transaction
fee in the percentages indicated in the table under "How Do I Buy Shares? -
Quantity Discounts" in the Prospectus.
When you buy shares, if you submit a check or a draft that is returned unpaid
to the Fund, we may impose a $10 charge against your account for each
returned item.
Under agreements with certain banks in Taiwan, Republic of China, the Fund's
shares are available to these banks' trust accounts without a sales charge.
The banks may charge service fees to their customers who participate in the
trusts. A portion of these service fees may be paid to Distributors or one of
its affiliates to help defray expenses of maintaining a service office in
Taiwan, including expenses related to local literature fulfillment and
communication facilities.
Class I shares of the Fund may be offered to investors in Taiwan through
securities advisory firms known locally as Securities Investment Consulting
Enterprises. In conformity with local business practices in Taiwan, Class I
shares may be offered with the following schedule of sales charges:
Size of Purchase - U.S. dollars Sales Charge
Under $30,000............... 3%
$30,000 but less than $100,000 2%
$100,000 but less than $400,000 1%
$400,000 or more............ 0%
Other Payments to Securities Dealers. Distributors may pay the following
commissions, out of its own resources, to Securities Dealers who initiate and
are responsible for purchases of Class I shares of $1 million or more: 0.75%
on sales of $1 million to $2 million, plus 0.60% on sales over $2 million to
$3 million, plus 0.50% on sales over $3 million to $50 million, plus 0.25% on
sales over $50 million to $100 million, plus 0.15% on sales over $100 million.
Either Distributors or one of its affiliates may pay the following amounts,
out of its own resources, to Securities Dealers who initiate and are
responsible for purchases of Class I shares by certain retirement plans
pursuant to a sales charge waiver, as discussed in the Prospectus: 1% on
sales of $500,000 to $2 million, plus 0.80% on sales over $2 million to $3
million, plus 0.50% on sales over $3 million to $50 million, plus 0.25% on
sales over $50 million to $100 million, plus 0.15% on sales over $100
million. Distributors may make these payments in the form of contingent
advance payments, which may be recovered from the Securities Dealer or set
off against other payments due to the dealer if shares are sold within 12
months of the calendar month of purchase. Other conditions may apply. All
terms and conditions may be imposed by an agreement between Distributors, or
one of its affiliates, and the Securities Dealer.
These breakpoints are reset every 12 months for purposes of additional
purchases.
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.
Letter of Intent. You may qualify for a reduced sales charge when you buy
Fund shares, as described in the Prospectus. At any time within 90 days after
the first investment that you want to qualify for a reduced sales charge, you
may file with the Fund a signed shareholder application with the Letter of
Intent section completed. After the Letter is filed, each additional
investment will be entitled to the sales charge applicable to the level of
investment indicated on the Letter. Sales charge reductions based on
purchases in more than one Franklin Templeton Fund will be effective only
after notification to Distributors that the investment qualifies for a
discount. Your holdings in the Franklin Templeton Funds acquired more than 90
days before the Letter is filed, will be counted towards completion of the
Letter but will not be entitled to a retroactive downward adjustment in the
sales charge. Any redemptions you make during the 13 month period, except in
the case of certain retirement plans, will be subtracted from the amount of
the purchases for purposes of determining whether the terms of the Letter
have been completed. If the Letter is not completed within the 13 month
period, there will be an upward adjustment of the sales charge, depending on
the amount actually purchased (less redemptions) during the period. The
upward adjustment does not apply to certain retirement plans. If you execute
a Letter before a change in the sales charge structure of the Fund, you may
complete the Letter at the lower of the new sales charge structure or the
sales charge structure in effect at the time the Letter was filed.
As mentioned in the Prospectus, five percent (5%) of the amount of the total
intended purchase will be reserved in shares of the Fund registered in your
name until you fulfill the Letter. This policy of reserving shares does not
apply to certain retirement plans. If total purchases, less redemptions,
equal the amount specified under the Letter, the reserved shares will be
deposited to an account in your name or delivered to you or as you direct. If
total purchases, less redemptions, exceed the amount specified under the
Letter and is an amount that would qualify for a further quantity discount, a
retroactive price adjustment will be made by Distributors and the Securities
Dealer through whom purchases were made pursuant to the Letter (to reflect
such further quantity discount) on purchases made within 90 days before and
on those made after filing the Letter. The resulting difference in Offering
Price will be applied to the purchase of additional shares at the Offering
Price applicable to a single purchase or the dollar amount of the total
purchases. If the total purchases, less redemptions, are less than the amount
specified under the Letter, you will remit to Distributors an amount equal to
the difference in the dollar amount of sales charge actually paid and the
amount of sales charge that would have applied to the aggregate purchases if
the total of the purchases had been made at a single time. Upon remittance,
the reserved shares held for your account will be deposited to an account in
your name or delivered to you or as you direct. If within 20 days after
written request the difference in sales charge is not paid, the redemption of
an appropriate number of reserved shares to realize the difference will be
made. In the event of a total redemption of the account before fulfillment of
the Letter, the additional sales charge due will be deducted from the
proceeds of the redemption, and the balance will be forwarded to you.
If a Letter is executed on behalf of certain retirement plans, the level and
any reduction in sales charge for these plans will be based on actual plan
participation and the projected investments in the Franklin Templeton Funds
under the Letter. These plans are not subject to the requirement to reserve
5% of the total intended purchase, or to any penalty as a result of the early
termination of a plan, nor are these plans entitled to receive retroactive
adjustments in price for investments made before executing the Letter.
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
short-term, interest-bearing money market instruments unless it is believed
that attractive investment opportunities consistent with the Fund's
investment objective exist immediately. This money will then be withdrawn
from the short-term money market instruments and invested in portfolio
securities in as orderly a manner as is possible when attractive investment
opportunities arise.
The proceeds from the sale of shares of an investment company are generally
not available until the fifth business day following the sale. The funds you
are seeking to exchange into may delay issuing shares pursuant to an exchange
until that fifth business day. The sale of 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 25th day of the
month in which a payment is scheduled. If the 25th falls on a weekend or
holiday, we will process the redemption on the next 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 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 Fund's Net Asset Value. 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 the Fund's shares 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 Fund's Net Asset
Value. 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) 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
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 Funds intend as a matter of policy to declare such dividends,
if any, in December or January to avoid the imposition of this tax, but do
not guarantee that their distributions will be sufficient to avoid any or all
federal excise taxes.
For corporate shareholders, none of the distributions paid by the Fund for
the fiscal year ended October 31, 1996 qualified for the corporate
dividends-received deduction and it is not anticipated that any of the
current year's dividends will qualify.
Redemptions and exchanges of Fund shares are taxable transactions for federal
and state income tax purposes. For most shareholders, gain or loss will be
recognized in an amount equal to the difference between your basis in the
shares and the amount received, subject to the rules described below. If such
shares are a capital asset in your hands, gain or loss will be capital gain
or loss and will be long-term for federal income tax purposes if the shares
have been held for more than one year.
All or a portion of the sales charge incurred in purchasing the Fund's shares
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 such sales charge excluded from the tax basis of
the shares sold will be added to the tax basis of the shares acquired in the
reinvestment. You should consult with your tax advisors concerning the tax
rules applicable to the redemption or exchange of fund shares.
The 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 forfederal income tax purposes of such dividends
and distributions.
All or a portion of a loss realized upon a redemption of shares will be
disallowed to the extent other shares of the Fund are purchased (through
reinvestment of dividends or otherwise) within 30 days before or after such
redemption. Any loss disallowed under these rules will be added to the tax
basis of the shares purchased.
The Fund's investment in options, futures contracts and forward contracts,
including transactions involving actual or deemed short sales or foreign
exchange gains or losses are subject to many complex and special tax rules.
For example, 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 shares of the Fund. The
underwriting agreement will continue in effect for successive annual periods
if its continuance is specifically approved at least annually by a vote of
the Board or by a vote of the holders of a majority of the Fund's outstanding
voting securities, and in either event by a majority vote of the Board
members who are not parties to the underwriting agreement or interested
persons of any such party (other than as members of the Board), cast in
person at a meeting called for that purpose. The underwriting agreement
terminates automatically in the event of its assignment and may be terminated
by either party on 90 days' written notice.
Distributors pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and
prospectuses used to offer shares to the public. The Fund pays the expenses
of preparing and printing amendments to its registration statements and
prospectuses (other than those necessitated by the activities of
Distributors) and of sending prospectuses to existing shareholders.
In connection with the offering of Funds' shares, aggregate underwriting
commissions for the fiscal year ended April 30, 1994, for the six-month
period ended October 31, 1994 and the fiscal years ended October 31, 1995 and
1996 were $280,011, $461,923, $1,765,383 and $944,017, respectively. After
allowances to dealers, Distributors retained $10,779 for the period November
15, 1993 to April 30, 1994, $5,455 for the six-month period ended October 31,
1994, $199,595 for the fiscal year ended October 31, 1995 and $106,560 for
the fiscal year ended October 31, 1996 in net underwriting discounts and
commissions and received no compensation in connection with redemptions or
repurchases of shares, for the respective periods. Distributors may be
entitled to reimbursement under the Rule 12b-1 plan, as discussed below.
Except as noted, Distributors received no other compensation from the Fund
for acting as underwriter.
The Rule 12b-1 Plan
The Fund has adopted a distribution plan or "Rule 12b-1 plan" pursuant to
Rule 12b-1 of the 1940 Act, for its Class I shares. Under the plan, the Fund
may pay up to a maximum of 0.25% per year of its average daily net assets,
payable quarterly, for expenses incurred in the promotion and distribution of
its Class I shares. In addition, the Fund is permitted to pay Distributors up
to an additional 0.20% per year of its Class I's average daily net assets for
reimbursement of distribution expenses.
In addition to the payments that Distributors or others are entitled to under
the plan, the plan also provides that to the extent the Fund, Advisers or
Distributors or other parties on behalf of the Fund, Advisers or Distributors
make payments that are deemed to be for the financing of any activity
primarily intended to result in the sale of Class I shares of the Fund within
the context of Rule 12b-1 under the 1940 Act, then such payments shall be
deemed to have been made pursuant to the plan.
In no event shall the aggregate asset-based sales charges, which include
payments made under the plan, plus any other payments deemed to be made
pursuant to the plan, exceed the amount permitted to be paid under the rules
of the NASD.
The terms and provisions of the plan relating to required reports, term, and
approval are consistent with Rule 12b-1. The plan does not permit
unreimbursed expenses incurred in a particular year to be carried over to or
reimbursed in later years.
To the extent fees are for distribution or marketing functions, as
distinguished from administrative servicing or agency transactions, certain
banks will not be entitled to participate in the plan as a result of
applicable federal law prohibiting certain banks from engaging in the
distribution of mutual fund shares. These banking institutions, however, are
permitted to receive fees under the plan for administrative servicing or for
agency transactions. If you are a customer of a bank that is prohibited from
providing these services, you would be permitted to remain a shareholder of
the Fund, and alternate means for continuing the servicing would be sought.
In this event, changes in the services provided might occur and you might no
longer be able to avail yourself of any automatic investment or other
services then being provided by the bank. It is not expected that you would
suffer any adverse financial consequences as a result of any of these changes.
The plan has been approved in accordance with the provisions of Rule 12b-1.
The plan is renewable annually by a vote of the Board, including a majority
vote of the Board members who are not interested persons of the Fund and who
have no direct or indirect financial interest in the operation of the plan,
cast in person at a meeting called for that purpose. It is also required that
the selection and nomination of such Board members be done by the
non-interested members of the Board. The plan and any related agreement may
be terminated at any time, without penalty, by vote of a majority of the
non-interested Board members on not more than 60 days' written notice, by
Distributors on not more than 60 days' written notice, by any act that
constitutes an assignment of the management agreement with Advisers, or the
underwriting agreement with Distributors, or by vote of a majority of the
outstanding shares of Class I. Distributors or any dealer or other firm may
also terminate their respective distribution or service agreement at any time
upon written notice.
The plan and any related agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a
majority of the outstanding shares of Class I, and all material amendments to
the plan or any related agreements shall be approved by a vote of the
non-interested members of the Board, cast in person at a meeting called for
the purpose of voting on any such amendment.
Distributors is required to report in writing to the Board at least quarterly
on the amounts and purpose of any payment made under the plan and any related
agreements, as well as to furnish the Board with such other information as
may reasonably be requested in order to enable the Board to make an informed
determination of whether the plan should be continued.
For the fiscal year ended October 31, 1996, the Global Currency Fund paid
$115,252, the Hard Currency Fund paid $370,787 and the High Income Fund paid
$20,191 pursuant to the plan. These amounts were used for the following
purposes:
Global High Hard
Currency Income Currency
Fund Fund Fund
Advertising............................ $ 3,167 $117,766 $ 545
Printing and mailing of prospectuses
other than to current shareholders.... 5,007 13,340 1,588
Payments to underwriters............... 2,158 24,472 570
Payments to broker-dealers............. 104,919 215,209 17,488
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 follows.
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 the maximum front-end sales charge is deducted from the
initial $1,000 purchase, and 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. If a change is made to the
sales charge structure, historical performance information will be restated
to reflect the maximum front-end sales charge currently in effect.
When considering the average annual total return quotations, you should keep
in mind that the maximum front-end sales charge reflected in each quotation
is a one time fee charged on all direct purchases, which will have its
greatest impact during the early stages of your investment. This charge will
affect actual performance less the longer you retain your investment in the
Fund. The Fund's average annual total return for the indicated periods ended
October 31, 1996 was as follows:
Ten-Year
Fund Name One-Year Five-Year (or a fractional portion)
Global Currency Fund -1.75% 5.49% 7.75%
Hard Currency Fund -8.78% 5.87% 7.91%*
High Income Fund 2.47% 4.81% 7.09%*
*Inception date 11/17/89.
These figures were calculated according to the SEC formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five- or ten-year periods at the end of the one-,
five- or ten-year periods (or fractional portion thereof)
Cumulative Total Return. Like average annual total return, cumulative total
return assumes the maximum front-end sales charge is deducted from the
initial $1,000 purchase, and income dividends and capital gain distributions
are reinvested at Net Asset Value. Cumulative total return, however, will be
based on the Fund's actual return for a specified period rather than on its
average return over one-, five- and ten-year periods , or fractional portion
thereof. The Fund's cumulative total returns for the indicated periods ended
October 31, 1996 was as follows:
Ten-Year
Fund Name One-Year Five-Year (or a fractional portion)
Global Currency Fund -1.75% 30.64% 110.97%
Hard Currency Fund -8.78% 33.00% 69.75%*
High Income Fund 2.47% 26.50% 61.02%*
*Inception date 11/17/89.
Yield
Current Yield. Current yield shows the income per share earned by the Fund.
It is calculated by dividing the net investment income per share earned
during a 30-day base period by the maximum Offering Price per share on the
last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base period.
The Fund's yield for the 30-day period ended October 31, 1996 was as follows:
Fund Name Yield
Global Currency Fund............ 3.88%
Hard Currency Fund.............. 3.22%
High Income Fund................ 4.35%
This figure was obtained using the following SEC formula:
6
Yield = 2 [( a-b + 1 ) - 1]
-----
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the maximum Offering Price per share on the last day of the period
Current Distribution Rate
Current yield, which is calculated according to a formula prescribed by the
SEC, is not indicative of the amounts which were or will be paid to
shareholders of the Fund. Amounts paid to shareholders are reflected in the
quoted current distribution rate. The current distribution rate is usually
computed by annualizing the dividends paid per share during a certain period
and dividing that amount by the current maximum Offering Price. 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 Fund's current distribution
rate for the 30-day period ended October 31, 1996 was as follows:
Current
Fund Name Distribution Rate
Global Currency Fund......... 4.09%
Hard Currency Fund........... 4.40%
High Income Fund............. 4.64%
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
The Fund may also quote the performance of shares without a sales charge.
Sales literature and advertising 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 with the
substitution of Net Asset Value for the public Offering Price.
Sales literature referring to the use of the Fund as a potential investment
for Individual Retirement Accounts (IRAs), Business Retirement Plans, and
other tax-advantaged retirement plans may quote a total return based upon
compounding of dividends on which it is presumed no federal income tax
applies.
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 the Franklin 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 Fund performance as reported by various financial
publications. Materials may also compare performance (as calculated above) to
performance as reported by other investments, indices, and averages. 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 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 Fund's performance 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 49 years
and now services more than 2.6 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. Mutual Series Fund Inc., known for its
value-driven approach to domestic equity investing, became part of the
organization four years later. Together, the Franklin Templeton Group has
over $179 billion in assets under management for more than 4.9 million U.S.
based mutual fund shareholder and other accounts. The Franklin Templeton
Group of Funds offers 120 U.S. based open-end investment companies to the
public. The Fund may identify itself by its NASDAQ symbol or CUSIP number.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one
in service quality for five of the past eight years.
As of February 3, 1997, the principal shareholders of the Fund, beneficial or
of record, were as follows:
NAME AND ADDRESS SHARE
AMOUNT PERCENTAGE
FRANKLIN TEMPLETON HARD CURRENCY FUND-
ADVISOR CLASS
Franklin Resources, Inc.
Attn: Corporate Treasury
1850 Gateway Dr., 6th flr. 1,796.657 57.76%
San Mateo, CA 94404
Franklin Templeton Fund Allocator Series -
Franklin Templeton Conservative Target Fund
c/o Accounting Dept.
1810 Gateway, 3rd flr. 342.812 11.02%
San Mateo, CA 94404-2470
Robert C. Axell Jr &
Susan J. Axell jt ten
7530 Amy Ave
Fair Oaks, CA 95628-6826 177.301 5.70%
John M. Sawaya
8849 Roediger Ln
Fair Oaks, CA 95628 428.492 13.77%
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.
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,
before 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 the Franklin Templeton Group 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, 1996, including the
auditors' report, are incorporated herein by reference.
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, Class II and Advisor Class - The Hard Currency Fund offers two
classes of shares, designated "Class I" and "Advisor Class." The two classes
have proportionate interests in the Hard Currency Fund's portfolio. They
differ, however, primarily in their sales charge and expense structures.
Certain funds in the Franklin Templeton Funds also offer a share class
designated "Class II."
Code - Internal Revenue Code of 1986, as amended
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter
Franklin Templeton Funds - The U.S. registered mutual funds in the Franklin
Group of FundsAE and the Templeton Group of Funds except Franklin Valuemark
Funds, Franklin Government Securities Trust, Templeton Capital Accumulator
Fund, Inc., Templeton Variable Annuity Fund, and Templeton Variable Products
Series Fund
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 - Franklin Advisers, Inc., the Fund's investment manager
and Templeton Investment Counsel, Inc., the Fund's sub-advisor
Investor Services - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
Letter - Letter of Intent
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 and includes the 3% sales charge.
Prospectus - The prospectus for the Fund's Class I shares dated March 1,
1997, as may be amended from time to time
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information
SEC - U.S. Securities and Exchange Commission
Securities Dealer - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TICI - Templeton Investment Counsel, Inc., the Fund's sub-advisor.
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 GERMAN GOVERNMENT BOND FUND
STATEMENT OF ADDITIONAL INFORMATION
MARCH 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......................................
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. 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 March 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 describes the Fund's Class I shares. The Fund currently offers
another class of shares with a different sales charge and expense structure,
which affects performance. This class is described in a separate SAI and
prospectus. For more information, contact your investment representative or
call 1-800/DIAL BEN.
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:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK;
ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
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 S&P or 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.
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 Securities Act of 1933 (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.
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 induce
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.
2. Borrow money, except from banks for temporary or emergency (not
leveraging) purposes in an amount up to 33 1/3% 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 33 1/3% 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 the value of
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 (*).
POSITIONS AND OFFICES PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS WITH THE TRUST DURING THE PAST FIVE
YEARS
Frank H. Abbott, III (75)
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 32 of
the investment companies in the Franklin Templeton Group of Funds.
Harris J. Ashton (64)
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 (a meat packing company); and director,
trustee or managing general partner, as the case may be, of 56 of the
investment companies in the Franklin Templeton Group of Funds.
David K. Eiteman (67)
9 Jewett Lane
South Hadley, MA 01075-1359
Trustee
From 1959 to 1991, Professor of Finance in the John E. Anderson Graduate
School of Management, University of California, Los Angeles. Professor
Emeritus since 1991. From 1988 to June 1993, a Trustee of the Huntington
Investment Trust.
S. Joseph Fortunato (64)
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Trustee
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director of General
Host Corporation; director, trustee or managing general partner, as the case
may be, of 58 of the investment companies in the Franklin Templeton Group of
Funds.
David W. Garbellano (82)
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 31 of the investment
companies in the Franklin Templeton Group of Funds.
*Donald P. Gould (38)
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; trustee of two
investment companies in the Franklin Group of Funds.
Gerald R. Healy (55)
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; trustee of one investment company in the
Franklin Templeton Group of Funds.
*Charles B. Johnson (64)
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 of the other subsidiaries of Franklin
Resources, Inc. and of 57 of the investment companies in the Franklin
Templeton Group of Funds.
*Rupert H. Johnson, Jr. (56)
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.; Senior Vice President and Director, Franklin Advisory Services, Inc.
and Franklin Investment Advisory Services, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; and officer and/or director, trustee or managing
general partner, as the case may be, of most of the other subsidiaries of
Franklin Resources, Inc. and of 61 of the investment companies in the
Franklin Templeton Group of Funds.
David P. Kraus (39)
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; trustee of
one investment company in the Franklin Templeton Group of Funds.
Frank W. T. LaHaye (67)
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.
(software firm); Director, FischerImaging Corporation (medical imaging
systems); and director or trustee, as the case may be, of 27 of the
investment companies in the Franklin Templeton Group of Funds.
Gordon S. Macklin (68)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Chairman, White River Corporation (information and financial services);
Director, Fund American Enterprises Holdings, Inc. (financial services), MCI
Communications Corporation, CCC Information Services Group, Inc. (information
services), MedImmune, Inc. (biotechnology), Source One Mortgage Services
Corporation (financial services), Shoppers Express (home shopping), Spacehab,
Inc. (aerospace services); and director, trustee or managing general partner,
as the case may be, of 53 of the investment companies in the Franklin
Templeton Group of Funds; formerly Chairman, Hambrecht and Quist Group
(venture capital and investment banking); Director, H & Q Healthcare
Investors (investment trust); and President, National Association of
Securities Dealers, Inc.
Harmon E. Burns (52)
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. and Franklin Templeton
Services, Inc.; Director, Franklin/Templeton Investor Services, Inc.; officer
and/or director, as the case may be, of most of the other subsidiaries of
Franklin Resources, Inc.; and officer and/or director or trustee of 61 of the
investment companies in the Franklin Templeton Group of Funds.
Martin L. Flanagan (36)
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.; President, Franklin Templeton Services, 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.; Treasurer,
Franklin Advisory Services, Inc. and Franklin Investment Advisory Services,
Inc.; officer of most of the other subsidiaries of Franklin Resources, Inc.;
and officer, director and/or trustee of 61 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 Services, Inc. and Franklin Templeton
Distributors, Inc.; Vice President, Franklin Advisers, Inc., Franklin
Advisory Services, Inc., Franklin Investment Advisory Services, Inc., and
officer of 61 of the investment companies in the Franklin Templeton Group of
Funds.
Charles E. Johnson (40)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
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 the investment companies in the Franklin Templeton Group of
Funds.
Diomedes Loo-Tam (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 38 of the investment
companies in the Franklin Templeton Group of Funds.
Edward V. McVey (59)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President/National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 33 of the investment companies in the
Franklin Templeton 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 RECEIVED TEMPLETON GROUP OF
TOTAL FEES FROM THE FRANKLIN FUNDS ON WHICH
RECEIVED FROM TEMPLETON GROUP OF EACH SERVES***
THE TRUST* FUNDS**
NAME
Frank H. Abbott, III $4,800 $165,236 32
Harris J. Ashton $4,800 $343,591 56
David K. Eiteman $800 $800 1
S. Joseph Fortunato $4,800 $360,411 58
David Garbellano $4,800 $148,916 31
Gerald R. Healy $4,800 $3,200 1
David P. Kraus $4,800 $4,000 1
Frank W.T. LaHaye $4,800 $139,233 27
Gordon S. Macklin $4,800 $335,541 53
*For the fiscal year ended October 31, 1996.
**For the calendar year ended December 31, 1996.
***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 62 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 February 3, 1997, the officers and Board members, as a group, owned of
record and beneficially the following shares of the Fund: approximately 143
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 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 the Investment
Managers 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 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 it
manages, or for its own account, that may differ from action taken by the
Investment Managers 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 the
Investment Managers and access persons, as defined by the 1940 Act, may buy
or sell for its or their own account or for the accounts of any other fund.
The Investment Managers are not obligated to refrain from investing in
securities held by the Fund or other funds that it manages. Of course, any
transactions for the accounts of the Investment Managers and other access
persons will be made in compliance with the Fund's Code of Ethics. Please see
"Miscellaneous Information - Summary of Code of Ethics."
Under an agreement with Advisers, TICI is the Fund's sub-advisor. TICI
provides Advisers with investment management advice and assistance.
MANAGEMENT FEES. Under its management agreement, the Fund pays Advisers a
management fee equal to an annual rate of 0.55%. The fee is computed at the
close of business on the last business day of each month. Under the
sub-advisory agreement, Advisers pays TICI, in U.S. dollars, equal to an
annual rate of 0.25%. 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.
For the fiscal year ended April 30, 1994, the period ended October 31, 1994
and the fiscal years ended October 31, 1995 and 1996, management fees, before
any advance waiver, totaled $35,400, $35,908, $97,759 and $117,798,
respectively. Under an agreement by the Investment Managers to waive or limit
their fees, the Fund paid management fees totaling $0, $0, $91,422 and
$117,798, respectively.
MANAGEMENT AGREEMENTS. The management and sub-advisory agreements are in
effect until February 28, 1998. It may continue in effect for successive
annual periods if its continuance is specifically approved at least annually
by a vote of the Board or by a vote of the holders of a majority of the
Fund's outstanding voting securities, and in either event by a majority vote
of the Board members who are not parties to the 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. 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, 200 E. Las Olas Blvd., Fort Lauderdale,
Florida 33301, are the Fund's independent auditors. During the fiscal year
ended October 31, 1996, their auditing services consisted of rendering an
opinion on the financial statements of the Trust included in the Trust's
Annual Report to Shareholders for the fiscal year ended October 31, 1996.
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.
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 Investment Managers may pay certain brokers commissions that are higher
than those another broker may charge, if the Investment Managers determine in
good faith that the amount paid is reasonable in relation to the value of the
brokerage and research services they receive. This may be viewed in terms of
either the particular transaction or Investment Managers' overall
responsibilities to client accounts over which they exercise investment
discretion. The services that brokers may provide to the Investment Managers
include, among others, supplying information about particular companies,
markets, countries, or local, regional, national or transnational economies,
statistical data, quotations and other securities pricing information, and
other information that provides lawful and appropriate assistance to the
Investment Managers in carrying out their investment advisory
responsibilities. These services may not always directly benefit the Fund.
They must, however, be of value to the Investment Managers in carrying out
their overall responsibilities to their clients.
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 and the fiscal years ended October 31, 1995 and 1996, the Fund paid no
brokerage commissions.
As of October 31, 1996, the Fund did not own securities of its regular
broker-dealers.
HOW DO I BUY, SELL AND EXCHANGE SHARES?
ADDITIONAL INFORMATION ON BUYING SHARES
The Fund continuously offers its shares through Securities Dealers who have
an agreement with Distributors. Securities Dealers may at times receive the
entire sales charge. A Securities Dealer who receives 90% or more of the
sales charge may be deemed an underwriter under the Securities Act of 1933,
as amended.
Securities laws of states where the Fund offers its shares may differ from
federal law. Banks and financial institutions that sell shares of the Fund
may be required by state law to register as Securities Dealers. Financial
institutions or their affiliated brokers may receive an agency transaction
fee in the percentages indicated in the table under "How Do I Buy Shares? -
Quantity Discounts" in the Prospectus.
When you buy shares, if you submit a check or a draft that is returned unpaid
to the Fund we may impose a $10 charge against your account for each returned
item.
Under agreements with certain banks in Taiwan, Republic of China, the Fund's
shares are available to these banks' trust accounts without a sales charge.
The banks may charge service fees to their customers who participate in the
trusts. A portion of these service fees may be paid to Distributors or one of
its affiliates to help defray expenses of maintaining a service office in
Taiwan, including expenses related to local literature fulfillment and
communication facilities.
Shares of the Fund may be offered to investors in Taiwan through securities
advisory firms known locally as Securities Investment Consulting Enterprises.
In conformity with local business practices in Taiwan, shares may be offered
with the following schedule of sales charges:
SIZE OF PURCHASE - U.S. DOLLARS SALES CHARGE
Under $30,000 3%
$30,000 but less than $100,000 2%
$100,000 but less than $400,000 1%
$400,000 or more 0%
OTHER PAYMENTS TO SECURITIES DEALERS. Distributors may pay the following
commissions, out of its own resources, to Securities Dealers who initiate and
are responsible for purchases of $1 million or more: 0.75% on sales of $1
million to $2 million, plus 0.60% on sales over $2 million to $3 million,
plus 0.50% on sales over $3 million to $50 million, plus 0.25% on sales over
$50 million to $100 million, plus 0.15% on sales over $100 million.
Either Distributors or one of its affiliates may pay the following amounts,
out of its own resources, to Securities Dealers who initiate and are
responsible for purchases by certain retirement plans pursuant to a sales
charge waiver, as discussed in the Prospectus: 1% on sales of $500,000 to $2
million, plus 0.80% on sales over $2 million to $3 million, plus 0.50% on
sales over $3 million to $50 million, plus 0.25% on sales over $50 million to
$100 million, plus 0.15% on sales over $100 million. Distributors may make
these payments in the form of contingent advance payments, which may be
recovered from the Securities Dealer or set off against other payments due to
the dealer if shares are sold within 12 months of the calendar month of
purchase. Other conditions may apply. All terms and conditions may be imposed
by an agreement between Distributors, or one of its affiliates, and the
Securities Dealer.
These breakpoints are reset every 12 months for purposes of additional
purchases.
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.
LETTER OF INTENT. You may qualify for a reduced sales charge when you buy
Fund shares, as described in the Prospectus. At any time within 90 days after
the first investment that you want to qualify for a reduced sales charge, you
may file with the Fund a signed shareholder application with the Letter of
Intent section completed. After the Letter is filed, each additional
investment will be entitled to the sales charge applicable to the level of
investment indicated on the Letter. Sales charge reductions based on
purchases in more than one Franklin Templeton Fund will be effective only
after notification to Distributors that the investment qualifies for a
discount. Your holdings in the Franklin Templeton Funds, including Class II
shares, acquired more than 90 days before the Letter is filed, will be
counted towards completion of the Letter but will not be entitled to a
retroactive downward adjustment in the sales charge. Any redemptions you make
during the 13 month period, except in the case of certain retirement plans,
will be subtracted from the amount of the purchases for purposes of
determining whether the terms of the Letter have been completed. If the
Letter is not completed within the 13 month period, there will be an upward
adjustment of the sales charge, depending on the amount actually purchased
(less redemptions) during the period. The upward adjustment does not apply to
certain retirement plans. If you execute a Letter before a change in the
sales charge structure of the Fund, you may complete the Letter at the lower
of the new sales charge structure or the sales charge structure in effect at
the time the Letter was filed.
As mentioned in the Prospectus, five percent (5%) of the amount of the total
intended purchase will be reserved in shares of the Fund registered in your
name until you fulfill the Letter. This policy of reserving shares does not
apply to certain retirement plans. If total purchases, less redemptions,
equal the amount specified under the Letter, the reserved shares will be
deposited to an account in your name or delivered to you or as you direct. If
total purchases, less redemptions, exceed the amount specified under the
Letter and is an amount that would qualify for a further quantity discount, a
retroactive price adjustment will be made by Distributors and the Securities
Dealer through whom purchases were made pursuant to the Letter (to reflect
such further quantity discount) on purchases made within 90 days before and
on those made after filing the Letter. The resulting difference in Offering
Price will be applied to the purchase of additional shares at the Offering
Price applicable to a single purchase or the dollar amount of the total
purchases. If the total purchases, less redemptions, are less than the amount
specified under the Letter, you will remit to Distributors an amount equal to
the difference in the dollar amount of sales charge actually paid and the
amount of sales charge that would have applied to the aggregate purchases if
the total of the purchases had been made at a single time. Upon remittance,
the reserved shares held for your account will be deposited to an account in
your name or delivered to you or as you direct. If within 20 days after
written request the difference in sales charge is not paid, the redemption of
an appropriate number of reserved shares to realize the difference will be
made. In the event of a total redemption of the account before fulfillment of
the Letter, the additional sales charge due will be deducted from the
proceeds of the redemption, and the balance will be forwarded to you.
If a Letter is executed on behalf of certain retirement plans, the level and
any reduction in sales charge for these plans will be based on actual plan
participation and the projected investments in the Franklin Templeton Funds
under the Letter. These plans are not subject to the requirement to reserve
5% of the total intended purchase, or to any penalty as a result of the early
termination of a plan, nor are these plans entitled to receive retroactive
adjustments in price for investments made before executing the Letter.
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 25th day of the
month in which a payment is scheduled. If the 25th falls on a weekend or
holiday, we will process the redemption on the next 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 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 Fund's Net Asset Value. 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 the Fund's shares 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 Fund's Net Asset
Value. 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) 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
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 shares of the Fund. The
underwriting agreement will continue in effect for successive annual periods
if its continuance is specifically approved at least annually by a vote of
the Board or by a vote of the holders of a majority of the Fund's outstanding
voting securities, and in either event by a majority vote of the Board
members who are not parties to the underwriting agreement or interested
persons of any such party (other than as members of the Board), cast in
person at a meeting called for that purpose. The underwriting agreement
terminates automatically in the event of its assignment and may be terminated
by either party on 90 days' written notice.
Distributors pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and
prospectuses used to offer shares to the public. The Fund pays the expenses
of preparing and printing amendments to its registration statements and
prospectuses (other than those necessitated by the activities of
Distributors) and of sending prospectuses to existing shareholders.
In connection with the offering of the Fund's shares, aggregate underwriting
commissions for the fiscaly year ended April 30, 1994, the six-month period
ended October 31, 1994 and the fiscal years ended October 31, 1995 and 1996
were $442,640, $30,522, $256,910 and $94,674, respectively. After allowances
to dealers, Huntington Investments, Inc., the Fund former distributor,
retained $37,000 for the fiscal year ended April 30, 1994 and Distributors
retained $232, $28,562 and $11,183 in net underwriting discounts and
commissions, for the respective periods. Distributors may be entitled to
reimbursement under the Fund's Rule 12b-1 plan, as discussed below. Except as
noted, Distributors received no other compensation from the Fund for acting
as underwriter.
THE RULE 12B-1 PLAN
The Fund has adopted a distribution plan or "Rule 12b-1 plan" pursuant to
Rule 12b-1 of the 1940 Act. Under the plan, the Fund may pay up to a maximum
of 0.25% per year of its average daily net assets, payable quarterly, for
expenses incurred in the promotion and distribution of its shares.
In addition to the payments that Distributors or others are entitled to under
the plan, the plan also provides that to the extent the Fund, Advisers or
Distributors or other parties on behalf of the Fund, Advisers or Distributors
make payments that are deemed to be for the financing of any activity
primarily intended to result in the sale of shares of the Fund within the
context of Rule 12b-1 under the 1940 Act, then such payments shall be deemed
to have been made pursuant to the plan.
In no event shall the aggregate asset-based sales charges, which include
payments made under the plan, plus any other payments deemed to be made
pursuant to the plan, exceed the amount permitted to be paid under the rules
of the NASD.
The terms and provisions of the plan relating to required reports, term, and
approval are consistent with Rule 12b-1. The plan does not permit
unreimbursed expenses incurred in a particular year to be carried over to or
reimbursed in later years.
To the extent fees are for distribution or marketing functions, as
distinguished from administrative servicing or agency transactions, certain
banks will not be entitled to participate in the plan as a result of
applicable federal law prohibiting certain banks from engaging in the
distribution of mutual fund shares. These banking institutions, however, are
permitted to receive fees under the plan for administrative servicing or for
agency transactions. If you are a customer of a bank that is prohibited from
providing these services, you would be permitted to remain a shareholder of
the Fund, and alternate means for continuing the servicing would be sought.
In this event, changes in the services provided might occur and you might no
longer be able to avail yourself of any automatic investment or other
services then being provided by the bank. It is not expected that you would
suffer any adverse financial consequences as a result of any of these changes.
The plan has been approved in accordance with the provisions of Rule 12b-1.
The plan is renewable annually by a vote of the Board, including a majority
vote of the Board members who are not interested persons of the Fund and who
have no direct or indirect financial interest in the operation of the plan,
cast in person at a meeting called for that purpose. It is also required that
the selection and nomination of such Board members be done by the
non-interested members of the Board. The plan and any related agreement may
be terminated at any time, without penalty, by vote of a majority of the
non-interested Board members on not more than 60 days' written notice, by
Distributors on not more than 60 days' written notice, by any act that
constitutes an assignment of the management agreement with Advisers, or the
underwriting agreement with Distributors, or by vote of a majority of the
Fund's outstanding shares. Distributors or any dealer or other firm may also
terminate their respective distribution or service agreement at any time upon
written notice.
The plan and any related agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a
majority of the Fund's outstanding shares, and all material amendments to the
plan or any related agreements shall be approved by a vote of the
non-interested members of the Board, cast in person at a meeting called for
the purpose of voting on any such amendment.
Distributors is required to report in writing to the Board at least quarterly
on the amounts and purpose of any payment made under the plan and any related
agreements, as well as to furnish the Board with such other information as
may reasonably be requested in order to enable the Board to make an informed
determination of whether the plan should be continued.
For the fiscal year ended October 31, 1996, Distributors had eligible
expenditures of $50,889 for advertising, printing, and payments to
underwriters and broker-dealers pursuant to the plan, of which the Fund paid
Distributors $41,513.
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 follows.
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 the maximum front-end sales charge is deducted from the
initial $1,000 purchase, and 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. If a change is made to the
sales charge structure, historical performance information will be restated
to reflect the maximum front-end sales charge currently in effect.
When considering the Fund's average annual total return quotations, you
should keep in mind that the maximum front-end sales charge reflected in each
quotation is a one time fee charged on all direct purchases, which will have
its greatest impact during the early stages of your investment. This charge
will affect actual performance less the longer you retain your investment in
the Fund. The Fund's average annual total return for the one-year period
ended on October 31, 1996 was -3.13% and for the period from inception of the
Fund (12/31/92) to October 31, 1996 was 8.29%.
These figures were calculated according to the SEC formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five- or ten-year periods at the end of the
one-, five- or ten-year periods (or fractional portion thereof)
CUMULATIVE TOTAL RETURN. Like average annual total return, cumulative total
return assumes the maximum front-end sales charge is deducted from the
initial $1,000 purchase, and income dividends and capital gain distributions
are reinvested at Net Asset Value. Cumulative total return, however, will be
based on the Fund's actual return for a specified period rather than on its
average return over one-, five- and ten-year periods, or fractional portion
thereof. The Fund's cumulative total return for the one-year period ended
October 31, 1996 was -3.13% and for the period from inception of the Fund
(12/31/92) to October 31, 1996 was 35.69%.
YIELD
CURRENT YIELD. Current yield shows the income per share earned by the Fund.
It is calculated by dividing the net investment income per share earned
during a 30-day base period by the maximum Offering Price per share on the
last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base period.
The Fund's yield for the 30-day period ended on October 31, 1996 was 4.03%.
This figure was obtained using the following SEC formula:
6
Yield = 2 [( A-B + 1 ) - 1]
cd
where:
a= interest earned during the period
b= expenses accrued for the period (net of reimbursements)
c= the average daily number of shares outstanding during the period that were
entitled to receive dividends
d= the maximum Offering Price per share on the last day of the period
CURRENT DISTRIBUTION RATE
Current yield, which is calculated according to a formula prescribed by the
SEC, is not indicative of the amounts which were or will be paid to
shareholders of the Fund. Amounts paid to shareholders are reflected in the
quoted current distribution rate. The current distribution rate is usually
computed by annualizing the dividends paid per share during a certain period
and dividing that amount by the current maximum Offering Price. 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 Fund's current distribution
rate for the 30-day period ended on October 31, 1996 was 1.41%.
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
The Fund may also quote the performance of shares without a sales charge.
Sales literature and advertising 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 with the
substitution of Net Asset Value for the public Offering Price.
Sales literature referring to the use of the Fund as a potential investment
for Individual Retirement Accounts (IRAs), Business Retirement Plans, and
other tax-advantaged retirement plans may quote a total return based upon
compounding of dividends on which it is presumed no federal income tax
applies.
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 Fund performance as reported by various financial
publications. Materials may also compare performance (as calculated above) to
performance as reported by other investments, indices, and averages. 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 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 Fund's performance 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 49 years
and now services more than 2.6 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. Mutual Series Fund Inc., known for its
value-driven approach to domestic equity investing, became part of the
organization four years later. Together, the Franklin Templeton Group has
over $179 billion in assets under management for more than 4.9 million U.S.
based mutual fund shareholder and other accounts. The Franklin Templeton
Group of Funds offers 120 U.S. based open-end investment companies to the
public. The Fund may identify itself by its NASDAQ symbol or CUSIP number.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one
in service quality for five of the past eight years.
As of February 3, 1997, the principal shareholders of the Fund, beneficial or
of record, were as follows:
NAME AND ADDRESS SHARE AMOUNT PERCENTAGE
ADVISOR CLASS
- -----------------------------------
Franklin Resources, Inc. 1,571.883 41%
1850 Gateway Dr., 6th Floor
San Mateo, CA 94404
- -----------------------------------
- -----------------------------------
Franklin Templeton Fund Allocator 374.100 9.8%
Series, Franklin Templeton
Conservative Target Fund
1810 Gateway Dr., 3rd Floor
San Mateo, CA 94404
- -----------------------------------
- -----------------------------------
Franklin Templeton Fund Allocator 545.665 14.3%
Series, Franklin Templeton
Moderate Target Fund
1810 Gateway Dr., 3rd Floor
San Mateo, CA 94404
- -----------------------------------
- -----------------------------------
Franklin Templeton Fund Allocator 969.623 25.4%
Series, Franklin Templeton Growth
Target Fund
1810 Gateway Dr., 3rd Floor
San Mateo, CA 94404
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.
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,
before 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 the Franklin Templeton Group 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, 1996,
including the auditors' report, are incorporated herein by reference.
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 classes have proportionate interests in
the Fund's portfolio. They differ, however, primarily in their sales charge
structures and Rule 12b-1 plans. Advisor Class shares are purchased without a
sales charge and do not have a Rule 12b-1 plan.
CODE - Internal Revenue Code of 1986, as amended
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of FundsAE and the Templeton Group of Funds except Franklin Valuemark
Funds, Franklin Government Securities Trust, Templeton Capital Accumulator
Fund, Inc., Templeton Variable Annuity Fund, and Templeton Variable Products
Series Fund
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 - 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
LETTER - Letter of Intent
MOODY'S - Moody's Investors Service, Inc.
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 and includes the 3% sales charge.
PROSPECTUS - The prospectus for the Fund dated March 1, 1997, as may be
amended from time to time
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.
TICI - Templeton Investment Counsel, Inc., the Fund's subadvisor
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-
ADVISOR CLASS
FRANKLIN TEMPLETON GLOBAL TRUST
STATEMENT OF
ADDITIONAL INFORMATION
777 MARINERS ISLAND BLVD., P.O. BOX 7777 MARCH 1, 1997
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
Contents Page
How does the Fund Invest its Assets?.............................. 2
What are the Fund's Potential Risks?.............................. 4
Investment Restrictions........................................... 5
Officers and Trustees............................................. 6
Investment Management
and Other Services............................................... 10
How does the Fund Buy
Securities for its Portfolio?.................................... 12
How Do I Buy, Sell and Exchange Shares?........................... 13
How are Fund Shares Valued?....................................... 14
Additional Information on
Distributions and Taxes.......................................... 15
The Fund's Underwriter............................................ 18
How does the Fund Measure Performance?............................ 18
Miscellaneous Information......................................... 20
Financial Statements.............................................. 21
Useful Terms and Definitions...................................... 21
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 Hard Currency Fund (the "Fund") is a non-diversified
series of the Franklin Templeton Global Trust (the "Trust"), an open-end
management investment company. The Fund's investment objective 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, are pursuing economic policies favorable to
continued low rates of inflation and currency appreciation versus the U.S.
dollar over the long-term.
This SAI describes the Fund's Advisor Class shares. The Prospectus, dated March
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.
212 SAIZ 03/97
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?"
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.
Financial Services Obligations. Under normal market conditions, the Fund may
invest up to 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. CD's 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 Fund
depending upon the principal amount of the certificates of deposit of each bank
held by the Fund) 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 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 reducing the realized gain or increasing 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 temporarily invest 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. The
Fund will, however, 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. Nor does the Fund currently intend 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, quoted in, 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 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. 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, 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 Securities Act of 1933, as amended, 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. To
determine 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 in addition to 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 there by reducing demand
for its currency.
3. Interest Rates. High interest rates tend to boost currency values in the
short run by making such currencies more attractive to investors. However, since
high interest rates are often the result of high inflation, 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.
Budget deficits can also 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 the value or liquidity 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 Offices Principal Occupation During
Name, Age and Address with the Trust the Past Five Years
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 32 of the
investment companies in the Franklin Templeton 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 (a meat packing company); and director, trustee
or managing general partner, as the case may be, of 56 of the investment
companies in the Franklin Templeton Group
of Funds.
David K. Eiteman (67) Trustee
9 Jewett Lane
South Hadley, MA 01075-1359
From 1959 to 1991, Professor of Finance in the John E. Anderson Graduate School
of Management, University of California, Los Angeles. Professor Emeritus since
1991. 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 58 of the investment companies in the Franklin Templeton Group of Funds.
David W. Garbellano (82) 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 31 of the investment companies in the
Franklin Templeton 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; trustee of two investment companies in the
Franklin Templeton Group of Funds.
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;
trustee of one investment company in the Franklin Templeton Group of Funds.
*Charles B. Johnson (64) Chairman
777 Mariners Island Blvd. of the Board
San Mateo, CA 94404 and Trustee
President and Director, Franklin Resources, Inc.; Chairman of the Board and
Director, Franklin Advisers, Inc. and Franklin Templeton Distributors, Inc.;
Director, Franklin/Templeton Investor Services, Inc. and General Host
Corporation; and officer and/or director, trustee or managing general partner,
as the case may be, of most other subsidiaries of Franklin Resources, Inc. and
of 57 of the investment companies in the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (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.;
Senior Vice President and Director, Franklin Advisory Services, Inc. and
Franklin Investment Advisory Services, 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 61 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; trustee of one
investment company in the Franklin Templeton Group of Funds.
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.
(software firm); Director, FischerImaging Corporation (medical imaging systems);
and director or trustee, as the case may be, of 27 of the investment companies
in the Franklin Templeton Group of Funds.
Gordon S. Macklin (68) Trustee
8212 Burning Tree Road
Bethesda, MD 20817
Chairman, White River Corporation (information and financial services);
Director, Fund American Enterprises Holdings, Inc. (financial services), MCI
Communications Corporation, CCC Information Services Group, Inc. (information
services), MedImmune, Inc. (biotechnology), Source One Mortgage Services
Corporation (financial services), Shoppers Express (home shopping), Spacehab,
Inc. (aerospace services); and director, trustee or managing general partner, as
the case may be, of 53 of the investment companies in the Franklin Templeton
Group of Funds; formerly Chairman, Hambrecht and Quist Group (venture capital
and investment banking); Director, H & Q Healthcare Investors (investment
trust); and President, National Association of Securities Dealers, Inc.
Harmon E. Burns (52) 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. and Franklin Templeton
Services, Inc.; Director, Franklin/Templeton Investor Services, Inc.; officer
and/or director, as the case may be, of the other subsidiaries of Franklin
Resources, Inc.; and officer and/or director or trustee of 61 of the investment
companies in the Franklin Templeton 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.; President, Franklin Templeton Services, 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.; Treasurer, Franklin
Advisory Services, Inc. and Franklin Investment Advisory Services, Inc.; officer
of most other subsidiaries of Franklin Resources, Inc.; and officer, director
and/or trustee of 61 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 Services, Inc.; Senior Vice President, Franklin
Templeton Distributors, Inc.; Vice President, Franklin Advisers, Inc., Franklin
Advisory Services, Inc., Franklin Investment Advisory Services, Inc., and
officer of 61 of the investment companies in the Franklin Templeton Group of
Funds.
Charles E. Johnson (40) Vice President
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
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 the investment companies in the Franklin Templeton Group of Funds.
Diomedes Loo-Tam (58) Treasurer and
777 Mariners Island Blvd. Principal
San Mateo, CA 94404 Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 38 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 33 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....... $4,800 $165,236 32
Harris J. Ashton........... 4,800 343,591 56
David K. Eiteman........... 800 800 1
S. Joseph Fortunato........ 4,800 360,411 58
David Garbellano........... 4,800 148,916 31
Gerald R. Healy............ 4,800 3,200 1
David P. Kraus............. 4,800 4,000 1
Frank W.T. LaHaye.......... 4,800 139,233 27
Gordon S. Macklin.......... 4,800 335,541 53
*For the fiscal year ended October 31, 1996.
**For the calendar year ended December 31, 1996.
***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 62 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 February 3, 1997, the officers and Board members, as a group, owned of
record and beneficially the following shares of the Fund: approximately 492.407
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. Under an agreement with Advisers, TICI is the Fund's sub-advisor. 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 the Investment Managers 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 Fund'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 0.65% of the value of the average
daily net assets of the Fund. The fee is computed at the close of business on
the last business day of each month. Each class of the Fund's shares 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 the Fund and
brokerage commissions in connection with these purchases.
For the fiscal year ended April 30, 1994 and the period October 31, 1994,
management fees, before any advance waiver, totaled $106,115 and $179,397,
respectively. Under an agreement by Advisers to limit its fees, the Fund paid
management fees totaling $13,792 and $113,677, respectively. For the fiscal
years ended October 31, 1995 and 1996, management fees totaling $634,188 and
$811,115, respectively, were paid by the Fund.
Management Agreements. The management and sub-advisory agreements are in effect
until February 28, 1998. They may continue in effect for successive annual
periods if their 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 either 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.
Third party plan administrators of tax-qualified retirement plans and other
entities may provide sub-transfer agent services to the Fund. If this happens,
the Fund may pay the third party an annual sub-transfer agency fee that is not
more than the Fund otherwise would have paid for these services.
Custodians. Chase Manhattan Bank, Global Securities Service, Chase MetroTech
Center, Brooklyn, New York 11245, acts as custodian of 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., 200 East Las Olas Boulevard, Ft. Lauderdale,
Florida 33301, are the Fund's independent auditors. During the fiscal year ended
October 31, 1996, 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, 1996.
HOW DOES THE FUND BUY
SECURITIES FOR ITS PORTFOLIO?
The Investment Managers select brokers and dealers to execute the Fund's
portfolio transactions in accordance with criteria set forth in the management
agreement and any directions that the Board may give. Under the sub-advisory
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. For portfolio
transactions 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 are based to a large degree on the professional
opinions of the persons responsible for 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 Investment Managers may pay certain brokers commissions that are higher than
those another broker may charge, if the Investment Managers determine in good
faith that the amount paid is reasonable in relation to the value of the
brokerage and research services they receive. This may be viewed in terms of
either the particular transaction or the Investment Managers' overall
responsibilities to client accounts over which they exercise investment
discretion. The services that brokers may provide to the Investment Managers
include, among others, supplying information about particular companies,
markets, countries, or local, regional, national or transnational economies,
statistical data, quotations and other securities pricing information, and other
information that provides lawful and appropriate assistance to the Investment
Managers in carrying out their investment advisory responsibilities. These
services may not always directly benefit the Fund. They must, however, be of
value to the Investment Managers in carrying out their overall responsibilities
to their clients.
It is not possible to place a dollar value on the special executions or on the
research services the Investment Managers receive 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 staffs 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
and the fiscal years ended October 31, 1995 and 1996, the Fund paid no brokerage
commissions.
As of October 31, 1996, the Fund did not own securities of its regular
broker-dealers.
HOW DO I BUY, SELL AND EXCHANGE SHARES?
ADDITIONAL INFORMATION ON BUYING SHARES
The Fund continuously offers its shares through Securities Dealers who have an
agreement with Distributors. 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.
Other Payments to Securities Dealers. 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 short-term,
interest-bearing money market instruments, unless it is believed that attractive
investment opportunities consistent with the Fund's investment objective exist
immediately. This money will then be withdrawn from the short-term money market
instruments and invested in portfolio securities in as orderly a manner as is
possible when attractive investment opportunities arise.
The proceeds from the sale of shares of an investment company are generally not
available until the fifth business day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange until
that fifth business day. The sale of 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 25th day of the month in which a
payment is scheduled. 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 of the Fund's shares 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. 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 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. 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) 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 prior. 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, 1996 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-through 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 does not receive compensation from the Fund for acting as
underwriter of the Fund's 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.
For periods before January 1, 1997, standardized performance quotations for
Advisor Class are calculated by substituting Class I performance for the
relevant time period, excluding the effect of Class I's maximum initial sales
charge and including the effect of the Rule 12b-1 fees applicable to Class I
shares of the Fund. For periods after January 1, 1997, standardized performance
quotations for Advisor Class are calculated as described below.
An explanation of these and other methods used by the Fund to compute or express
performance for Advisor Class follows. 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. If a change is made to the sales charge structure, historical
performance information will be restated to reflect the maximum front-end sales
charge currently in effect.
The average annual total return for Advisor Class for the one- and five-year
periods ended October 31, 1996 and for the period from inception (11/17/89) to
October 31, 1996 would have been -5.99%, 6.52% and 8.38%, respectively.
These figures were calculated according to the SEC formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five- or ten-year periods at the end of the one-, five-
or ten-year periods (or fractional portion thereof)
Cumulative Total Return. Like average annual total return, cumulative total
return assumes income dividends and capital gain distributions are reinvested at
Net Asset Value. Cumulative total return, however, 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 for the one- and five-year periods
ended October 31, 1996 and the period from inception (11/17/89) to October 31,
1996 would have been -5.99%, 37.14% and 75.04%, respectively.
YIELD
Current Yield. Current yield shows the income per share earned by the Fund. It
is calculated by dividing the net investment income per share of Advisor 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 Advisor Class for the 30-day period ended October 31, 1996
would have been 3.32%.
These figures were obtained using the following SEC formula:
6
Yield = 2 [( a-b + 1 ) - 1]
----
cd
where:
a =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.
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 dividends and
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 Advisor Class for the 30-day period ended October 31, 1996
would have been 4.54%.
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
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 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 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 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 49 years and
now services more than 2.6 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. Mutual Series Fund Inc., known for its value-driven
approach to domestic equity investing, became part of the organization four
years later. Together, the Franklin Templeton Group has over $179 billion in
assets under management for more than 4.9 million U.S. based mutual fund
shareholder and other accounts. The Franklin Templeton Group of Funds offers 120
U.S. based open-end investment companies to the public. The Fund may identify
itself by its NASDAQ symbol or CUSIP number.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one in
service quality for five of the past eight years.
As of February 3, 1997, the principal shareholders of the Fund, beneficial or of
record, were as follows:
Name and Address Share Amount Percentage
ADVISOR CLASS
Franklin Resources, Inc. 7,796.687 57.76%
Corporate Treasury
1850 Gateway Dr., 6th Flr.
San Mateo, CA 94404
Franklin Templeton
Fund Allocator Series 342.812 9.96%
Franklin Templeton
Conservative Target Fund
1810 Gateway Dr., 3rd Flr.
San Mateo, CA 94404
Robert C. Axell, Jr. &
Susan J. Axell Jt Ten 177.301 5.69%
7530 Amy Ave.
Fair Oaks, CA 95628-6826
John M. Sawaya 428.492 13.77%
8849 Roediger Ln.
Fair Oaks, CA 95628
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.
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, before 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 the Franklin Templeton Group 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, 1996, including the
auditors' report, are incorporated herein by reference.
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. They differ, however, primarily in their sales charge and
expense structures.
Code - Internal Revenue Code of 1986, as amended
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter
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 sub-advisor
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.
Moody's - Moody's Investors Service, Inc.
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
Prospectus - The prospectus for Advisor Class shares of the Fund dated March 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 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.
TICI - Templeton Investment Counsel, Inc., the Fund's sub-advisor
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 GERMAN GOVERNMENT
BOND FUND - ADVISOR CLASS
FRANKLIN TEMPLETON GLOBAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
MARCH 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...........................................
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. 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.
This SAI describes the Fund's Advisor Class shares. The Prospectus, dated March
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 S&P or 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.
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 Securities Act of 1933 (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.
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 induce 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.
2. Borrow money, except from banks for temporary or emergency (not leveraging)
purposes in an amount up to 33 1/3% 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 33 1/3% 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 the value or liquidity of
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 (*).
POSITIONS AND OFFICES PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS WITH THE TRUST DURING THE PAST FIVE
YEARS
Frank H. Abbott, III (75)
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 32 of the
investment companies in the Franklin Templeton Group of Funds.
Harris J. Ashton (64)
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 (a meat packing company); and director, trustee
or managing general partner, as the case may be, of 56 of the investment
companies in the Franklin Templeton Group of Funds.
David K. Eiteman (67)
9 Jewett Lane
South Hadley, MA 01075-1359
Trustee
From 1959 to 1991, Professor of Finance in the John E. Anderson Graduate School
of Management, University of California, Los Angeles. Professor Emeritus since
1991. From 1988 to June 1993, a Trustee of the Huntington Investment Trust.
S. Joseph Fortunato (64)
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Trustee
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director of General Host
Corporation; director, trustee or managing general partner, as the case may be,
of 58 of the investment companies in the Franklin Templeton Group of Funds.
David W. Garbellano (82)
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 31 of the investment companies in the
Franklin Templeton Group of Funds.
*Donald P. Gould (38)
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; trustee of two investment companies in the
Franklin Templeton Group of Funds.
Gerald R. Healy (55)
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;
trustee of one investment company in the Franklin Templeton Group of Funds.
*Charles B. Johnson (64)
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 of the other subsidiaries of Franklin Resources,
Inc. and of 57 of the investment companies in the Franklin Templeton Group of
Funds.
*Rupert H. Johnson, Jr. (56)
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.;
Senior Vice President and Director, Franklin Advisory Services, Inc. and
Franklin Investment Advisory Services, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; and officer and/or director, trustee or managing
general partner, as the case may be, of most of the other subsidiaries of
Franklin Resources, Inc. and of 61 of the investment companies in the Franklin
Templeton Group of Funds.
David P. Kraus (39)
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; trustee of one
investment company in the Franklin Templeton Group of Funds.
Frank W. T. LaHaye (67)
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.
(software firm); Director, FischerImaging Corporation (medical imaging systems);
and director or trustee, as the case may be, of 27 of the investment companies
in the Franklin Templeton Group of Funds.
Gordon S. Macklin (68)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Chairman, White River Corporation (information and financial services);
Director, Fund American Enterprises Holdings, Inc. (financial services), MCI
Communications Corporation, CCC Information Services Group, Inc. (information
services), MedImmune, Inc. (biotechnology), Source One Mortgage Services
Corporation (financial services), Shoppers Express (home shopping), Spacehab,
Inc. (aerospace services); and director, trustee or managing general partner, as
the case may be, of 53 of the investment companies in the Franklin Templeton
Group of Funds; formerly Chairman, Hambrecht and Quist Group (venture capital
and investment banking); Director, H & Q Healthcare Investors (investment
trust); and President, National Association of Securities Dealers, Inc.
Harmon E. Burns (52)
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. and Franklin Templeton
Services, Inc.; Director, Franklin/Templeton Investor Services, Inc.; officer
and/or director, as the case may be, of most of the other subsidiaries of
Franklin Resources, Inc.; and officer and/or director or trustee of 61 of the
investment companies in the Franklin Templeton Group of Funds.
Martin L. Flanagan (36)
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.; President, Franklin Templeton Services, 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.; Treasurer, Franklin
Advisory Services, Inc. and Franklin Investment Advisory Services, Inc.; officer
of most of the other subsidiaries of Franklin Resources, Inc.; and officer,
director and/or trustee of 61 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 Services, Inc. and Franklin Templeton
Distributors, Inc.; Vice President, Franklin Advisers, Inc., Franklin Advisory
Services, Inc., Franklin Investment Advisory Services, Inc., and officer of 61
of the investment companies in the Franklin Templeton Group of Funds.
Charles E. Johnson (40)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
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 the investment companies in the Franklin Templeton Group of Funds.
Diomedes Loo-Tam (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 38 of the investment
companies in the Franklin Templeton Group of Funds.
Edward V. McVey (59)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President/National Sales Manager, Franklin Templeton Distributors,
Inc.; and officer of 33 of the investment companies in the Franklin Templeton
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 RECEIVED TEMPLETON GROUP OF
TOTAL FEES FROM THE FRANKLIN FUNDS ON WHICH
RECEIVED FROM TEMPLETON GROUP OF EACH SERVES***
THE TRUST* FUNDS**
NAME
Frank H. Abbott, III $4,800 $165,236 32
Harris J. Ashton $4,800 $343,591 56
David K. Eiteman $800 $800 1
S. Joseph Fortunato $4,800 $360,411 58
David Garbellano $4,800 $148,916 31
Gerald R. Healy $4,800 $3,200 1
David P. Kraus $4,800 $4,000 1
Frank W.T. LaHaye $4,800 $139,233 27
Gordon S. Macklin $4,800 $335,541 53
*For the fiscal year ended October 31, 1996.
**For the calendar year ended December 31, 1996.
***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 62 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 February 3, 1997, the officers and Board members, as a group, owned of
record and beneficially the following shares of the Fund: approximately 143
Class I shares or less than 1% of the total outstanding Class I and Advisor
Class 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 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 the Investment Managers 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 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 it manages,
or for its own account, that may differ from action taken by the Investment
Managers 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 the Investment Managers
and access persons, as defined by the 1940 Act, may buy or sell for its or their
own account or for the accounts of any other fund. The Investment Managers are
not obligated to refrain from investing in securities held by the Fund or other
funds that it manages. Of course, any transactions for the accounts of the
Investment Managers and other access persons will be made in compliance with the
Fund's Code of Ethics. Please see "Miscellaneous Information - Summary of Code
of Ethics."
Under an agreement with Advisers, TICI is the Fund's sub-advisor. TICI provides
Advisers with investment management advice and assistance.
MANAGEMENT FEES. Under its management agreement, the Fund pays Advisers a
management fee equal to an annual rate of 0.55%. The fee is computed at the
close of business on the last business day of each month. Each class of the
Fund's shares pays its proportionate share of the management fee. Under the
sub-advisory agreement, Advisers pays TICI, in U.S. dollars, equal to an annual
rate of 0.25%. 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.
For the fiscal year ended April 30, 1994, the period ended October 31, 1994 and
the fiscal years ended October 31, 1995 and 1996, management fees, before any
advance waiver, totaled $35,400, $35,908, $97,759 and $117,798, respectively.
Under an agreement by the Investment Managers to waive or limit their fees, the
Fund paid management fees totaling $0, $0, $91,422 and $117,798, respectively.
MANAGEMENT AGREEMENTS. The management agreement and sub-advisory agreements are
in effect until February 28, 1998. It may continue in effect for successive
annual periods if its continuance is specifically approved at least annually by
a vote of the Board or by a vote of the holders of a majority of the Fund's
outstanding voting securities, and in either event by a majority vote of the
Board members who are not parties to the 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. 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.
Third party plan administrators of tax-qualified retirement plans and other
entities may provide sub-transfer agent services to the Fund. If this happens,
the Fund may pay the third party an annual sub-transfer agency fee that is not
more than the Fund otherwise would have paid for these services.
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, 200 E. Las Olas Blvd., Fort Lauderdale,
Florida 33301, are the Fund's independent auditors. During the fiscal year ended
October 31, 1996, their auditing services consisted of rendering an opinion on
the financial statements of the Trust included in the Trust's Annual Report to
Shareholders for the fiscal year ended October 31, 1996.
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.
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 Investment Managers may pay certain brokers commissions that are higher than
those another broker may charge, if the Investment Managers determine in good
faith that the amount paid is reasonable in relation to the value of the
brokerage and research services they receive. This may be viewed in terms of
either the particular transaction or Investment Managers' overall
responsibilities to client accounts over which they exercise investment
discretion. The services that brokers may provide to the Investment Managers
include, among others, supplying information about particular companies,
markets, countries, or local, regional, national or transnational economies,
statistical data, quotations and other securities pricing information, and other
information that provides lawful and appropriate assistance to the Investment
Managers in carrying out their investment advisory responsibilities. These
services may not always directly benefit the Fund. They must, however, be of
value to the Investment Managers in carrying out their overall responsibilities
to their clients.
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
and the fiscal years ended October 31, 1995 and 1996, the Fund paid no brokerage
commissions.
As of October 31, 1996, the Fund did not own securities of its regular
broker-dealers.
HOW DO I BUY, SELL AND EXCHANGE SHARES?
ADDITIONAL INFORMATION ON BUYING SHARES
The Fund continuously offers its shares through Securities Dealers who have an
agreement with Distributors. 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.
OTHER PAYMENTS TO SECURITIES DEALERS. 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 25th day of the month in which a
payment is scheduled. 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 of the Fund's shares 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. 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 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. 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) 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 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 does not receive compensation from the Fund for acting as
underwriter of the Fund's 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.
For periods before January 1, 1997, standardized performance quotations for
Advisor Class are calculated by substituting Class I performance for the
relevant time period, excluding the effect of Class I's maximum initial sales
charge, and including the effect of the Rule 12b-1 fees applicable to Class I
shares of the Fund. For periods after January 1, 1997, standardized performance
quotations for Advisor Class are calculated as described below.
An explanation of these and other methods used by the Fund to compute or express
performance for Advisor Class follows. 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. If a change is made to the sales charge structure, historical
performance information will be restated to reflect the maximum front-end sales
charge currently in effect.
The average annual total return for Advisor Class for the one-year period and
the period from inception (12/31/92) to fiscal year ended October 31, 1996 would
have been -0.15% and 9.16%.
These figures were calculated according to the SEC formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five- or ten-year periods at the end of the one-,
five- or ten-year periods (or fractional portion thereof)
CUMULATIVE TOTAL RETURN. Like average annual total return, cumulative total
return assumes income dividends and capital gain distributions are reinvested at
Net Asset Value. Cumulative total return, however, 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 for the one-year period and for the
period from inception (12/31/92) to the fiscal year ended October 31, 1996 would
have been -0.15% and 39.92%.
YIELD
CURRENT YIELD. Current yield shows the income per share earned by the Fund. It
is calculated by dividing the net investment income per share of Advisor 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 Advisor Class for the 30-day period ended October 31,
1996, would have been 4.16%.
These figures were obtained using the following SEC formula:
6
Yield = 2 [( A-B + 1 ) - 1]
cd
where:
a = 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.
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 dividends and
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 Advisor Class for the 30-day period ended October 31,
1996, would have been 1.46%.
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
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 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 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 49 years and
now services more than 2.6 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. Mutual Series Fund Inc., known for its value-driven
approach to domestic equity investing, became part of the organization four
years later. Together, the Franklin Templeton Group has over $179 billion in
assets under management for more than 4.9 million U.S. based mutual fund
shareholder and other accounts. The Franklin Templeton Group of Funds offers 120
U.S. based open-end investment companies to the public. The Fund may identify
itself by its NASDAQ symbol or CUSIP number.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one in
service quality for five of the past eight years.
As of February 3, 1997, the principal shareholders of the Fund, beneficial or of
record, were as follows:
NAME AND ADDRESS SHARE AMOUNT PERCENTAGE
ADVISOR CLASS
- -----------------------------------
Franklin Resources, Inc. 1,571.883 41%
1850 Gateway Dr., 6th Floor
San Mateo, CA 94404
- -----------------------------------
- -----------------------------------
Franklin Templeton Fund Allocator 374.100 9.8%
Series, Franklin Templeton
Conservative Target Fund
1810 Gateway Dr., 3rd Floor
San Mateo, CA 94404
- -----------------------------------
- -----------------------------------
Franklin Templeton Fund Allocator 545.665 14.3%
Series, Franklin Templeton
Moderate Target Fund
1810 Gateway Dr., 3rd Floor
San Mateo, CA 94404
- -----------------------------------
- -----------------------------------
Franklin Templeton Fund Allocator 969.623 25.4%
Series, Franklin Templeton Growth
Target Fund
1810 Gateway Dr., 3rd Floor
San Mateo, CA 94404
- -----------------------------------
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.
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, before 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 the Franklin Templeton Group 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, 1996, including the
auditors' report, are incorporated herein by reference.
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. They differ, however, primarily in their sales charge and
expense structures.
CODE - Internal Revenue Code of 1986, as amended
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter
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 - 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
MOODY'S - Moody's Investors Service, Inc.
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
PROSPECTUS - The prospectus for Advisor Class shares of the Fund dated March 1,
1997, as may be amended from time to time
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.
TICI - Templeton Investment Counsel, Inc., the Fund's subadvisor
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
(1) Financial Statements for the fiscal year ended October 31, 1996
incorporated herein by reference to the Registrant's Annual Report to
Shareholders as filed with the SEC electronically on Form Type N-30D on
January 10, 1997.
(i) Report of Independent Auditors
(ii) Statement of Investments in Securities and Net Assets - October
31, 1996
(iii) Statement of Assets and Liabilities - October 31, 1996
(iv) Statements of Operations - for the fiscal year ended October 31,
1996
(v) Statements of Changes in Net Assets - for the fiscal year ended
October 31, 1996 and October 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), 27(i), 27 (ii), 27(iii) and 27(iv),
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 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
(ii) 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
(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
Filing: Post-Effective Amendment No. 16 to Registration Statement
on Form N-1A
File No. 33-01212
Filing Date: December 31, 1996
(ii) Multiple Class Plan on behalf of Franklin Templeton Hard Currency
Fund
Filing: Post-Effective Amendment No. 16 to Registration Statement
on Form N-1A
File No. 33-01212
Filing Date: December 31, 1996
(27) Financial Data Schedules
(i) Financial Data Schedule for Franklin Templeton German Government
Bond Fund
(ii) Financial Data Schedule for Franklin Templeton Global Currency
Fund
(iii)Financial Data Schedule for Franklin Templeton Hard Currency Fund
(iv) Financial Data Schedule for Franklin Templeton High Currency Fund
ITEM 25 PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 26 NUMBER OF HOLDERS OF SECURITIES
As of November 30, 1996, the number of record holders of the only class of
securities of the Registrant are as follows:
Shares of Beneficial
INTEREST: NUMBER OF RECORD HOLDERS
Global Currency Fund 2,811
stated value $.01 per share
Hard Currency Fund 7,400
stated value $.01 per share
High Income Currency Fund 1,095
stated value $.01 per share
German Government Bond Fund 1,599
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 Fund, 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 Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized in the
City of San Mateo and the State of California, on the 27th day of February,
1997.
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: February 27, 1997
Frank H. Abbott, III* Trustee
(Frank H. Abbott, III) Dated: February 27, 1997
Harris J. Ashton* Trustee
(Harris J. Ashton) Dated: February 27, 1997
David K. Eiteman* Trustee
(David K. Eiteman) Dated: February 27, 1997
S. Joseph Fortunato* Trustee
(S. Joseph Fortunato) Dated: February 27, 1997
David W. Garbellano* Trustee
(David W. Garbellano) Dated: February 27, 1997
Gerald R. Healy* Trustee
(Gerald R. Healy) Dated: February 27, 1997
Martin L. Flanagan* Principal Financial
(Martin L. Flanagan) Officer
Dated: February 27, 1997
Diomedes Loo-Tam* Principal Accounting Officer
(Diomedes Loo-Tam) Dated February 27, 1997
Charles B. Johnson* Chairman of the Board and
(Charles B. Johnson) Trustee
Dated: February 27, 1997
Rupert H. Johnson, Jr.* Trustee
(Rupert H. Johnson, Jr.) Dated: February 27, 1997
David P. Kraus* Trustee
(David P. Kraus) Dated: February 27, 1997
Frank W. T. LaHaye* Trustee
(Frank W. T. LaHaye) Dated: February 27, 1997
Gordon S. Macklin* Trustee
(Gordon S. Macklin) Dated: February 27, 1997
*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 the Chase *
Manhattan Bank, N.A. and
Franklin/Templeton Global Trust Dated
November 15, 1993
EX-99.B8(ii) Copy of Custodian Agreements between *
Registrant and Citibank Delaware
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 Franklin *
Templeton German Government Bond Fund
EX-99.B18(ii) Multiple Class Plan on behalf of Franklin *
Templeton Hard Currency Fund
EX-27.B(i) Financial Data Schedule for Franklin Attached
Templeton German Government Bond Fund
EX-27.B(ii) Financial Data Schedule for Franklin Attached
Templeton Global Currency Fund
EX-27.B(iii) Financial Data Schedule for Franklin Attached
Templeton Hard Currency Funds
EX-27.B(iv) Financial Data Schedule for Franklin Attached
Templeton High Currency Fund
* Incorporated by Reference
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Post-Effective Amendment No.
17 to the Registration Statement of Franklin Templeton Global Trust on Form
N-1A File No. 33-01212 of our report dated November 27, 1996 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, 1996, which is incorporated by reference in
the Registration Statement.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Ft. Lauderdale, Florida
February 24, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FRANKLIN TEMPLETON GERMAN GOVERNMENT BOND FUND OCTOBER 31, 1996 ANNUAL
REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENT.
</LEGEND>
<CIK> 0000780379
<NAME> FRANKLIN TEMPLETON GLOBAL TRUST
<SERIES>
<NUMBER> 010
<NAME> FRANKLIN TEMPLETON GERMAN GOVERNMENT BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 16690446
<INVESTMENTS-AT-VALUE> 17076885
<RECEIVABLES> 544753
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 9676
<TOTAL-ASSETS> 17631314
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 79501
<TOTAL-LIABILITIES> 79501
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17169189
<SHARES-COMMON-STOCK> 1333917
<SHARES-COMMON-PRIOR> 1685047
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 382624
<NET-ASSETS> 17551813
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1367437
<OTHER-INCOME> 0
<EXPENSES-NET> 237439
<NET-INVESTMENT-INCOME> 1129998
<REALIZED-GAINS-CURRENT> (84969)
<APPREC-INCREASE-CURRENT> (1319445)
<NET-CHANGE-FROM-OPS> (274416)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1645317)
<DISTRIBUTIONS-OF-GAINS> (102554)
<DISTRIBUTIONS-OTHER> (102139)
<NUMBER-OF-SHARES-SOLD> 633495
<NUMBER-OF-SHARES-REDEEMED> (1093633)
<SHARES-REINVESTED> 109008
<NET-CHANGE-IN-ASSETS> (6561478)
<ACCUMULATED-NII-PRIOR> 660762
<ACCUMULATED-GAINS-PRIOR> 42080
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 117798
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 237439
<AVERAGE-NET-ASSETS> 21539057
<PER-SHARE-NAV-BEGIN> 14.31
<PER-SHARE-NII> .66
<PER-SHARE-GAIN-APPREC> (.69)
<PER-SHARE-DIVIDEND> (1.00)
<PER-SHARE-DISTRIBUTIONS> (.06)
<RETURNS-OF-CAPITAL> (.06)
<PER-SHARE-NAV-END> 13.16
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FRANKLIN TEMPLETON GLOBAL CURRENCY FUND OCTOBER 31, 1996 ANNUAL REPORT
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000780379
<NAME> FRANKLIN TEMPLETON GLOBAL TRUST
<SERIES>
<NUMBER> 020
<NAME> FRANKLIN TEMPLETON GLOBAL CURRENCY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 50553815
<INVESTMENTS-AT-VALUE> 50584939
<RECEIVABLES> 351330
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 583
<TOTAL-ASSETS> 50936852
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 163447
<TOTAL-LIABILITIES> 163447
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 51017907
<SHARES-COMMON-STOCK> 3967384
<SHARES-COMMON-PRIOR> 4384058
<ACCUMULATED-NII-CURRENT> 12235
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (285576)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 28839
<NET-ASSETS> 50773405
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2881951
<OTHER-INCOME> 0
<EXPENSES-NET> 540327
<NET-INVESTMENT-INCOME> 2341624
<REALIZED-GAINS-CURRENT> (857075)
<APPREC-INCREASE-CURRENT> (914651)
<NET-CHANGE-FROM-OPS> 569898
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3012672)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (1330318)
<NUMBER-OF-SHARES-SOLD> 534790
<NUMBER-OF-SHARES-REDEEMED> (1234150)
<SHARES-REINVESTED> 282686
<NET-CHANGE-IN-ASSETS> (9168427)
<ACCUMULATED-NII-PRIOR> 1463213
<ACCUMULATED-GAINS-PRIOR> (208434)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 351768
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 540327
<AVERAGE-NET-ASSETS> 54405397
<PER-SHARE-NAV-BEGIN> 13.67
<PER-SHARE-NII> .69
<PER-SHARE-GAIN-APPREC> (.54)
<PER-SHARE-DIVIDEND> (.71)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (.31)
<PER-SHARE-NAV-END> 12.80
<EXPENSE-RATIO> .99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FRANKLIN TEMPLETON HARD CURRENCY, OCTOBER 31, 1996, ANNUAL REPORT AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000780379
<NAME> HARD CURRENCY FUND
<SERIES>
<NUMBER> 3
<NAME> GLOBAL TRUST
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 141285208
<INVESTMENTS-AT-VALUE> 140546642
<RECEIVABLES> 1606460
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 913
<TOTAL-ASSETS> 142154015
<PAYABLE-FOR-SECURITIES> 16754100
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 733613
<TOTAL-LIABILITIES> 17487713
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 126757460
<SHARES-COMMON-STOCK> 10707928
<SHARES-COMMON-PRIOR> 10089744
<ACCUMULATED-NII-CURRENT> 158515
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1461368)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (788305)
<NET-ASSETS> 124666302
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6984761
<OTHER-INCOME> 0
<EXPENSES-NET> 1372023
<NET-INVESTMENT-INCOME> 5612738
<REALIZED-GAINS-CURRENT> (13632229)
<APPREC-INCREASE-CURRENT> 22729
<NET-CHANGE-FROM-OPS> (7996762)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (596892)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (6321432)
<NUMBER-OF-SHARES-SOLD> 7838577
<NUMBER-OF-SHARES-REDEEMED> (7661154)
<SHARES-REINVESTED> 440761
<NET-CHANGE-IN-ASSETS> (7422705)
<ACCUMULATED-NII-PRIOR> 1248928
<ACCUMULATED-GAINS-PRIOR> (884056)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 811115
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1372023
<AVERAGE-NET-ASSETS> 124800245
<PER-SHARE-NAV-BEGIN> 13.09
<PER-SHARE-NII> .57
<PER-SHARE-GAIN-APPREC> (1.34)
<PER-SHARE-DIVIDEND> (.06)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (.62)
<PER-SHARE-NAV-END> 11.64
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FRANKLIN TEMPLETON HIGH CURRENCY FUND, OCTOBER 31, 1996, ANNUAL
REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000780379
<NAME> HIGH CURRENCY FUND
<SERIES>
<NUMBER> 4
<NAME> GLOBAL TRUST
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 9974163
<INVESTMENTS-AT-VALUE> 10047643
<RECEIVABLES> 125676
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 583
<TOTAL-ASSETS> 10173902
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 60641
<TOTAL-LIABILITIES> 60641
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10066182
<SHARES-COMMON-STOCK> 917518
<SHARES-COMMON-PRIOR> 943387
<ACCUMULATED-NII-CURRENT> (41061)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (22408)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 110548
<NET-ASSETS> 10113261
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 615137
<OTHER-INCOME> 0
<EXPENSES-NET> 126582
<NET-INVESTMENT-INCOME> 488555
<REALIZED-GAINS-CURRENT> (12000)
<APPREC-INCREASE-CURRENT> 59056
<NET-CHANGE-FROM-OPS> 535611
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1005818)
<DISTRIBUTIONS-OF-GAINS> (12939)
<DISTRIBUTIONS-OTHER> (24976)
<NUMBER-OF-SHARES-SOLD> 246388
<NUMBER-OF-SHARES-REDEEMED> (340903)
<SHARES-REINVESTED> 68646
<NET-CHANGE-IN-ASSETS> (788925)
<ACCUMULATED-NII-PRIOR> 465794
<ACCUMULATED-GAINS-PRIOR> 12939
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 66069
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 126582
<AVERAGE-NET-ASSETS> 10118717
<PER-SHARE-NAV-BEGIN> 11.56
<PER-SHARE-NII> .58
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (1.08)
<PER-SHARE-DISTRIBUTIONS> (.01)
<RETURNS-OF-CAPITAL> (.03)
<PER-SHARE-NAV-END> 11.02
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
