Filed with the Securities and Exchange Commission on February 27, 1998
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. 18 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 19 (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 (650) 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, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered:
Shares of Beneficial Interest:
Franklin Templeton German Government Bond Fund - Class I
Franklin Templeton German Government Bond Fund - Advisor Class
Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund - Class I
Franklin Templeton Hard Currency Fund - Advisor Class
Franklin Templeton High Income Currency Fund
FRANKLIN TEMPLETON GLOBAL TRUST
CROSS REFERENCE SHEET
FORM N-1A
PART A: INFORMATION REQUIRED IN THE PROSPECTUS
Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund - Class I
Franklin Templeton High Income Currency Fund
Franklin Templeton German Government Bond Fund - Class I
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
1. Cover Page Cover Page
2. Synopsis Expense Summary
3. Condensed Financial "Financial Highlights"; "How
Information Does the Fund Measure
Performance?"
4. General Description "How Is the Trust Organized?";
"How Does the Fund Invest Its
Assets?"; "What Are the Risks of
Investing in the Fund?"
5. Management of the Fund "Who Manages the Fund?"
5A. Management's Discussion of "Contained in Registrant's
Fund Performance Annual 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 "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 THE PROSPECTUS
Franklin Templeton Hard Currency Fund - Advisor Class
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 "Contained in Registrant's
of Fund Performance Annual 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 "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 B: INFORMATION REQUIRED IN THE
STATEMENT OF ADDITIONAL INFORMATION
Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund - Class I
Franklin Templeton High Income Currency Fund
Franklin Templeton German Government Bond Fund - Class I
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information Not Applicable
and History
13. Investment Objectives and "How Does the Fund Invest Its
Policies Assets?"; "Investment
Restrictions"
14. Management of the Fund "Officers and Trustees";
15. Control Persons and "Officers and Trustees";
Principal Holders of "Investment Management and Other
Securities Services"; "Miscellaneous
Information"
16. Investment Advisory "Investment Management and Other
and Other Services Services"; "The Fund's
Underwriter"
17. Brokerage Allocation "How Does the Fund Buy
Securities for Its Portfolio?"
18. Capital Stock and Not Applicable
Other Securities
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
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 "How Does the Fund Invest Its
and Policies Assets?"; "Investment
Restrictions"
14. Management of the Fund "Officers and Trustees";
15. Control Persons and Principal "Officers and Trustees";
Holders of Securities "Investment Management and Other
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 Not Applicable
Securities
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 GLOBAL TRUST
MARCH 1, 1998
FRANKLIN TEMPLETON GLOBAL CURRENCY FUND
FRANKLIN TEMPLETON HARD CURRENCY FUND
FRANKLIN TEMPLETON HIGH INCOME CURRENCY FUND
FRANKLIN TEMPLETON GERMAN GOVERNMENT BOND FUND
INVESTMENT STRATEGY
GLOBAL GROWTH & INCOME
This prospectus describes Class I shares of the four series of Franklin
Templeton Global Trust (the "Trust"): the Franklin Templeton Global Currency
Fund (the "Global Currency Fund"), the Franklin Templeton Hard Currency Fund
(the "Hard Currency Fund"), the Franklin Templeton High Income Currency Fund
(the "High Income Fund"), collectively referred to as the "Currency Funds"),
and the Franklin Templeton German Government Bond Fund (the "German
Government Fund"). Each Fund may individually or together be referred to as
the "Fund(s)." This prospectus contains information you should know before
investing in the Fund. Please keep it for future reference.
The Hard Currency Fund and German Government Fund currently offer 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, 1998, 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.
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.
FRANKLIN TEMPLETON GLOBAL TRUST
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 Risks of Investing in the Fund?"
TABLE OF CONTENTS
ABOUT THE FUND
Expense Summary .................................................. 2
Financial Highlights ............................................. 4
How Does the Fund Invest Its Assets? ............................. 7
What Are the Risks of Investing in the Fund? ..................... 23
Who Manages the Fund? ............................................ 31
How Does the Fund Measure Performance? ........................... 34
How Taxation Affects the Fund and Its Shareholders ............... 34
How Is the Trust Organized? ...................................... 37
ABOUT YOUR ACCOUNT
How Do I Buy Shares? ............................................. 38
May I Exchange Shares for Shares of Another Fund? ................ 46
How Do I Sell Shares? ............................................ 49
What Distributions Might I Receive From the Fund? ................ 52
Transaction Procedures and Special Requirements .................. 53
Services to Help You Manage Your Account ......................... 57
What If I Have Questions About My Account? ....................... 60
GLOSSARY
Useful Terms and Definitions ..................................... 60
FRANKLIN TEMPLETON GLOBAL TRUST
March 1, 1998
When reading this prospectus, you will see certain terms beginning with
capital letters. This means the term is explained in our glossary section.
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, 1997. The Fund's actual expenses may vary.
GLOBAL HARD HIGH GERMAN
CURRENCY CURRENCY INCOME GOVERNMENT
FUND 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% 3.00%
Deferred Sales Charge+++ NONE NONE NONE NONE
Exchange Fee (per transaction) $5.00* $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% 0.55%
Rule 12b-1 Fees** 0.24% 0.21% 0.21% 0.19%
Other Expenses 0.21% 0.27% 0.63% 0.68%
---------------------------------------
Total Fund Operating Expenses 1.10% 1.13% 1.49% 1.42%
=======================================
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
- ------------------------------------------------------------------------------
GLOBAL CURRENCY FUND ......... $41 $64 $ 89 $160
HARD CURRENCY FUND ........... $41 $65 $ 90 $163
HIGH INCOME FUND ............. $45 $76 $109 $203
GERMAN GOVERNMENT FUND ....... $44 $74 $105 $195
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. A Contingent Deferred
Sales Charge may also apply to purchases by certain retirement plans that
qualify to
*$5.00 fee is only for Market Timers. We process all other exchanges without
a fee.
**These fees may not exceed 0.45% for the Currency Funds and 0.25% for the
German Government Fund. 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 has been
audited by Coopers & Lybrand L.L.P., the Fund's independent auditors. Their
audit report covering each of the most recent five years shown below appears
in the financial statements in the Trust's Annual Report to Shareholders for
the fiscal year ended October 31, 1997. The information for the fiscal year
ended April 30, 1993, and prior, 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.
Global Currency Fund
<TABLE>
<CAPTION>
Year Ended October 31, Year Ended April 30,
1997 1996 1995 1994+ 19942 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the year)
Net Asset Value,
beginning of year $12.80 $13.67 $14.14 $13.85 $13.96 $14.01 $14.23 $13.66 $13.71 $14.76 $13.86
Income from
investment operations:
Net investment income .49 .69 1.29 .25 .57 .67 .80 1.07 .97 .85 .52
Net realized and
unrealized gain (loss) (.68) (.54) (.49) .32 (.11) 1.01 (.22) .57 .07 (.54) 1.10
Total from
investment operations (.19) .15 .80 .57 .46 1.68 .58 1.64 1.04 .31 1.62
Less distributions:
Dividends from net
investment income - (.71) (1.27) (.28) (.57) (.69) (.80) (1.07) (.99) (.89) (.57)
Distributions from
net realized gains - - - - - (1.04) - - (.10) (.47) (.15)
Distributions from
tax return of capital (.51) (.31) - - - - - - - - -
Total distributions (.51) (1.02) (1.27) (.28) (.57) (1.73) (.80) (1.07) (1.09)(1.36) (.72)
Net Asset Value,
end of year $12.10 $12.80 $13.67 $14.14 $13.85 $13.96 $14.01 $14.23 $13.66$13.71 $14.76
Total Return** (1.46%) 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, end of
year (in millions) $41.8 $50.7 $59.9 $56 $51.5 $62.3 $63.6 $72.2 $71.6$112 $138.6
Ratio to average net assets:
Expenses 1.10% .99% .99% 1.04%* 1.41% 1.67% 1.82% 1.82% 2.09% 2.10% 2.00%
Expenses excluding
waiver and pay-
ments by affiliates 1.10% .99% .99% 1.12%* 1.61% 1.67% 1.82% 1.82% 2.09% 2.10% 2.00
Net investment income 4.01% 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
Year Ended October 31, Year Ended April 30,
1997 1996 1995 1994+ 19942 1993 1992 1991 19901
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the year)
Net Asset Value, beginning of year $11.64 $13.09 $13.95 $12.95 $13.00 $13.12 $12.83 $13.18 $12.50
Income from investment operations:
Net investment income .37 .57 1.84 .26 .50 .71 .77 .92 .42
Net realized and unrealized gain (loss) (1.33) (1.34) (1.02) .99 (.05) 1.20 .28 .64 .69
Total from investment operations (.96) (.77) .82 1.25 .45 1.91 1.05 1.56 1.11
Less distributions:
Dividends from net investment income - (.06) (1.68) (.25) (.13) (.69) (.76) (.95) (.35)
Distributions from net realized gains - - - - - (1.34) - (.96) (.08)
Distributions from tax return of capital (.40) (.62) - - (.37) - - - -
Total distributions (.40) (.68) (1.68) (.25) (.50) (2.03) (.76) (1.91) (.43)
Net Asset Value, end of year $10.28 $11.64 $13.09 $13.95 $12.95 $13.00 $13.12 $12.83 $13.18
Total Return** (8.28%) (5.99%) 6.68% 9.74% 3.62% 17.11% 8.40% 11.04% 8.88%
Ratios/Supplemental Data
Net assets, end of year (in millions) $92.0 $124.7 $132 $61.2 $35.7 $49.5 $31.8 $33.6 $26.3
Ratio to average net assets:
Expenses 1.13% 1.10% 1.15% 1.05%* 1.47% 1.75% 1.86% 1.66% 1.65%*
Expenses excluding waiver and
payments by affiliates 1.13% 1.10% 1.15% 1.28%* 1.71% 1.75% 1.86% 1.66% 1.65%
Net investment income 3.53% 4.50% 4.68% 3.80%* 3.83% 5.23% 5.85% 6.46% 6.21%*
Portfolio turnover rate 2.68% - 15.72% 55.91%* - 4.88% - - -
High Income Fund
Year Ended October 31, Year Ended April 30,
1997 1996 1995 1994+ 19942 1993 1992 1991 19901
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the year)
Net Asset Value, beginning of year $11.02 $11.56 $11.59 $11.28 $12.13 $12.90 $12.92 $12.84 $12.50
Income from investment operations:
Net investment income .43 .58 1.47 .31 .59 .90 1.09 1.34 .73
Net realized and unrealized gain (loss) (.44) - (.51) .31 (.85) (.40) (.03) .43 .24
Total from investment operations (.01) .58 .96 .62 (.26) .50 1.06 1.77 .97
Less distributions:
Dividends from net investment income (.02) (1.08) (.99) (.31) - (.94) (1.08) (1.38) (.62)
Distributions from net realized gains - (.01) - - - (.33) - (.31) (.01)
Distributions from tax return of capital (.42) (.03) - - (.59) - - - -
Total distributions (.44) (1.12) (.99) (.31) (.59) (1.27) (1.08) (1.69) (.63)
Net Asset Value, end of year $10.57 $11.02 $11.56 $11.59 $11.28 $12.13 $12.90 $12.92 $12.84
Total Return** (.08%) 5.56% 8.90% 5.60% (2.03%) 4.49% 8.51% 14.09% 7.82%
Ratios/Supplemental Data
Net assets, end of year (in millions) $8.4 $10.1 $10.9 $16.9 $16.7 $32.3 $46.6 $52.4 $11.8
Ratio to average net assets:
Expenses 1.49% 1.25% 1.25% 1.04%* 1.59% 1.81% 1.83% 1.59% 1.73%*
Expenses excluding waiver and payments
by affiliates 1.49% 1.29% 1.45% 1.45%* 1.82% 1.81% 1.83% 1.59% 2.04%
Net Investment Income 4.11% 4.83% 5.56% 5.44%* 4.80% 6.86% 8.38% 9.85% 11.01%*
Portfolio Turnover Rate 99.39% - 115.05% 1,588.38%* - - - - -
German Government Fund
For the For the
Year Four Months
Ended Ended
For the Year Ended October 31, April 30, April 30,
1997 1996 1995 1994+ 19942 19933
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the year)
Net Asset Value, beginning of year $13.16 $14.31 $13.26 $12.29 $13.08 $12.50
Income from investment operations:
Net investment income .53 .66 1.53 .41 .78 .27
Net realized and unrealized gain (loss) (1.60) (.69) .71 .92 (.72) .56
Total from investment operations (1.07) (.03) 2.24 1.33 .06 .83
Less distributions:
Dividends from net investment income - (1.00) (1.19) (.36) (.39) (.25)
Distributions from net realized gains - (.06) - - (.06) -
Distributions from tax return of capital (.58) (.06) - - (.40) -
Total distributions - (1.12) (1.19) (.36) (.85) (.25)
Net Asset Value, end of year $11.51 $13.16 $14.31 $13.26 $12.29 $13.08
Total Return** (8.17%) (.14%) 18.28% 10.92% .64% 6.15%
Ratios/Supplemental Data
Net assets, end of year (in millions) $12.8 $17.6 $24.1 $13.2 $13.3 $10.7
Ratio to average net assets:
Expenses 1.42% 1.10% 1.25% 1.04%* 1.00% .87%*
Expenses excluding waiver and
payments by affiliates 1.42% 1.10% 1.29% 1.77%* 1.83% 1.73%*
Net investment income 4.51% 5.25% 5.17% 6.37%* 4.74% 6.06%*
Portfolio turnover rate 41.63% 57.59% 67.77% 301.60%* 185.66% 190.89%*
</TABLE>
*ANNUALIZED.
**TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS AND IS NOT ANNUALIZED.
+FOR THE SIX MONTHS ENDED OCTOBER 31, 1994, REFLECTING A CHANGE IN FISCAL
YEAR FROM APRIL 30.
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 PERIOD DECEMBER 31, 1992 (EFFECTIVE DATE OF REGISTRATION) TO APRIL
30, 1993.
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 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 Managers actively manage the Hard Currency Fund and will allocate its
investments based on current social, economic, financial and political
developments which, in the 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 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 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 1997 are listed below:
1997 1996 1995 1994 1993 1992 1991 1990 1989
---------------------------------------------------------
Sweden* ......... 4.42% 6.00% 8.10% 7.64% 8.62%11.96% - - -
Italy ........... 6.79% 8.69%10.29% 8.48% 10.22%13.86%11.83%11.98% 12.41%
Spain ........... 5.36% 7.47% 9.37% 8.04% 11.77%13.21%12.60% - -
Denmark ......... 3.68% 3.94% 6.22% 6.21% 10.89%11.12% 9.78%10.96% 9.65%
France .......... 3.41% 3.87% 6.60% 5.79% 8.44%10.22% 9.55%10.24% 9.33%
United Kingdom .. 6.84% 6.02% 6.69% 5.50% 5.92% 9.60%11.50%14.76% 13.88%
Germany ......... 3.27% 3.24% - 5.29% 7.21% 9.42% 9.21% - -
Belgium ......... 3.47% 3.25% - 5.65% 8.12% 9.32% 9.32% 9.69% 8.51%
Netherlands ..... 3.30% 2.96% - - 6.81% 9.31% 9.25% 8.59% 7.29%
Switzerland ..... 1.64% 1.99% - - 7.82% - 8.89% -
Australia* ...... 5.40% 7.15% 7.76% - - - 9.84%13.71% 16.59%
New Zealand* .... 7.67% 9.29% 9.04% 6.41% 6.14% - 9.49%13.71% 12.64%
Canada .......... 3.52% 4.41% 7.08% 5.35% - - -12.54% 11.79%
U.S. ............ 5.67% 5.41% 5.99% - - - - - 9.21%
*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 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.
GERMAN GOVERNMENT FUND
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
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
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 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.
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 Managers,
are pursuing economic policies favorable to continued low rates of inflation
and currency appreciation versus the U.S. dollar over the long-term.
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 Managers
emphasize interest income rather than currency appreciation, you should
expect income to constitute the primary component of total return for the
Fund.
CURRENCY FUNDS
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 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. 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 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 Managers believe present a minimal credit risk.
GERMAN GOVERNMENT FUND
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
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.
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 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 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 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 Risks of Investing in the
Fund?"
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 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
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, 1996, was approximately 4.87 trillion marks
(U.S. $2.68 trillion). Of this total, German government and agency bonds
accounted for 1.319 trillion marks (U.S. $725 billion), or about 27% of the
total market. Liquidity in the German government bond market is considered by
the Fund's Managers to be very high.
The table below shows publicly issued German bonds outstanding, by issuer
type, as of December 31, 1996. 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 $ 631.4 $ 2,682.3
Central government agency
& government guaranteed 93.1 2,634.5
State and local 413.4 1,049.4
Corporates 991.7 2,506.6
Other, foreign,
international and Euros 545.5 1,145.2
------------------------------
TOTAL $2,675.1 $10,018.0
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 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
CURRENCY FUNDS
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. 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 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.
GERMAN GOVERNMENT 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 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 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. 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.
ALL FUNDS
REPURCHASE AGREEMENTS. In a repurchase agreement, the Fund buys U.S.
government securities from a bank or broker-dealer at one price and agrees to
sell them back to the bank or broker-dealer at a higher price on a specified
date. The securities subject to resale are held on behalf of the Fund by a
custodian bank approved by the Board. The bank or broker-dealer must transfer
to the custodian securities with an initial market value of at least 102% of
the repurchase price to help secure the obligation to repurchase the
securities at a later date. The securities are then marked-to-market daily to
maintain coverage of at least 100%. If the bank or broker-dealer does not
repurchase the securities as agreed, the Fund may experience a loss or delay
in the liquidation of the securities underlying the repurchase agreement and
may also incur liquidation costs. The Fund, however, intends to enter into
repurchase agreements only with banks or broker-dealers that are considered
creditworthy by Managers. At no time will the Currency Funds 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, if 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 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 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.
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.
Each of the Fund's policies and restrictions discussed in this prospectus and
in the SAI is considered at the time the Fund makes an investment. The Fund
is generally not required to sell a security because of a change in
circumstances.
TAX CONSIDERATIONS. The Fund's investments in foreign currency, currency
options and futures, forward contracts, foreign securities and other complex
securities are subject to special tax rules that may affect the amount,
timing or character of the income earned by the Fund and distributed to you.
The Fund may also be subject to withholding taxes on earnings from certain of
its foreign securities. These special tax rules are discussed in the
"Additional Information on Distributions and Taxes" section of the SAI.
WHAT ARE THE RISKS OF INVESTING IN THE FUND?
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.
CURRENCY FUNDS
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 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 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."
GERMAN GOVERNMENT FUND
Under normal market conditions, the Fund invests a significant portion of its
assets in instruments denominated in German marks. Therefore, your gains or
losses on shares of the Fund will in large part be based on changes in the
Net Asset Value of 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 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 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 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 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."
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
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 "How Does the Fund Invest Its Assets? - All Funds - 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 Hard Currency Fund and German Government Fund to
ensure no material conflicts exist among 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 make its
investment decisions. Advisers also perform similar services for other funds.
It is wholly owned by Resources, a publicly owned company engaged in the
financial services industry through its subsidiaries. Charles B. Johnson and
Rupert H. Johnson, Jr. are the principal shareholders of Resources. Together,
Advisers and its affiliates manage over $221 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, Investment Counsel is the sub-advisor of
the Fund. Investment Counsel provides Advisers with investment management
advice and assistance. Investment Counsel also provides day-to-day portfolio
management for the Fund. Investment Counsel'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:
Neil S. Devlin
Chief Investment Officer and Executive Vice President of Templeton Global
Bond Managers, a division of Investment Counsel.
Mr. Devlin has been responsible for portfolio recommendations and decisions
of the Currency Funds and the German Government Fund since 1993. He holds a
BA in economics and philosophy from Brandeis University, and is a Chartered
Financial Analyst. Before joining the Templeton organization in 1987, he was
a portfolio manager and bond analyst with Constitution Capital Management of
Boston. Prior to that, Mr. Devlin was a bond trader and research analyst for
the Bank of New England. Mr. Devlin currently directs investment strategies
in both the developed and emerging fixed income markets. He also manages
numerous Franklin Templeton mutual funds as well as corporate pension
accounts.
Thomas J. Dickson
Portfolio Manager of Investment Counsel
Mr. Dickson has been responsible for portfolio recommendations and decisions
of the Currency Funds since 1995. Mr. Dickson is currently a portfolio
manager for several Franklin Templeton mutual funds. He holds a BS in
managerial economics from the University of California at Davis. Prior to
joining the Templeton organization in 1994, Mr. Dickson worked as a
fixed-income analyst and trader for Advisers. Mr. Dickson's current research
responsibilities include country coverage of Australia, Canada, Japan and New
Zealand.
Thomas Latta
Vice President of Templeton Global Bond Managers, a division of Investment
Counsel
Mr. Latta has been responsible for portfolio recommendations and decisions of
the German Government Fund since 1993. He attended the University of Missouri
and New York University. Mr. Latta is a Chartered Financial Analyst, and a
member of the Association for Investment Management and Research and the
Institute of Chartered Financial Analysts. Before joining the Templeton
organization in 1991, Mr. Latta worked as a portfolio manager with Forester &
Hairston, a Houston-based global fixed income investment management firm.
Prior to that, Mr. Latta spent seven years with Merrill Lynch, Pierce, Fenner
& Smith Incorporated where, among other assignments, he was part of an
investment advisory team to the Saudi Arabian Monetary Authority. While at
Merrill Lynch, Mr. Latta also acted as an advisor to investment managers
concerning the modeling and application of interest rate immunization
strategies in fixed income portfolios. Mr. Latta's current research
responsibilities include the core European markets.
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, 1997, management
fees and total expenses of the Fund, including fees paid to Advisers were as
follows:
Total
Management Operating
FEES EXPENSES
Global Currency Fund................ 0.65% 1.10%
Hard Currency Fund.................. 0.65% 1.13%
High Income Fund.................... 0.65% 1.49%
German Government Fund.............. 0.55% 1.42%
During the same period, Advisers paid Investment Counsel 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 Managers try to obtain the best execution on all
transactions. If the Managers believe more than one broker or dealer can
provide the best execution, 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 the expenses of
activities that are 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; a prorated portion of Distributors'
overhead expenses; and the expenses of printing prospectuses and reports used
for sales purposes, and preparing and distributing sales literature and
advertisements.
Payments by the Currency Funds under their respective plans may not exceed
0.45% per year of Class I's average daily net assets. Of this amount, the
Fund may reimburse up to 0.45% to Distributors or others, out of which 0.20%
will generally be retained by Distributors for its distribution expenses.
Payments by the German Government Fund may not exceed 0.25% per year of Class
I's average daily net assets. All distribution expenses over these amounts
will be borne by those who have incurred them. During the first year after
certain purchases made without a sales charge, Securities Dealers may not be
eligible to receive 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. Commonly used
measures of performance include 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 and German Government Fund also offer 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
ON AUGUST 5, 1997, PRESIDENT CLINTON SIGNED INTO LAW THE TAXPAYER RELIEF ACT
OF 1997 (THE "1997 ACT"). THIS NEW LAW MAKES SWEEPING CHANGES IN THE CODE.
BECAUSE MANY OF THESE CHANGES ARE COMPLEX THEY ARE DISCUSSED IN THE SAI.
TAXATION OF THE FUND'S INVESTMENTS.
The Fund invests your money in the foreign currencies, bonds, notes and other
securities that are described in the section "How Does the Fund Invest Its
Assets?" Net realized foreign currency gains and losses are required to be
reported as ordinary income or loss by the Fund. 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 ordinary dividend
distributions made during the fiscal year as a return-of-capital for federal
income tax purposes. These and other special tax rules may apply in
determining the income and gains that the Fund earns on its investments.
These rules may, in turn, affect the amount of distributions that the Fund
pays to you. These tax rules are discussed in the SAI.
HOW DOES THE FUND EARN INCOME AND GAINS?
The Fund earns interest (the Fund's "income") on its investments. When the
Fund sells a security for a price that is higher than it paid, it has a gain.
When the Fund sells a security for a price that is lower than it paid, it has
a loss. If the Fund has held the security for more than one year, the gain or
loss will be a long-term capital gain or loss. If the Fund has held the
security for one year or less, the gain or loss will be a short-term capital
gain or loss. The Fund's gains and losses are netted together, and, if the
Fund has a net gain (the Fund's "gains"), that gain will generally be
distributed to you.
TAXATION OF THE FUND. As a regulated investment company, the Fund generally
pays no federal income tax on the income and gains that it distributes to you.
FOREIGN TAXES. Foreign governments may impose taxes on the income and gains
from the Fund's investments in foreign securities. These taxes will reduce
the amount of the Fund's distributions to you, but, depending upon the amount
of the Fund's assets that are invested in foreign securities and foreign
taxes paid, may be passed through to you as a foreign tax credit on your
income tax return.
WHAT IS A DISTRIBUTION?
As a shareholder, you will receive your share of the Fund's income and gains
on its investments in foreign currencies, bonds, notes and other securities.
The Fund's income and short term capital gains are paid to you as ordinary
dividends. The Fund's long-term capital gains are paid to you as capital gain
distributions. If the Fund pays you an amount in excess of its income and
gains, this excess will generally be treated as a non-taxable distribution.
These amounts, taken together, are what we call the Fund's distributions to
you.
TAXATION OF SHAREHOLDERS.
DISTRIBUTIONS. Distributions from the Fund, whether you receive them in cash
or in additional shares, are generally subject to income tax. The Fund will
send you a statement in January of the current year that reflects the amount
of ordinary dividends, capital gain distributions and non-taxable
distributions you received from the Fund in the prior year. This statement
will include distributions declared in December and paid to you in January of
the current year, but which are taxable as if paid on December 31 of the
prior year. The IRS requires you to report these amounts on your income tax
return for the prior year. The Fund's statement for the prior year will tell
you how much of your capital gain distribution represents 28% rate gain
property. The remainder of the capital gain distribution represents 20% rate
gain.
DISTRIBUTIONS TO RETIREMENT PLANS. Fund distributions received by your
qualified retirement plan, such as a Section 401(k) plan, or IRA, are
generally tax-deferred; this means that you are not required to report Fund
distributions on your income tax return when paid to your plan, but, rather,
when your plan makes payments to you. Be aware, however, that special rules
apply to payouts from Roth and education IRAs.
DIVIDENDS-RECEIVED DEDUCTION. It is anticipated that no portion of the Fund's
distributions will qualify for the corporate dividends-received deduction.
REDEMPTIONS AND EXCHANGES. If you redeem your shares or if you exchange your
shares in the Fund for shares in another Franklin Templeton Fund, you will
generally have a gain or loss that the IRS requires you to report on your
income tax return. If you exchange Fund shares held for 90 days or less and
pay no sales charge, or a reduced sales charge, for the new shares, all or a
portion of the sales charge you paid on the purchase of the shares you
exchanged is not included in their cost for purposes of computing gain or
loss on the exchange. If you hold your shares for six months or less, any
loss you have will be treated as a long-term capital loss to the extent of
any capital gain distributions received by you from the Fund. All or a
portion of any loss on the redemption or exchange of your shares will be
disallowed by the IRS if you purchase other shares in the Fund within 30 days
before or after your redemption or exchange.
WHAT IS A REDEMPTION?
A redemption is a sale by you to the Fund of some or all of your shares in
the Fund. The price per share you receive when you redeem Fund shares may be
more or less than the price at which you purchased those shares. An exchange
of shares in the Fund for shares of another Franklin Templeton Fund is
treated as a redemption of Fund shares and then a purchase of shares of the
other fund. When you redeem or exchange your shares, you will generally have
a gain or loss, depending upon whether the basis in your shares is more or
less than your cost or other basis in the shares. Call Fund Information for a
free shareholder Tax Information Handbook if you need more information in
calculating the gain or loss on the redemption or exchange of your shares.
U.S. GOVERNMENT INTEREST. Many states grant tax-free status to dividends paid
from interest earned on direct obligations of the U.S. Government, subject to
certain restrictions. The Fund will provide you with information at the end
of each calendar year on the amount of such dividends that may qualify for
exemption from reporting on your individual income tax returns.
NON-U.S. INVESTORS. Ordinary dividends generally will be subject to U.S.
income tax withholding. Your home country may also tax ordinary dividends,
capital gain distributions and gains arising from redemptions or exchanges of
your Fund shares. Fund shares held by the estate of a non-U.S. investor may
be subject to U.S. estate tax. You may wish to contact your tax advisor to
determine the U.S. and non-U.S. tax consequences of your investment in the
Fund.
STATE TAXES. Ordinary dividends and capital gain distributions that you
receive from the Fund, and gains arising from redemptions or exchanges of
your Fund shares will generally be subject to state and local income tax. The
holding of Fund shares may also be subject to state and local intangibles
taxes. You may wish to contact your tax advisor to determine the state and
local tax consequences of your investment in the Fund.
BACKUP WITHHOLDING. When you open an account, IRS regulations require that
you provide your taxpayer identification number ("TIN"), certify that it is
correct, and certify that you are not subject to backup withholding under IRS
rules. If you fail to provide a correct TIN or the proper tax certifications,
the Fund is required to withhold 31% of all the distributions (including
ordinary dividends and capital gain distributions), and redemption proceeds
paid to you. The Fund is also required to begin backup withholding on your
account if the IRS instructs the Fund to do so. The Fund reserves the right
not to open your account, or, alternatively, to redeem your shares at the
current net asset value, less any taxes withheld, if you fail to provide a
correct TIN, fail to provide the proper tax certifications, or the IRS
instructs the Fund to begin backup withholding on your account.
WHAT IS A BACKUP WITHHOLDING?
Backup withholding occurs when the Fund is required to withhold and pay over
to the IRS 31% of your distributions and redemption proceeds. You can avoid
backup withholding by providing the Fund with your TIN, and by completing the
tax certifications on your shareholder application that you were asked to
sign when you opened your account. However, if the IRS instructs the Fund to
begin backup withholding, it is required to do so even if you provided the
Fund with your TIN and these tax certifications, and backup withholding will
remain in place until the Fund is instructed by the IRS that it is no longer
required.
THIS TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY. PROSPECTIVE INVESTORS
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN THE FUND. A MORE COMPLETE
DISCUSSION OF THESE RULES AND RELATED MATTERS IS CONTAINED IN THE SECTION
ENTITLED "ADDITIONAL INFORMATION ON DISTRIBUTIONS AND TAXES" IN THE SAI. THE
TAX TREATMENT TO YOU OF DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS, FOREIGN TAXES
PAID AND INCOME TAXES WITHHELD IS ALSO DISCUSSED IN A FREE FRANKLIN TEMPLETON
TAX INFORMATION HANDBOOK, WHICH YOU MAY REQUEST BY CONTACTING FUND
INFORMATION.
HOW IS THE TRUST ORGANIZED?
The Funds are non-diversified series of the Trust, an open-end management
investment company, commonly called a mutual fund. The Trust was organized as
a Massachusetts business trust in November 1985 and reorganized as a Delaware
business trust on July 25, 1996. It is registered with the SEC. 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
As of January 1, 1997, the Hard Currency and German Government Funds began
offering a new class of shares designated Franklin Templeton Hard Currency
Fund - Advisor Class and Franklin Templeton German Government Bond Fund -
Advisor Class. All shares outstanding before the offering of Advisor Class
shares have been designated Franklin Templeton Hard Currency Fund - Class I
and Franklin Templeton German Government Bond Fund - Class I. Shares of the
Global Currency Fund and the High Income Fund are considered Class I shares
for redemption, exchange and other purposes. Additional series and classes of
shares may be offered in the future.
Shares of each class of the Hard Currency and German Government Funds
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 affecting only that class, or expressly required
to be voted on separately by state or federal law. 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. The Trust or a
series of the Trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may also be called by the Board in its
discretion or by shareholders holding at least 10% of the outstanding shares.
In certain circumstances, we are required to help you communicate with other
shareholders about the removal of a Board member.
As of February 2, 1998, Resources and FTC & Co each owned of record and
beneficially more than 25% of the outstanding shares of the Advisor Class of
the German Government Fund. Resources also owned of record and beneficially
more than 25% of the outstanding shares of the Advisor Class of the Hard
Currency Fund.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
To open your account, please follow the steps below. This will help avoid any
delays in processing your request.
1. Read this prospectus carefully.
2. Determine how much you would like to invest. The Fund's minimum
investments are:
To open your account: $100*
To add to your account: $25*
*We may waive these minimums for retirement plans. We also reserve the
right to refuse any order to buy shares.
3. Carefully complete and sign the enclosed shareholder application,
including the optional shareholder privileges section. By applying for
privileges now, you can avoid the delay and inconvenience of having to
send an additional application to add privileges later. It is important
that we receive a signed application since we will not be able to process
any redemptions from your account until we receive your signed application.
4. Make your investment using the table below.
Method Steps to Follow
- --------------------------------------------------------------------------------
BY MAIL For an initial investment:
Return the application to the Fund with your check
made payable to the Fund.
For additional investments:
Send a check made payable to the Fund. Please
include your account number on the check.
- --------------------------------------------------------------------------------
BY WIRE 1. Call Shareholder Services or, if that number is
busy, call 1-650/312-2000 collect, to receive a wire
control number and wire instructions. You need a new
wire control number every time you wire money into
your account. If you do not have a currently
effective wire control number, we will return the
money to the bank, and we will not credit the
purchase to your account.
2. For initial investments you must also return your
signed shareholder application to the Fund.
IMPORTANT DEADLINES: If we receive your call before
1:00 p.m. Pacific time and the bank receives the
wired funds and reports the receipt of wired funds
to the Fund by 3:00 p.m. Pacific time, we will
credit the purchase to your account that day. If we
receive your call after 1:00 p.m. or the bank
receives the wire after 3:00 p.m., we will credit
the purchase to your account the following business
day.
- --------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- --------------------------------------------------------------------------------
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 TO
AS A PERCENTAGE OF DEALER AS A
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE
- ------------------------------------------------------------------------------
Under $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.
A qualified group does not include a 403(b) plan that only allows salary
deferral contributions. 403(b) plans that only allow salary deferral
contributions and that purchased shares of the Fund at a reduced sales charge
under the group purchase privilege before February 1, 1998, however, may
continue to do so.
SALES CHARGE WAIVERS. If one of the following sales charge waivers applies to
you or your purchase of Fund shares, you may buy shares of the Fund without a
front-end sales charge or a Contingent Deferred Sales Charge.
Certain distributions, payments or redemption proceeds that you receive may
be used to buy shares of the Fund without a sales charge if you reinvest them
within 365 days of their payment or redemption date. They include:
1. Dividend and capital gain distributions from any Franklin Templeton Fund.
The distributions generally must be reinvested in the same class of
shares. Certain exceptions apply, however, to Class II shareholders of
another Franklin Templeton Fund who chose to reinvest their distributions
in the Fund before November 17, 1997, and to Advisor Class or Class Z
shareholders of a Franklin Templeton Fund who may reinvest their
distributions in the Fund.
2. Redemption proceeds from the sale of shares of any Franklin Templeton Fund
if you originally paid a sales charge on the shares and you reinvest the
money in the same class of shares. This waiver does not apply to exchanges.
If you paid a Contingent Deferred Sales Charge when you redeemed your
shares from a Franklin Templeton Fund, a Contingent Deferred Sales Charge
will apply to your purchase of Fund shares and a new Contingency Period
will begin. We will, however, credit your Fund account with additional
shares based on the Contingent Deferred Sales Charge you paid and the
amount of redemption proceeds that you reinvest.
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.
3. Dividend or capital gain distributions from a real estate investment trust
(REIT) sponsored or advised by Franklin Properties, Inc.
4. 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,
or the Templeton Variable Products Series Fund. You should contact your
tax advisor for information on any tax consequences that may apply.
5. Distributions from an existing retirement plan invested in the Franklin
Templeton Funds
Various individuals and institutions also may buy shares of the Fund without
a front-end sales charge or Contingent Deferred Sales Charge, including:
1. 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.
2. 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.
3. Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for
clients participating in comprehensive fee programs
4. Registered Securities Dealers and their affiliates, for their investment
accounts only
5. Current employees of Securities Dealers and their affiliates and their
family members, as allowed by the internal policies of their employer
6. 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
7. Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer
8. Accounts managed by the Franklin Templeton Group
9. Certain unit investment trusts and their holders reinvesting
distributions from the trusts
10. Group annuity separate accounts offered to retirement plans
11. Chilean retirement plans that meet the requirements described under
"Retirement Plans" below
RETIREMENT PLANS. Retirement plans that (i) are sponsored by an employer with
at least 100 employees, or (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 may buy shares without a front-end sales charge. Retirement
plans that are not Qualified Retirement Plans, SIMPLEs or SEPs must also meet
the requirements described under "Group Purchases" above to be able to buy
shares without a front-end sales charge. We may enter into a special
arrangement with a Securities Dealer, based on criteria established by the
Fund, to add together certain small Qualified Retirement Plan accounts for
the purpose of meeting these requirements. For retirement plan accounts
opened on or after May 1, 1997, a Contingent Deferred Sales Charge may apply
if the retirement plan is transferred out of the Franklin Templeton Funds or
terminated within 365 days of the retirement plan account's initial purchase
in the Franklin Templeton Funds. Please see "How Do I Sell Shares? -
Contingent Deferred Sales Charge" for details.
MAY I BUY SHARES IN GERMAN MARKS? - GERMAN GOVERNMENT FUND ONLY
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 1-650/312-3400) or fax the instructions at
1-650/312-4175 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, call Retirement Plan Services.
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 amount invested.
2. Purchases made without a front-end sales charge by certain retirement
plans described under "Sales Charge Reductions and Waivers - Retirement
Plans" above - up to 1% of the amount invested.
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
amount invested.
4. Purchases by Chilean retirement plans - up to 1% of the amount invested.
A Securities Dealer may receive only one of these payments for each
qualifying purchase. Securities Dealers who receive payments in connection
with investments described in paragraphs 1 or 4 above or a payment of up to
1% for investments described in paragraph 2 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 signed written instructions
2. Include any outstanding share certificates for
the shares you want to exchange
- --------------------------------------------------------------------------------
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, we will first exchange any shares in your account that are not
subject to the charge. If there are not enough of these to meet your exchange
request, we will exchange shares subject to the charge 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 Retirement Plan Services 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 have: (i) requested an
exchange out of the Fund within two weeks of an earlier exchange
request, (ii) exchanged shares out of the Fund more than twice in a
calendar quarter, or (iii) exchanged 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 have
exchanged 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, operations 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 or the High Income Fund, such as "Advisor
Class" or with respect to all the Funds, "Class Z" shares. Because the Global
Currency and High Income Funds do not currently offer an Advisor Class, you
may exchange Advisor Class shares of any Franklin Templeton Fund for Class I
shares of the Global Currency Fund or the High Income Fund 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. Certain shareholders of Class Z shares of
Franklin Mutual Series Fund Inc. may also exchange their Class Z shares for
Class I shares of the Global Currency Fund or the High Income 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 signed written instructions. If you would
like your redemption proceeds wired to a bank
account, your instructions should include:
o The name, address and telephone number of the bank
where you want the proceeds sent
o Your bank account number
o The Federal Reserve ABA routing number
o If you are using a savings and loan or credit
union, the name of the corresponding bank and the
account number
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. If you would like your
redemption proceeds wired to a bank account, other
than an escrow account, you must first sign up for
the wire feature. To sign up, send us written
instructions, with a signature guarantee. To avoid
any delay in processing, the instructions should
include the items listed in "By Mail" above.
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 15 days
- If you do not want the ability to redeem by phone
to apply to your account, please let us know.
- --------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- --------------------------------------------------------------------------------
We will send your redemption check within seven days after we receive your
request in proper form. If you would like the check sent to an address other
than the address of record or made payable to someone other than the
registered owners on the account, send us written instructions signed by all
account owners, with a signature guarantee. We are not able to receive or pay
out cash in the form of currency.
The wiring of redemption proceeds is a special service that we make available
whenever possible for redemption requests of $1,000 or more. If we receive
your request in proper form before 1:00 p.m. Pacific time, your wire payment
will be sent the next business day. For requests received in proper form
after 1:00 p.m. Pacific time, the payment will be sent the second business
day. By offering this service to you, the Fund is not bound to meet any
redemption request in less than the seven day period prescribed by law.
Neither the Fund nor its agents shall be liable to you or any other person
if, for any reason, a redemption request by wire is not processed as
described in this section.
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.
MAY I RECEIVE MY REDEMPTION PROCEEDS IN GERMAN MARKS? - GERMAN GOVERNMENT
FUND ONLY
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
1-650/312-3400) or fax your request to 1-650/312-4175.
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.
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 591/2, unless the distribution meets an exception stated in the Code. To
obtain the necessary forms, please call Retirement Plan Services.
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.
Certain retirement plan accounts opened on or after May 1, 1997, and that
qualify to buy shares without a front-end sales charge may also be subject to
a Contingent Deferred Sales Charge if the retirement plan is transferred out
of the Franklin Templeton Funds or terminated within 365 days of the
account's initial purchase in the Franklin Templeton Funds.
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 Account fees
o Sales of shares purchased without a front-end sales charge by certain
retirement plan accounts if (i) the account was opened before May 1,
1997, or (ii) the Securities Dealer of record received a payment from
Distributors of 0.25% or less, or (iii) Distributors did not make any
payment in connection with the purchase, or (iv) the Securities Dealer
of record has entered into a supplemental agreement with Distributors
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, at a rate of up to 1% a month of an account's Net
Asset Value. For example, if you maintain an annual balance of $1
million, you can redeem up to $120,000 annually through a systematic
withdrawal plan free of charge.
o Distributions from IRAs 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 Redemptions by Trust Company employee benefit plans or employee benefit
plans serviced by ValuSelect(R)
o Participant initiated distributions from employee benefit plans or
participant initiated exchanges among investment choices in employee
benefit plans
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. 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. For Trust Company retirement
plans, special forms are required to receive distributions in cash.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
SHARE PRICE
When you buy shares, you pay the Offering Price. This is the Net Asset Value
per share, plus any applicable sales charges. When you sell shares, you
receive the Net Asset Value per share.
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.
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 close of the NYSE, normally 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.
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 are 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.
JOINT ACCOUNTS. For accounts with more than one registered owner, we accept
written instructions signed by only one owner for certain types of
transactions or account changes. These include transactions or account
changes that you could also make by phone, such as certain redemptions of
$50,000 or less, exchanges between identically registered accounts, and
changes to the address of record. For most other types of transactions or
changes, written instructions must be signed by all registered owners.
Please keep in mind that if you have previously told us that you do not want
telephone exchange or redemption privileges on your account, then we can only
accept written instructions to exchange or redeem shares if they are signed
by all registered owners on the account.
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. You should
be able to obtain a signature guarantee from a bank, broker, credit union,
savings association, clearing agency, or securities exchange or association.
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 and to send the certificate and assignment form in separate
envelopes.
TELEPHONE TRANSACTIONS
You may initiate many transactions and changes to your account 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 may also record calls. 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.
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. We also will not be liable for
any loss if we follow instructions by phone that we reasonably believe are
genuine or if you are unable to execute a transaction by phone.
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 Retirement Plan Services.
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, we cannot accept instructions to change owners on
the account unless all owners agree in writing, even if the law in your state
says otherwise. 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.
IMPORTANT INFORMATION IF YOU HAVE AN INVESTMENT REPRESENTATIVE
If there is a Securities Dealer or other representative of record on your
account, we are authorized: (1) to provide confirmations, account statements
and other information about your account directly to your dealer and/or
representative; and (2) to accept telephone and electronic instructions
directly from your dealer or representative, including instructions to
exchange or redeem your shares. Electronic instructions may be processed
through established electronic trading systems and programs used by the Fund.
Telephone instructions directly from your representative will be accepted
unless you have told us that you do not want telephone privileges to apply to
your account.
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. Once your plan is established, any distributions paid by the Fund will
be automatically reinvested in your 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.
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(R) 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 within the same class between identically registered
Franklin Templeton Class I and Class II accounts; and
o request duplicate statements and deposit slips for Franklin Templeton
accounts.
You will need the code number for each fund to use TeleFACTS(R). The code
numbers are as follows:
Code
FUND NUMBER
- ------------------------------------------
Global Currency Fund............ 211
Hard Currency Fund.............. 212
High Income Fund................ 213
German Government Fund.......... 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.
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. Investment Counsel 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 Plan Services 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 and German Government
Funds offer 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, 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 COUNSEL - Templeton Investment Counsel, Inc., the Fund's
sub-advisor.
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRA - Individual retirement account or annuity qualified under section 408 of
the Code
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.
MANAGERS - Franklin Advisers, Inc., the Fund's investment manager, and
Templeton Investment Counsel, Inc., the Fund's sub-advisor.
MARKET TIMERS - Market Timers generally include market timing or asset
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 or whose transactions include
frequent or large exchanges.
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 front-end sales charge. The maximum front-end
sales charge is 3.00%.
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.
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
SIMPLE (SAVINGS INCENTIVE MATCH PLAN FOR EMPLOYEES) - An employer sponsored
salary deferral plan established under section 408(p) of the Code
TELEFACTS(R) - Franklin Templeton's automated customer servicing system
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 GLOBAL TRUST
ADVISOR CLASS
MARCH 1, 1998
FRANKLIN TEMPLETON HARD CURRENCY FUND
FRANKLIN TEMPLETON GERMAN GOVERNMENT BOND FUND
INVESTMENT STRATEGY
GLOBAL
GROWTH & INCOME
This prospectus describes the Advisor Class shares of the Franklin Templeton
Global Trust (the "Trust"): the Franklin Templeton Hard Currency Fund ("Hard
Currency Fund") and the Franklin Templeton German Government Bond Fund
("German Government Fund"). Each Fund may individually or together be
referred to as the "Fund(s)." The prospectus 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, 1998, 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.
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.
FRANKLIN TEMPLETON GLOBAL TRUST
The Hard Currency 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 Fund should not be considered a money market fund. Please
see "What Are the Risks of Investing in the Fund?"
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.
TABLE OF CONTENTS
ABOUT THE FUND
Expense Summary .................................................. 2
Financial Highlights ............................................. 3
How Does the Fund Invest Its Assets? ............................. 5
What Are the Risks of Investing in the Fund? ..................... 19
Who Manages the Fund? ............................................ 26
How Does the Fund Measure Performance? ........................... 29
How Taxation Affects the Fund and Its Shareholders ............... 29
How Is the Trust Organized? ...................................... 32
ABOUT YOUR ACCOUNT
How Do I Buy Shares? ............................................. 33
May I Exchange Shares for Shares of Another Fund? ................ 38
How Do I Sell Shares? ............................................ 40
What Distributions Might I Receive From the Fund? ................ 42
Transaction Procedures and Special Requirements .................. 43
Services to Help You Manage Your Account ......................... 47
What If I Have Questions About My Account? ....................... 48
GLOSSARY
Useful Terms and Definitions ..................................... 49
FRANKLIN TEMPLETON GLOBAL TRUST - ADVISOR CLASS
March 1, 1998
When reading this prospectus, you will see certain terms beginning with
capital letters. This means the term is explained in our glossary section.
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 historical expenses of the Advisor Class for the
fiscal year ended October 31, 1997. The Fund's actual expenses may vary. The
expenses are annualized.
HARD GERMAN
CURRENCY GOVERNMENT
FUND FUND
A. SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Charge Imposed on Purchases ........... NONE NONE
Exchange Fee (per transaction) ...................... $5.00* $5.00*
B. ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees ..................................... 0.65% 0.55%
Rule 12b-1 Fees ..................................... NONE NONE
Other Expenses ...................................... 0.27% 0.68%
Total Fund Operating Expenses ....................... 0.92% 1.23%
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
- ------------------------------------------------------------------------------
HARD CURRENCY FUND .............. $ 9 $29 $51 $113
GERMAN GOVERNMENT FUND .......... $13 $39 $68 $149
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.
*$5.00 fee is only for Market Timers. We process all other exchanges without
a fee.
FINANCIAL HIGHLIGHTS
This table summarizes the Fund's financial history. The information has been
audited by Coopers & Lybrand L.L.P., the Fund's independent auditors. Their
audit report covering the period shown below appears in the financial
statements in the Trust's Annual Report to Shareholders for the fiscal year
ended October 31, 1997. The Annual Report to Shareholders also includes more
information about the Fund's performance. For a free copy, please call Fund
Information.
HARD CURRENCY FUND
YEAR ENDED OCT. 31, 1997+
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net Asset Value, beginning of period ....................... $11.28
-------
Income from investment operations:
Net investment income ..................................... .34
Net realized and unrealized loss .......................... (1.00)
--------
Total from investment operations ........................... (.66)
--------
Less distributions:
Distributions from tax return of capital .................. (.34)
--------
Net Asset Value, end of period ............................. $10.28
=======
Total Return** ............................................. (5.84%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) ....................... $249
Ratio to average net assets:
Expenses .................................................. .94%*
Net investment income ..................................... 3.67%*
Portfolio turnover rate .................................... 2.68%
GERMAN GOVERNMENT FUND
YEAR ENDED OCT. 31, 1997+,++
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net Asset Value, beginning of period ....................... $12.98
-------
Income from investment operations:
Net investment income ..................................... .43
Net realized and unrealized loss .......................... (1.40)
--------
Total from investment operations ........................... (.97)
--------
Less distributions:
Distributions from tax return of capital .................. (.49)
--------
Net Asset Value, end of period ............................. $11.52
=======
Total Return** ............................................. (7.44%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) ....................... $28
Ratio to average net assets:
Expenses .................................................. 1.27%*
Net investment income ..................................... 4.49%*
Portfolio turnover rate .................................... 41.63%
*Annualized
**Total return is not annualized.
+For the period January 2, 1997 (commencement of sales) to October 31, 1997.
++Based on average weighted shares outstanding.
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.
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 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 Managers actively manage the Hard Currency Fund and will allocate its
investments based on current social, economic, financial and political
developments which, in the 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 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
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 1997 are listed below:
1997 1996 1995 1994 1993 1992 1991 1990 1989
---------------------------------------------------------
Sweden* .......4.42% 6.00% 8.10% 7.64% 8.62%11.96% - - -
Italy .........6.79% 8.69%10.29% 8.48% 10.22%13.86% 11.83% 11.98% 12.41%
Spain .........5.36% 7.47% 9.37% 8.04% 11.77%13.21% 12.60% - -
Denmark .......3.68% 3.94% 6.22% 6.21% 10.89%11.12% 9.78% 10.96% 9.65%
France ........3.41% 3.87% 6.60% 5.79% 8.44%10.22% 9.55% 10.24% 9.33%
United Kingdom 6.84% 6.02% 6.69% 5.50% 5.92% 9.60% 11.50% 14.76% 13.88%
Germany .......3.27% 3.24% - 5.29% 7.21% 9.42% 9.21% - -
Belgium .......3.47% 3.25% - 5.65% 8.12% 9.32% 9.32% 9.69% 8.51%
Netherlands ...3.30% 2.96% - - 6.81% 9.31% 9.25% 8.59% 7.29%
Switzerland ...1.64% 1.99% - - 7.82% - 8.89% -
Australia* ....5.40% 7.15% 7.76% - - - 9.84% 13.71% 16.59%
New Zealand* ..7.67% 9.29% 9.04% 6.41% 6.14% - 9.49% 13.71% 12.64%
Canada ........3.52% 4.41% 7.08% 5.35% - - - 12.54% 11.79%
U.S. ..........5.67% 5.41% 5.99% - - - - - 9.21%
*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 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.
GERMAN GOVERNMENT FUND
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
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
HARD CURRENCY FUND
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 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 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 AAA or AA (A-1 for
commercial paper) and by Moody's Aaa or Aa (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), 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 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 Managers believe present a minimal credit risk.
GERMAN GOVERNMENT FUND
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
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.
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 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 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 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 Risks of Investing in the
Fund?"
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 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
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, 1996, was approximately 4.87 trillion marks
(U.S. $2.68 trillion). Of this total, German government and agency bonds
accounted for 1.319 trillion marks (U.S. $725 billion), or about 27% of the
total market. Liquidity in the German government bond market is considered by
the Fund's Managers to be very high.
The table below shows publicly issued German bonds outstanding, by issuer
type, as of December 31, 1996. 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 .......................... $631.4 $2,682.3
Central government agency
& government guaranteed .................... 93.1 2,634.5
State and local ............................. 413.4 1,049.4
Corporates .................................. 991.7 2,506.6
Other, foreign,
international and Euros .................... 545.5 1,145.2
---------------------
TOTAL ....................................... $2,675.1 $10,018.0
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 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
HARD CURRENCY FUND
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 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.
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.
GERMAN GOVERNMENT 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 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 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.
OTHER. 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.
BOTH FUNDS
REPURCHASE AGREEMENTS. In a repurchase agreement, the Fund buys U.S.
government securities from a bank or broker-dealer at one price and agrees to
sell them back to the bank or broker-dealer at a higher price on a specified
date. The securities subject to resale are held on behalf of the Fund by a
custodian bank approved by the Board. The bank or broker-dealer must transfer
to the custodian securities with an initial market value of at least 102% of
the repurchase price to help secure the obligation to repurchase the
securities at a later date. The securities are then marked-to-market daily to
maintain coverage of at least 100%. If the bank or broker-dealer does not
repurchase the securities as agreed, the Fund may experience a loss or delay
in the liquidation of the securities underlying the repurchase agreement and
may also incur liquidation costs. The Fund, however, intends to enter into
repurchase agreements only with banks or broker-dealers that are considered
creditworthy by the Managers. At no time will the Hard Currency 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, if 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 a 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 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.
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.
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.
TAX CONSIDERATIONS. The Fund's investments in foreign currency, currency
options and futures, forward contracts, foreign securities and other complex
securities are subject to special tax rules that may affect the amount,
timing or character of the income earned by the Fund and distributed to you.
The Fund may also be subject to withholding taxes on earnings from certain of
its foreign securities. These special tax rules are discussed in the
"Additional Information on Distributions and Taxes" section of the SAI.
WHAT ARE THE RISKS OF INVESTING IN THE FUND?
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.
HARD CURRENCY FUND
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.
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 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 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."
GERMAN GOVERNMENT FUND
Under normal market conditions, the Fund invests a significant portion of its
assets in instruments denominated in German marks. Therefore, your gains or
losses on shares of the Fund will in large part be based on changes in the
Net Asset Value of 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 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 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 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 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."
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
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 "How Does the Fund Invest Its Assets? - Both Funds - 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 among
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. Advisers also performs similar services for other
funds. It is wholly owned by Resources, a publicly owned company engaged in
the financial services industry through its subsidiaries. Charles B. Johnson
and Rupert H. Johnson, Jr. are the principal shareholders of Resources.
Together, Advisers and its affiliates manage over $221 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, Investment Counsel is the sub-advisor of
the Fund. Investment Counsel provides Advisers with investment management
advice and assistance. Investment Counsel also provides day-to-day portfolio
management for the Fund. Investment Counsel'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:
Neil S. Devlin
Chief Investment Officer and Executive Vice President of Templeton Global
Bond Managers, a division of Investment Counsel
Mr. Devlin has been responsible for portfolio recommendations and decisions
of the Hard Currency Fund and the German Government Fund since 1993. He holds
a BA in economics and philosophy from Brandeis University, and is a Chartered
Financial Analyst. Before joining the Templeton organization in 1987, he was
a portfolio manager and bond analyst with Constitution Capital Management of
Boston. Prior to that, Mr. Devlin was a bond trader and research analyst for
the Bank of New England. Mr. Devlin currently directs investment strategies
in both the developed and emerging fixed income markets. He also manages
numerous Franklin Templeton mutual funds as well as corporate pension
accounts.
Thomas J. Dickson
Portfolio Manager of Investment Counsel
Mr. Dickson has been responsible for portfolio recommendations and decisions
of the Hard Currency Fund since 1995. Mr. Dickson is currently a portfolio
manager for several Franklin Templeton mutual funds. He holds a BS in
managerial economics from the University of California at Davis. Prior to
joining the Templeton organization in 1994, Mr. Dickson worked as a
fixed-income analyst and trader for Advisers. Mr. Dickson's current research
responsibilities include country coverage of Australia, Canada, Japan and New
Zealand.
Thomas Latta
Vice President of Templeton Global Bond Managers, a division of Investment
Counsel
Mr. Latta has been responsible for portfolio recommendations and decisions of
the German Government Fund since 1993. He attended the University of Missouri
and New York University. Mr. Latta is a Chartered Financial Analyst, and a
member of the Association for Investment Management and Research and the
Institute of Chartered Financial Analysts. Before joining the Templeton
organization in 1991, Mr. Latta worked as a portfolio manager with Forester &
Hairston, a Houston-based global fixed income investment management firm.
Prior to that, Mr. Latta spent seven years with Merrill Lynch, Pierce, Fenner
& Smith Incorporated where, among other assignments, he was part of an
investment advisory team to the Saudi Arabian Monetary Authority. While at
Merrill Lynch, Mr. Latta also acted as an advisor to investment managers
concerning the modeling and application of interest rate immunization
strategies in fixed income portfolios. Mr. Latta's current research
responsibilities include the core European markets.
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, 1997, management
fees totaling 0.65% of the average daily net assets of the Hard Currency Fund
and 0.55% of the average daily net assets of the German Government Fund were
paid to Advisers. Total expenses, including fees paid to Advisers, were .92%
for the Hard Currency Fund and 1.23% for the German Government Fund.
During the same period, Advisers paid Investment Counsel a sub-advisory fee
totaling 0.25% of the average daily net assets of each 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 Managers try to obtain the best execution on all
transactions. If the Managers believe more than one broker or dealer can
provide the best execution, 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.
Commonly used measures of performance include 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
ON AUGUST 5, 1997, PRESIDENT CLINTON SIGNED INTO LAW THE TAXPAYER RELIEF ACT
OF 1997 (THE "1997 ACT"). THIS NEW LAW MAKES SWEEPING CHANGES IN THE CODE.
BECAUSE MANY OF THESE CHANGES ARE COMPLEX THEY ARE DISCUSSED IN THE SAI.
TAXATION OF THE FUND'S INVESTMENTS
The Fund invests your money in the foreign currencies, bonds, notes and other
securities that are described in the section "How Does the Fund Invest Its
Assets?" Net realized foreign currency gains and losses are required to be
reported as ordinary income or loss by the Fund. 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 ordinary dividend
distributions made during the fiscal year as a return-of-capital for federal
income tax purposes. These and other special tax rules may apply in
determining the income and gains that the Fund earns on its investments.
These rules may, in turn, affect the amount of distributions that the Fund
pays to you. These tax rules are discussed in the SAI.
HOW DOES THE FUND EARN INCOME AND GAINS?
The Fund earns interest (the Fund's "income") on its investments. When the
Fund sells a security for a price that is higher than it paid, it has a gain.
When the Fund sells a security for a price that is lower than it paid, it has
a loss. If the Fund has held the security for more than one year, the gain or
loss will be a long-term capital gain or loss. If the Fund has held the
security for one year or less, the gain or loss will be a short-term capital
gain or loss. The Fund's gains and losses are netted together, and, if the
Fund has a net gain (the Fund's "gains"), that gain will generally be
distributed to you.
TAXATION OF THE FUND. As a regulated investment company, the Fund generally
pays no federal income tax on the income and gains that it distributes to you.
FOREIGN TAXES. Foreign governments may impose taxes on the income and gains
from the Fund's investments in foreign securities. These taxes will reduce
the amount of the Fund's distributions to you, but, depending upon the amount
of the Fund's assets that are invested in foreign securities and foreign
taxes paid, may be passed through to you as a foreign tax credit on your
income tax return.
TAXATION OF SHAREHOLDERS
DISTRIBUTIONS. Distributions from the Fund, whether you receive them in cash
or in additional shares, are generally subject to income tax. The Fund will
send you a statement in January of the current year that reflects the amount
of ordinary dividends, capital gain distributions and non-taxable
distributions you received from the Fund in the prior year. This statement
will include distributions declared in December and paid to you in January of
the current year, but which are taxable as if paid on December 31 of the
prior year. The IRS requires you to report these amounts on your income tax
return for the prior year. The Fund's statement for the prior year will tell
you how much of your capital gain distribution represents 28% rate gain
property. The remainder of the capital gain distribution represents 20% rate
gain. What is a Distribution?
As a shareholder, you will receive your share of the Fund's income and gains
on its investments in foreign currencies, bonds, notes and other securities.
The Fund's income and short term capital gains are paid to you as ordinary
dividends. The Fund's long-term capital gains are paid to you as capital gain
distributions. If the Fund pays you an amount in excess of its income and
gains, this excess will generally be treated as a non-taxable distribution.
These amounts, taken together, are what we call the Fund's distributions to
you.
DISTRIBUTIONS TO RETIREMENT PLANS. Fund distributions received by your
qualified retirement plan, such as a Section 401(k) plan, or IRA, are
generally tax-deferred; this means that you are not required to report Fund
distributions on your income tax return when paid to your plan, but, rather,
when your plan makes payments to you. Be aware, however, that special rules
apply to payouts from Roth and education IRAs.
DIVIDENDS-RECEIVED DEDUCTION. It is anticipated that no portion of the Fund's
distributions will qualify for the corporate dividends-received deduction.
REDEMPTIONS AND EXCHANGES. If you redeem your shares or if you exchange your
shares in the Fund for shares in another Franklin Templeton Fund, you will
generally have a gain or loss that the IRS requires you to report on your
income tax return. If you exchange Fund shares held for 90 days or less and
pay no sales charge, or a reduced sales charge, for the new shares, all or a
portion of the sales charge you paid on the purchase of the shares you
exchanged is not included in their cost for purposes of computing gain or
loss on the exchange. If you hold your shares for six months or less, any
loss you have will be treated as a long-term capital loss to the extent of
any capital gain distributions received by you from the Fund. All or a
portion of any loss on the redemption or exchange of your shares will be
disallowed by the IRS if you purchase other shares in the Fund within 30 days
before or after your redemption or exchange.
WHAT IS A REDEMPTION?
A redemption is a sale by you to the Fund of some or all of your shares in
the Fund. The price per share you receive when you redeem Fund shares may be
more or less than the price at which you purchased those shares. An exchange
of shares in the Fund for shares of another Franklin Templeton Fund is
treated as a redemption of Fund shares and then a purchase of shares of the
other fund. When you redeem or exchange your shares, you will generally have
a gain or loss, depending upon whether the basis in your shares is more or
less than your cost or other basis in the shares. Call Fund Information for a
free shareholder Tax Information Handbook if you need more information in
calculating the gain or loss on the redemption or exchange of your shares.
U.S. GOVERNMENT INTEREST. Many states grant tax-free status to dividends paid
from interest earned on direct obligations of the U.S. Government, subject to
certain restrictions. The Fund will provide you with information at the end
of each calendar year on the amount of such dividends that may qualify for
exemption from reporting on your individual income tax returns.
NON-U.S. INVESTORS. Ordinary dividends generally will be subject to U.S.
income tax withholding. Your home country may also tax ordinary dividends,
capital gain distributions and gains arising from redemptions or exchanges of
your Fund shares. Fund shares held by the estate of a non-U.S. investor may
be subject to U.S. estate tax. You may wish to contact your tax advisor to
determine the U.S. and non-U.S. tax consequences of your investment in the
Fund.
STATE TAXES. Ordinary dividends and capital gain distributions that you
receive from the Fund, and gains arising from redemptions or exchanges of
your Fund shares will generally be subject to state and local income tax. The
holding of Fund shares may also be subject to state and local intangibles
taxes. You may wish to contact your tax advisor to determine the state and
local tax consequences of your investment in the Fund.
Backup Withholding. When you open an account, IRS regulations require that
you provide your taxpayer identification number ("TIN"), certify that it is
correct, and certify that you are not subject to backup withholding under IRS
rules. If you fail to provide a correct TIN or the proper tax certifications,
the Fund is required to withhold 31% of all the distributions (including
ordinary dividends and capital gain distributions), and redemption proceeds
paid to you. The Fund is also required to begin backup withholding on your
account if the IRS instructs the Fund to do so. The Fund reserves the right
not to open your account, or, alternatively, to redeem your shares at the
current net asset value, less any taxes withheld, if you fail to provide a
correct TIN, fail to provide the proper tax certifications, or the IRS
instructs the Fund to begin backup withholding on your account.
WHAT IS A BACKUP WITHHOLDING?
Backup withholding occurs when the Fund is required to withhold and pay over
to the IRS 31% of your distributions and redemption proceeds. You can avoid
backup withholding by providing the Fund with your TIN, and by completing the
tax certifications on your shareholder application that you were asked to
sign when you opened your account. However, if the IRS instructs the Fund to
begin backup withholding, it is required to do so even if you provided the
Fund with your TIN and these tax certifications, and backup withholding will
remain in place until the Fund is instructed by the IRS that it is no longer
required.
THIS TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY. PROSPECTIVE INVESTORS
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN THE FUND. A MORE COMPLETE
DISCUSSION OF THESE RULES AND RELATED MATTERS IS CONTAINED IN THE SECTION
ENTITLED "ADDITIONAL INFORMATION ON DISTRIBUTIONS AND TAXES" IN THE SAI. THE
TAX TREATMENT TO YOU OF DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS, FOREIGN TAXES
PAID AND INCOME TAXES WITHHELD IS ALSO DISCUSSED IN A FREE FRANKLIN TEMPLETON
TAX INFORMATION HANDBOOK, WHICH YOU MAY REQUEST BY CONTACTING FUND
INFORMATION.
HOW IS THE TRUST ORGANIZED?
The Funds are 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 on July 25, 1996, and is registered with the SEC. As of
January 1, 1997, the Funds each began offering a new class of shares
designated Franklin Templeton Hard Currency Fund - Advisor Class and Franklin
Templeton German Government Bond Fund - Advisor Class. All shares outstanding
before the offering of Advisor Class shares have been designated Franklin
Templeton Hard Currency Fund - Class I and 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 affecting only that class,
or expressly required to be voted on separately by state or federal law.
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. The Trust or a
series of the Trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may also be called by the Board in its
discretion or by shareholders holding at least 10% of the outstanding shares.
In certain circumstances, we are required to help you communicate with other
shareholders about the removal of a Board member.
As of February 2, 1998, Resources and FTC & Co each owned of record and
beneficially more than 25% of the outstanding shares of the Advisor Class of
the German Government Fund. Resources also owned of record and beneficially
more than 25% of the outstanding shares of the Advisor Class of the Hard
Currency Fund.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
Shares of the Fund may be purchased without a sales charge. Please note that
as of January 1, 1998, shares of the Fund are not available to retirement
plans through Franklin Templeton's ValuSelect(R) program. Retirement plans in
Franklin Templeton's ValuSelect program before January 1, 1998, however, may
continue to invest in the Fund.
To open your account, please follow the steps below. This will help avoid any
delays in processing your request.
1. Read this prospectus carefully.
2. Determine how much you would like to invest. The Fund's minimum
investments are:
To open your account: $5,000,000*
To add to your account: $25*
*We may waive or lower these minimums for certain investors. Please see
"Minimum Investments" below. We also reserve the right to refuse any order to
buy shares.
3. Carefully complete and sign the enclosed shareholder application,
including the optional shareholder privileges section. By applying for
privileges now, you can avoid the delay and inconvenience of having to
send an additional application to add privileges later. It is important
that we receive a signed application since we will not be able to
process any redemptions from your account until we receive your signed
application.
4. Make your investment using the table below.
Method Steps to Follow
- --------------------------------------------------------------------------------
BY MAIL For an initial investment:
Return the application to the Fund with your check
made payable to the Fund.
For additional investments:
Send a check made payable to the Fund. Please
include your account number on the check.
- --------------------------------------------------------------------------------
BY WIRE 1.Call Shareholder Services or, if that number is
busy, call 1-650/312-2000 collect, to receive a
wire control number and wire instructions. You
need a new wire control number every time you
wire money into your account. If you do not have
a currently effective wire control number, we
will return the money to the bank, and we will
not credit the purchase to your account.
2.For an initial investment you must also return
your signed shareholder application to the Fund.
Important Deadlines: If we receive your call before
1:00 p.m. Pacific time and the bank receives the
wired funds and reports the receipt of wired funds
to the Fund by 3:00 p.m. Pacific time, we will
credit the purchase to your account that day. If we
receive your call after 1:00 p.m. or the bank
receives the wire after 3:00 p.m., we will credit
the purchase to your account the following business
day.
- --------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- --------------------------------------------------------------------------------
MINIMUM INVESTMENTS
To determine if you meet the minimum initial investment requirement of $5
million, 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 may waive or lower its minimum investment requirement for certain
purchases. A lower minimum initial investment requirement applies 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, subject to a $250,000 minimum
initial investment requirement or a $100,000 minimum initial investment
requirement for an individual client
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, subject to a $1,000
minimum initial investment requirement
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. Each series of the Franklin Templeton Fund Allocator Series, subject to a
$1,000 minimum initial and subsequent investment requirement
5. 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
No minimum initial investment requirement applies to purchases by:
1. Accounts managed by the Franklin Templeton Group
2. The Franklin Templeton Profit Sharing 401(k) Plan
3. Defined contribution plans such as 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 10,000 employees, or (ii) have plan assets of $100 million or more
4. 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
5. 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.
MAY I BUY SHARES IN GERMAN MARKS? - GERMAN GOVERNMENT FUND ONLY
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 Net Asset Value 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 1-650/312-3400) or fax the instructions at
1-650/312-4175 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, call Retirement Plan Services.
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 amount invested. 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 signed written instructions
2. Include any outstanding share certificates for
the shares you want to exchange
- --------------------------------------------------------------------------------
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 Retirement Plan Services 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 have: (i) requested an
exchange out of the Fund within two weeks of an earlier exchange request,
(ii) exchanged shares out of the Fund more than twice in a calendar
quarter, or (iii) exchanged 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 have exchanged 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, operations 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 signed written instructions. If you would
like your redemption proceeds wired to a bank
account, your instructions should include:
o The name, address and telephone number of the bank
where you want the proceeds sent
o Your bank account number
o The Federal Reserve ABA routing number
o If you are using a savings and loan or credit
union, the name of the corresponding bank and the
account number
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. If you would like your
redemption proceeds wired to a bank account, other
than an escrow account, you must first sign up for
the wire feature. To sign up, send us written
instructions, with a signature guarantee. To avoid
any delay in processing, the instructions should
include the items listed in "By Mail" above.
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 15 days
- If you do not want the ability to redeem by phone
to apply to your account, please let us know.
- --------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- --------------------------------------------------------------------------------
We will send your redemption check within seven days after we receive your
request in proper form. If you would like the check sent to an address other
than the address of record or made payable to someone other than the
registered owners on the account, send us written instructions signed by all
account owners, with a signature guarantee. We are not able to receive or pay
out cash in the form of currency.
The wiring of redemption proceeds is a special service that we make available
whenever possible for redemption requests of $1,000 or more. If we receive
your request in proper form before 1:00 p.m. Pacific time, your wire payment
will be sent the next business day. For requests received in proper form
after 1:00 p.m. Pacific time, the payment will be sent the second business
day. By offering this service to you, the Fund is not bound to meet any
redemption request in less than the seven day period prescribed by law.
Neither the Fund nor its agents shall be liable to you or any other person
if, for any reason, a redemption request by wire is not processed as
described in this section.
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.
MAY I RECEIVE MY REDEMPTION PROCEEDS IN GERMAN MARKS? - GERMAN GOVERNMENT
FUND ONLY
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
1-650/312-3400) or fax your request to 1-650/312-4175.
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.
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 591/2, unless the distribution meets an exception stated in the Code. To
obtain the necessary forms, please call Retirement Plan Services.
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. 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. For Trust Company retirement
plans, special forms are required to receive distributions in cash.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
SHARE PRICE
You buy and sell Advisor Class shares at the Net Asset Value per share. 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.
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 close of the NYSE, normally 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.
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 are 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.
JOINT ACCOUNTS. For accounts with more than one registered owner, we accept
written instructions signed by only one owner for certain types of
transactions or account changes. These include transactions or account
changes that you could also make by phone, such as certain redemptions of
$50,000 or less, exchanges between identically registered accounts, and
changes to the address of record. For most other types of transactions or
changes, written instructions must be signed by all registered owners.
Please keep in mind that if you have previously told us that you do not want
telephone exchange or redemption privileges on your account, then we can only
accept written instructions to exchange or redeem shares if they are signed
by all registered owners on the account.
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. You should
be able to obtain a signature guarantee from a bank, broker, credit union,
savings association, clearing agency, or securities exchange or association.
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 and to send the certificate and assignment form in separate
envelopes.
TELEPHONE TRANSACTIONS
You may initiate many transactions and changes to your account 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 may also record calls. 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.
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. We also will not be liable for
any loss if we follow instructions by phone that we reasonably believe are
genuine or if you are unable to execute a transaction by phone.
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 Retirement Plan Services.
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, we cannot accept instructions to change owners on
the account unless ALL owners agree in writing, even if the law in your state
says otherwise. 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.
IMPORTANT INFORMATION IF YOU HAVE AN INVESTMENT REPRESENTATIVE
If there is a Securities Dealer or other representative of record on your
account, we are authorized: (1) to provide confirmations, account statements
and other information about your account directly to your dealer and/or
representative; and (2) to accept telephone and electronic instructions
directly from your dealer or representative, including instructions to
exchange or redeem your shares. Electronic instructions may be processed
through established electronic trading systems and programs used by the Fund.
Telephone instructions directly from your representative will be accepted
unless you have told us that you do not want telephone privileges to apply to
your account.
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. Once your plan is
established, any distributions paid by the Fund will be automatically
reinvested in your 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.
TELEFACTS(R)
From a touch-tone phone, you may call our TeleFACTS(R) system (day or night) at
1-800/247-1753 to:
o obtain information about your account; and
o obtain price information about any Franklin Templeton Fund.
You will need the Fund's code number to use TeleFACTS(R). The Hard Currency
Fund's code number is 612 and the German Government Fund's code number is 608.
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.
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. Investment Counsel 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 Plan Services 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, 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 COUNSEL - Templeton Investment Counsel, Inc., the Fund's
sub-advisor.
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRA - Individual retirement account or annuity qualified under section 408 of
the Code
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.
MANAGERS - Advisers and Investment Counsel
MARKET TIMERS - Market Timers generally include market timing or asset
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 or whose transactions include
frequent or large exchanges.
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
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.
TELEFACTS(R) - Franklin Templeton's automated customer servicing system
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
GLOBAL TRUST
FRANKLIN TEMPLETON GLOBAL CURRENCY FUND
FRANKLIN TEMPLETON HIGH INCOME CURRENCY FUND
FRANKLIN TEMPLETON HARD CURRENCY FUND
FRANKLIN TEMPLETON GERMAN GOVERNMENT BOND FUND
STATEMENT OF
ADDITIONAL INFORMATION
MARCH 1, 1998
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 Risks of
Investing in the Fund? ....................................
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 Global Currency Fund (the "Global Currency Fund"), the
Franklin Templeton Hard Currency Fund (the "Hard Currency Fund"), the
Franklin Templeton High Income Currency Fund (the "High Income Fund")
(collectively the "Currency Funds"), and the Franklin Templeton German
Government Bond Fund (the "German Government Fund"), are each separate
non-diversified series of the Franklin Templeton Global Trust (the "Trust"),
an open-end management investment company. Each series may individually or
together be referred to as the "Fund(s)." 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, 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, and the German Government Fund's
investment objective is to seek, over the long-term, total return.
The Prospectus, dated March 1, 1998, 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.
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.
This SAI describes the Fund's Class I shares. The Hard Currency Fund and the
German Government Fund currently offer 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.
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?"
CURRENCY FUNDS
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.
CURRENCY TRANSACTIONS. Generally, the currency exchange transactions of the
Fund are conducted on a spot (i.e., cash) basis at the spot rate pre-
vailing 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
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 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.
GERMAN GOVERNMENT 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 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
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 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
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 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.
ALL FUNDS
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.
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 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 and for which a
liquid institutional market has developed. The Board reviews any
determination by the Managers to treat a restricted security as liquid on a
quarterly basis, including the 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
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 RISKS OF
INVESTING IN THE FUND?
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:
CURRENCY FUNDS
1. Purchase common stocks, preferred stocks, warrants or other equity
securities, or purchase municipal bonds or industrial revenue bonds.
2. 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.
3. 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.
4. 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.
5. 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.
6. Invest in securities of other investment companies, except as they may be
acquired as part of a merger, consolidation or acquisition of assets.
GERMAN GOVERNMENT FUND
1. Purchase common stocks, preferred stocks, warrants or other equity
securities.
2. 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. 4 below.
3. 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.
4. 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.
5. 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.
6. 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.
7. Invest in securities of other investment companies.
8. 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.
9. 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.
ALL FUNDS
1. 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.
2. 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.
3. Underwrite the securities of other issuers.
4. 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.
5. Invest in companies for the purpose of exercising control.
6. 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 bankruptcy or other extraordinary event occurs concerning a
particular security owned by the Fund, the Fund may receive stock, real
estate, or other investments that the Fund would not, or could not, buy
practicable while maximizing the return to shareholders.
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 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 During
Name, Age and Address with the Trust Past Five Years
Frank H. Abbott, III (76)
1045 Sansome Street
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment company); and
director or trustee, as the case may be, of 28 of the investment companies in
the Franklin Templeton Group of Funds.
Harris J. Ashton (65)
191 Clapboard Ridge
Greenwich, CT 06830
Trustee
Director, RBC Holdings, Inc. (a bank holding company) and Bar-S Foods (a meat
packing company); and director or trustee, as the case may be, of 52 of the
investment companies in the Franklin Templeton Group of Funds; and formerly
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers).
David K. Eiteman (68)
15340 Albright Street #301
Pacific Palasades, CA 90272
Trustee
Since 1959, Professor of Finance in the John E. Anderson Graduate School of
Management, University of California, Los Angeles, and Professor Emeritus
since 1991; from 1988 to June 1993, a Trustee of the Huntington Investment
Trust.
S. Joseph Fortunato (65)
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 or trustee,
as the case may be, of 54 of the investment companies in the Franklin
Templeton Group of Funds; and formerly Director, General Host Corporation
(nursery and craft centers).
Donald P. Gould (39)
777 Mariners Island Blvd.
San Mateo, CA 94404
President and Trustee
Managing Director, Templeton Worldwide, Inc.; Portfolio Manager, Franklin
Advisers, Inc.; and officer and/or trustee of two of the investment companies
in the Franklin Templeton Group of Funds; formerly, officer and trustee of
Huntington Funds; President and Director of Huntington Advisers, Inc. (a
mutual fund investment adviser) and President of Huntington Investments, Inc.
(a mutual fund underwriter).
Gerald R. Healy (56)
8421 Elderberry Road
Madison, WI 53714
Trustee
Since April 1994, a private consultant. From July 1993 to March 1994,
Director of Corporate Management Resources of Alliance Imaging, Inc.; from
1989, Executive Vice President of Capital Health Services Corp.; prior to
that time, a private investor; from 1988 to June 1993, a Trustee of the
Huntington Investment Trust.
*Charles B. Johnson (65)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of the Board and Trustee
President, Chief Executive Officer and Director, Franklin Resources, Inc.;
Chairman of the Board and Director, Franklin Advisers, Inc., Franklin
Advisory Services, Inc., Franklin Investment Advisory Services, Inc. and
Franklin Templeton Distributors, Inc.; Director, Franklin/Templeton Investor
Services, Inc. and Franklin Templeton Services, Inc.; officer and/or director
or trustee, as the case may be, of most of the other subsidiaries of Franklin
Resources, Inc. and of 53 of the investment companies in the Franklin
Templeton Group of Funds; and formerly, Director, General Host Corporation
(nursery and craft centers).
*Rupert H. Johnson, Jr. (57)
777 Mariners Island Blvd.
San Mateo, CA 94404
Trustee and Vice President
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 or trustee, as the case
may be, of most of the other subsidiaries of Franklin Resources, Inc. and of
56 of the investment companies in the Franklin Templeton Group of Funds.
David P. Kraus (40)
Bet Tzedek Legal Services
145 South Fairfax Ave., Suite 200
Los Angeles, CA 90036-2166
Trustee
Since 1981, an attorney with various private law firms in Los Angeles. Also,
since October 1995, an attorney with Bet Tzedek Legal Services.
Frank W.T. LaHaye (68)
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 Corporation (software
firm); Director, Fischer Imaging Corporation (medical imaging systems) and
Digital Transmission Systems, Inc. (wireless communications); 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 (69)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Chairman, White River Corporation (financial services); Director, Fund
American Enterprises Holdings, Inc., MCI Communications Corporation, CCC
Information Services Group, Inc. (information services), MedImmune, Inc.
(biotechnology), Shoppers Express (home shopping), and Spacehab, Inc.
(aerospace services); and director or trustee, as the case may be, of 51 of
the investment companies in the Franklin Templeton Group of Funds; formerly
Chairman, Hambrecht and Quist Group, Director, H & Q Healthcare Investors,
and President, National Association of Securities Dealers, Inc.
Harmon E. Burns (53)
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.
and Franklin Templeton Services, Inc.; Executive Vice President, Franklin
Advisers, Inc.; Director, Franklin/Templeton Investor Services, Inc.; and
officer and/or director or trustee, as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and of 56 of the investment
companies in the Franklin Templeton Group of Funds.
Martin L. Flanagan (37)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Chief Financial Officer
Senior Vice President and Chief Financial Officer, Franklin Resources, Inc.;
Executive Vice President and Director, Templeton Worldwide, Inc.; Executive
Vice President, Chief Operating Officer and Director, Templeton Investment
Counsel, Inc.; Senior Vice President and Treasurer, Franklin Advisers, Inc.;
Treasurer, Franklin Advisory Services, Inc.; Treasurer and Chief Financial
Officer, Franklin Investment Advisory Services, Inc.; President, Franklin
Templeton Services, Inc.; Senior Vice President, Franklin/Templeton Investor
Services, Inc.; and officer and/or director or trustee, as the case may be,
of 56 of the investment companies in the Franklin Templeton Group of Funds.
Deborah R. Gatzek (49)
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. and Franklin
Advisory Services, Inc.; Vice President, Chief Legal Officer and Chief
Operating Officer, Franklin Investment Advisory Services, Inc.; and officer
of 56 of the investment companies in the Franklin Templeton Group of Funds.
Charles E. Johnson (41)
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.; President, Chief Executive Officer, Chief
Investment Officer and Director, Franklin Institutional Services Corporation;
Chairman and Director, Templeton Investment Counsel, Inc.; Vice President,
Franklin Advisers, Inc.; officer and/or director of some of the subsidiaries
of Franklin Resources, Inc.; and officer and/or director or trustee, as the
case may be, of 37 of the investment companies in the Franklin Templeton
Group of Funds.
Diomedes Loo-Tam (59)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Senior Vice President, Franklin Templeton Services, Inc.; and officer of 33
of the investment companies in the Franklin Templeton Group of Funds.
Edward V. McVey (60)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President and National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 29 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 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 or trustees
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.
TOTAL FEES
RECEIVED FROM NUMBER OF BOARDS IN
TOTAL FEES THE FRANKLIN THE FRANKLIN TEMPLETON
RECEIVED FROM TEMPLETON GROUP GROUP OF FUNDS ON
NAME THE TRUST* OF FUNDS** WHICH EACH SERVES***
Frank H. Abbott, III .......$4,000 $165,937 28
Harris J. Ashton ........... 4,000 344,642 52
David K. Eiteman ........... 2,400 3,200 1
S. Joseph Fortunato ........ 4,000 361,562 54
David W. Garbellano+ ....... 2,200 91,317 N/A
Gerald R. Healy ............ 3,200 4,000 1
David P. Kraus ............. 4,000 4,800 1
Frank W.T. LaHaye .......... 4,000 141,433 27
Gordon S. Macklin .......... 4,000 337,292 51
+Deceased, September 27, 1997.
*For the fiscal year ended October 31, 1997.
**For the calendar year ended December 31, 1997.
***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 57 registered investment companies, with
approximately 170 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 or
trustee. 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 2, 1998, the officers and Board members, as a group, owned of
record and beneficially approximately 149.989 shares of the German Government
Fund - Class I, 1,043.162 shares of the Global Currency Fund - Class I,
158.533 shares of the Hard Currency Fund - Class I, or less that 1% of the
total outstanding shares of each Fund's Class I shares, and 352.398 shares of
the hard Currency Fund-Advisor Class or 7% of the Hard Currency Fund's
Advisor Class 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, Investment Counsel is the Fund's
sub-advisor. The 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 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 and its officers, directors and
employees are covered by fidelity insurance for the protection of the Fund.
The Managers and their affiliates act as investment managers to numerous
other investment companies and accounts. The 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 Managers on behalf of
the Fund. Similarly, with respect to the Fund, the Managers are not obligated
to recommend, buy or sell, or to refrain from recommending, buying or selling
any security that the 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 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 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."
Investment Counsel provides Advisers with investment management advice and
assistance. Investment Counsel 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 Global Currency Fund, the Hard Currency Fund and the
High Income Fund and 0.55% of the value of the average daily net assets of
the German Government Fund. The fee is computed at the close of business on
the first business day of each month. Each class of the Hard Currency and
German Government Funds pays its proportionate share of the management fee.
Under the sub-advisory agreement, Advisers pays Investment Counsel 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. Investment Counsel 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, 1995, 1996 and 1997, management fees,
before any advance waiver, management fees paid by the Fund and sub-advisory
fees paid by Advisers to Investment Counsel were as follows:
Management Management
Fiscal Year Fees (before Fees Paid Sub-Advisory
ended October 31, fee waiver) by the Fund Fees
1997
Global Currency Fund ............... $296,670 $296,670 $112,800
Hard Currency Fund ................. 682,152 682,152 262,370
High Income Fund ................... 59,758 59,758 22,947
German Government Fund ............. 83,958 83,958 32,294
1996
Global Currency Fund ............... $351,768 $351,768 $146,285
Hard Currency Fund ................. 811,115 811,115 339,115
High Income Fund ................... 66,069 61,796 25,553
German Government Fund ............. 117,798 117,798 54,526
1995
Global Currency Fund ............... $379,524 $379,524 $188,555
Hard Currency Fund ................. 634,188 634,188 259,832
High Income Fund ................... 82,819 57,812 29,293
German Government Fund ............. 97,759 91,422 37,416
MANAGEMENT AGREEMENTS. The management and sub-advisory agreements are in
effect until February 28, 1999. 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 on 60
day's written notice to Advisers, or by Advisers on 60 days' written notice
to the Fund, 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 Investment Counsel on 60 days' written notice, and will automatically
terminate in the event of its assignment, as defined in the 1940 Act.
ADMINISTRATIVE SERVICES. Under an agreement with Advisers, FT Services
provides certain administrative services and facilities for the Fund. These
include preparing and maintaining books, records, and tax and financial
reports, and monitoring compliance with regulatory requirements. FT Services
is a wholly owned subsidiary of Resources.
Under its administration agreement, Advisers pays FT Services a monthly
administration fee equal to an annual rate of 0.15% of the Fund's average
daily net assets up to $200 million, 0.135% of average daily net assets over
$200 million up to $700 million, 0.10% of average daily net assets over $700
million up to $1.2 billion, and 0.075% of average daily net assets over $1.2
billion. The fee is paid by Advisers. It is not a separate expense of the
Fund.
SHAREHOLDER SERVICING AGENT. Investor Services, a wholly owned subsidiary of
Resources, is the Fund's shareholder servicing agent and acts as the Fund's
transfer agent and dividend-paying agent. Investor Services is compensated on
the basis of a fixed fee per account. The Fund may also reimburse Investor
Services for certain out-of-pocket expenses, which may include payments by
Investor Services to entities, including affiliated entities, that provide
sub-shareholder services, recordkeeping and/or transfer agency services to
beneficial owners of the Fund. The amount of reimbursements for these
services per benefit plan participant Fund account per year may not exceed
the per account fee payable by the Fund to Investor Services in connection
with maintaining shareholder accounts.
CUSTODIAN. The Chase Manhattan Bank, at its principal office at MetroTech
Center, Brooklyn, New York 11245, and at the offices of its branches and
agencies throughout the world, acts as custodian of the Fund's assets. The
custodian does not participate in decisions relating to the purchase and sale
of portfolio securities.
AUDITORS. 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, 1997, 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,
1997.
HOW DOES THE FUND BUY
SECURITIES FOR ITS PORTFOLIO?
Advisers selects 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 subadvisory
agreement, Advisers may delegate to Investment Counsel the authority to
select securities dealers to execute portfolio transactions for the Fund.
When placing a portfolio transaction, the 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 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 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 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 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 Managers' overall responsibilities to client accounts over
which they exercise investment discretion. The services that brokers may
provide to the 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 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 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 Managers receive from dealers effecting
transactions in portfolio securities. The allocation of transactions in order
to obtain additional research services permits the 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 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, 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 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 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 years ended October 31, 1995, 1996 and 1997, the Fund paid
no brokerage commissions.
As of October 31, 1997, 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 without a front-end
sales charge, 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.
Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin
Templeton Funds and are afforded the opportunity to speak with portfolio
managers. Invitation to these meetings is not conditioned on selling a
specific number of shares, however, those who have shown an interest in the
Franklin Templeton Funds are more likely to be considered. To the extent
permitted by their firm's policies and procedures, a registered
representative's expenses in attending these meetings may be covered by
Distributors.
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 they 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 are 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. 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.
Distribution or redemption checks sent to you do not earn interest or any
other income during the time the checks remain uncashed. Neither the Fund nor
its affiliates will be liable for any loss caused by your failure to cash
such checks. The Fund is not responsible for tracking down uncashed checks,
unless a check is returned as undeliverable.
In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional 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. 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 close of the NYSE,
normally 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, Martin Luther King Jr. 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 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 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 foreign security is valued within the range of
the most recent quoted bid and ask prices. 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 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 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
DISTRIBUTIONS OF NET INVESTMENT INCOME. The Fund receives income generally in
the form of interest and other income derived from its investments. This
income, less expenses incurred in the operation of the Fund, constitute its
net investment income from which dividends may be paid to you. Any
distributions by the Fund from such income will be taxable to you as ordinary
income, whether you take them in cash or in additional shares.
DISTRIBUTIONS OF CAPITAL GAINS. The Fund may derive capital gains and losses
in connection with sales or other dispositions of its portfolio securities.
Distributions derived from the excess of net short-term capital gain over net
long-term capital loss will be taxable to you as ordinary income.
Distributions paid from long-term capital gains realized by the Fund will be
taxable to you as long-term capital gain, regardless of how long you have
held your shares in the Fund. Any net short-term or long-term capital gains
realized by the Fund (net of any capital loss carryovers) generally will be
distributed once each year, and may be distributed more frequently, if
necessary, in order to reduce or eliminate federal excise or income taxes on
the Fund.
Under the Taxpayer Relief Act of 1997 (the "1997 Act"), the Fund is required
to report the capital gain distributions paid to you from gains realized on
the sale of portfolio securities using the following categories:
"28% RATE GAINS": gains resulting from securities sold by the Fund after July
28, 1997 that were held for more than one year but not more than 18 months,
and securities sold by the Fund before May 7, 1997 that were held for more
than one year. These gains will be taxable to individual investors at a
maximum rate of 28%.
"20% RATE GAINS": gains resulting from securities sold by the Fund after July
28, 1997 that were held for more than 18 months, and under a transitional
rule, securities sold by the Fund between May 7 and July 28, 1997 (inclusive)
that were held for more than one year. These gains will be taxable to
individual investors at a maximum rate of 20% for individual investors in the
28% or higher federal income tax brackets, and at a maximum rate of 10% for
investors in the 15% federal income tax bracket.
The 1997 Act also provides for a new maximum rate of tax on capital gains of
18% for individuals in the 28% or higher federal income tax brackets and 8%
for individuals in the 15% federal income tax bracket for "qualified 5-year
gains." For individuals in the 15% bracket, qualified 5-year gains are net
gains on securities held for more than 5 years which are sold after December
31, 2000. For individuals who are subject to tax at higher rates, qualified
5-year gains are net gains on securities which are purchased after December
31, 2000 and are held for more than 5 years. Taxpayers subject to tax at the
higher rates may also make an election for shares held on January 1, 2001 to
recognize gain on their shares in order to qualify such shares as qualified
5-year property.
The Fund will advise you at the end of each calendar year of the amount of
its capital gain distributions paid during the calendar year that qualify for
these maximum federal tax rates. Additional information on reporting these
distributions on your personal income tax returns is available in Franklin
Templeton's Tax Information Handbook. This handbook has been revised to
include 1997 Act tax law changes. Please call Fund Information to request a
copy. Questions concerning each investor's personal tax reporting should be
addressed to the investor's personal tax advisor.
CERTAIN DISTRIBUTIONS PAID IN JANUARY. Distributions which are declared in
October, November or December and paid to you in January of the following
year, will be treated for tax purposes as if they had been received by you on
December 31 of the year in which they were declared. The Fund will report
this income to you on your Form 1099-DIV for the year in which these
distributions were declared.
EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS. Most foreign exchange gains
realized on the sale of debt instruments are treated as ordinary income by
the Fund. Similarly, foreign exchange losses realized by the Fund on the sale
of debt instruments are generally treated as ordinary losses by the Fund.
These gains when distributed will be taxable to you as ordinary dividends,
and any losses will reduce the Fund's ordinary income otherwise available for
distribution to you. This treatment could increase or reduce the Fund's
ordinary income distributions to you, and may cause some or all of the Fund's
previously distributed income to be classified as a return of capital.
The 1997 Act also simplifies the procedures by which investors in funds that
invest in foreign securities can claim tax credits on their individual income
tax returns for the foreign taxes paid by the Fund. These provisions will
allow investors who claim a credit for foreign taxes paid of $300 or less on
a single return or $600 or less on a joint return during any year (all of
which must be reported on IRS Form 1099-DIV from the Fund to the investor) to
bypass the burdensome and detailed reporting requirements on the supporting
foreign tax credit schedule (Form 1116) and report foreign taxes paid
directly on page 2 of Form 1040. YOU SHOULD NOTE THAT THIS SIMPLIFIED
PROCEDURE WILL NOT BE AVAILABLE UNTIL CALENDAR YEAR 1998.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS. The Fund will inform you
of the amount and character of your distributions at the time they are paid,
and will advise you of the tax status for federal income tax purposes of such
distributions shortly after the close of each calendar year. If you have not
held Fund shares for a full year, you may have designated and distributed to
you as ordinary income or capital gain a percentage of income that is not
equal to the actual amount of such income earned during the period of your
investment in the Fund.
TAXES
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY. The Fund has elected
to be treated as a regulated investment company under Subchapter M of the
Code, has qualified as such for its most recent fiscal year, and intends to
so qualify during the current fiscal year. The Board reserves the right not
to maintain the qualification of the Fund as a regulated investment company
if it determines such course of action to be beneficial to you. In such case,
the Fund will be subject to federal, and possibly state, corporate taxes on
its taxable income and gains, and distributions to you will be taxed as
ordinary dividend income to the extent of the Fund's available earnings and
profits.
In order to qualify as a regulated investment company for tax purposes, the
Fund must meet certain specific requirements, including:
The Fund must maintain a diversified portfolio of securities, wherein no
security (other than U.S. government securities and securities of other
regulated investment companies) can exceed 25% of the Fund's total assets,
and, with respect to 50% of the Fund's total assets, no investment (other
than cash and cash items, U.S. government securities and securities of
other regulated investment companies) can exceed 5% of the Fund's total
assets;
The Fund must derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, and gains from the
sale or disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities, or currencies; and
The Fund must distribute to its shareholders at least 90% of its net
investment income and net tax-exempt income for each of its fiscal years.
EXCISE TAX DISTRIBUTION REQUIREMENTS. The Code requires the Fund to
distribute at least 98% of its taxable ordinary income earned during the
calendar year and 98% of its capital gain net income earned during the twelve
month period ending October 31 (in addition to undistributed amounts from the
prior year) to you by December 31 of each year in order to avoid federal
excise taxes. The Fund intends to declare and pay sufficient dividends in
December (or in January that are treated by you as received in December) but
does not guarantee and can give no assurances that its distributions will be
sufficient to eliminate all such taxes.
REDEMPTION OF FUND SHARES. Redemptions and exchanges of Fund shares are
taxable transactions for federal and state income tax purposes. The tax law
requires that you recognize a gain or loss in an amount equal to the
difference between your tax basis and the amount you received in exchange for
your shares, subject to the rules described below. If you hold your shares as
a capital asset, the gain or loss that you realize will be capital gain or
loss, and will be long-term for federal income tax purposes if you have held
your shares for more than one year at the time of redemption or exchange. Any
loss incurred on the redemption or exchange of shares held for six months or
less will be treated as a long-term capital loss to the extent of any
long-term capital gains distributed to you by the Fund on those shares. The
holding periods and categories of capital gain that apply under the 1997 Act
are described above in the "Distributions" section.
All or a portion of any loss that you realize upon the redemption of your
Fund shares will be disallowed to the extent that you purchase other shares
in the Fund (through reinvestment of dividends or otherwise) within 30 days
before or after your share redemption. Any loss disallowed under these rules
will be added to your tax basis in the new shares you purchase.
DEFERRAL OF BASIS. All or a portion of the sales charge that you paid for
your shares in the Fund will be excluded from your tax basis in any of the
shares sold within 90 days of their purchase (for the purpose of determining
gain or loss upon the sale of such shares) if you reinvest the sales proceeds
in the Fund or in another of the Franklin Templeton Funds, and the sales
charge that would otherwise apply to your reinvestment is reduced or
eliminated because of your reinvestment in one of the Franklin Templeton
Funds. The portion of the sales charge excluded from your tax basis in the
shares sold will equal the amount that the sales charge is reduced on your
reinvestment. Any portion of the sales charge excluded from your tax basis in
the shares sold will be added to the tax basis of the shares you acquire from
your reinvestment in one of the Franklin Templeton Funds.
U.S. GOVERNMENT OBLIGATIONS. Many states grant tax-free status to dividends
paid to you from interest earned on direct obligations of the U.S.
government, subject in some states to minimum investment requirements that
must be met by the Fund. Investments in GNMA/FNMA securities, bankers'
acceptances, commercial paper and repurchase agreements collateralized by
U.S. government securities do not generally qualify for tax-free treatment.
At the end of each calendar year, the Fund will provide you with the
percentage of any dividends paid that may qualify for tax-free treatment on
your personal income tax return. You should consult with your own tax advisor
to determine the application of your state and local laws to these
distributions. Because the rules on exclusion of this income are different
for corporations, corporate shareholders should consult with their corporate
tax advisors about whether any of their distributions may be exempt from
corporate income or franchise taxes.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS. Because the Fund's income is
derived primarily from investments in foreign securities rather than
dividend-paying domestic U.S. securities, no portion of its distributions
will generally be eligible for the intercorporate dividends-received
deduction. None of the dividends paid by the Fund for the most recent
calendar year qualified for such deduction, and it is anticipated that none
of the current year's dividends will so qualify.
INVESTMENT IN COMPLEX SECURITIES. 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. Over-the-counter options on debt securities
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. Certain other
options, futures and forward contracts entered into by the Fund are 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 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 on
other dates as prescribed by the Code), and all gain or loss associated with
fiscal year transactions and mark-to-market positions at fiscal year end
(except certain currency gain or loss covered by Section 988 of the Code)
will generally be treated as 60% long-term capital gain or loss and 40%
short-term capital gain or loss. Under legislation pending in technical
corrections to the 1997 Act, the 60% long-term capital gain portion will
qualify as 20% rate gain and will be subject to tax to individual investors
at a maximum rate of 20% for investors in the 28% or higher federal income
tax brackets, or at a maximum rate of 10% for investors in the 15% federal
income tax bracket. While foreign currency is marked-to-market at year end,
gain or loss realized as a result will always be ordinary. Even though
marked-to-market, gains and losses realized on foreign currency and foreign
security investments will generally be treated as ordinary income. 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 the amount, character and timing 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, possibly resulting in deferral of
losses, adjustments in the holding periods and conversion of short-term
capital losses into long-term capital losses. The Fund may make certain tax
elections 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.
The 1997 Act has also added new provisions for dealing with transactions that
are generally called "Constructive Sale Transactions." Under these rules, the
Fund must recognize gain (but not loss) on any constructive sale of an
appreciated financial position in stock, a partnership interest or certain
debt instruments. The Fund will generally be treated as making a constructive
sale when it: 1) enters into a short sale on the same property, 2) enters
into an offsetting notional principal contract, or 3) enters into a futures
or forward contract to deliver the same or substantially similar property.
Other transactions (including certain financial instruments called collars)
will be treated as constructive sales as provided in Treasury regulations to
be published. There are also certain exceptions that apply for transactions
that are closed before the end of the 30th day after the close of the taxable
year.
Distributions paid to you by the Fund of ordinary income and short-term
capital gains arising from the Fund's investments, including investments in
options, forwards, and futures contracts, will be taxable to you as ordinary
income. 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.
INVESTMENTS IN FOREIGN CURRENCIES AND FOREIGN SECURITIES. The Fund is
authorized to invest in foreign currency denominated securities. Such
investments, if made, will have the following additional tax consequences:
Under the Code, gains or losses attributable to fluctuations in foreign
currency exchange rates which occur between the time the Fund accrues income
(including dividends), or accrues expenses which are denominated in a foreign
currency, and the time the Fund actually collects such income or pays such
expenses generally are treated as ordinary income or loss. Similarly, on the
disposition of debt securities denominated in a foreign currency and on the
disposition of certain options, futures, forward contracts, gain or loss
attributable to fluctuations in the value of foreign currency between the
date of acquisition of the security or contract and the date of its
disposition are also treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "Section 988" gains or losses, may increase or
decrease the amount of the Fund's net investment company taxable income,
which, in turn, will affect the amount of income to be distributed to you by
the Fund.
If the Fund's Section 988 losses exceed the Fund's other net investment
company taxable income during a taxable year, the Fund generally will not be
able to make ordinary dividend distributions to you for that year, or
distributions made before the losses were realized will be recharacterized as
return of capital distributions for federal income tax purposes, rather than
as an ordinary dividend or capital gain distribution. If a distribution is
treated as a return of capital, your tax basis in your Fund shares will be
reduced by a like amount (to the extent of such basis), and any excess of the
distribution over your tax basis in your Fund shares will be treated as
capital gain to you.
CONVERSION TRANSACTIONS. Gains realized by a Fund from transactions that are
deemed to be "conversion transactions" under the Code, and that would
otherwise produce capital gain may be recharacterized as ordinary income to
the extent that such gain does not exceed an amount defined as the
"applicable imputed income amount." A conversion transaction is any
transaction in which substantially all of the Fund's expected return is
attributable to the time value of the Fund's net investment in such
transaction, and any one of the following criteria are met:
1) there is an acquisition of property with a substantially contemporaneous
agreement to sell the same or substantially identical property in the
future;
2) the transaction is an applicable straddle;
3) the transaction was marketed or sold to the Fund on the basis that it
would have the economic characteristics of a loan but would be taxed as
capital gain; or
4) the transaction is specified in Treasury regulations to be promulgated in
the future.
The applicable imputed income amount, which represents the deemed return on
the conversion transaction based upon the time value of money, is computed
using a yield equal to 120 percent of the applicable federal rate, reduced by
any prior recharacterizations under this provision or the provisions of
Section 263(g) of the Code dealing with capitalized carrying costs.
INVESTMENTS IN ORIGINAL ISSUE DISCOUNT (OID) AND MARKET DISCOUNT (MD) BONDS.
The Fund's investments in zero coupon bonds, bonds issued or acquired at a
discount, delayed interest bonds, or bonds that provide for payment of
interest-in-kind (PIK) may cause the Fund to recognize income and make
distributions to you prior to its receipt of cash payments. Zero coupon and
delayed interest bonds are normally issued at a discount and are therefore
generally subject to tax reporting as OID obligations. The Fund is required
to accrue as income a portion of the discount at which these securities were
issued, and to distribute such income each year (as ordinary dividends) in
order to maintain its qualification as a regulated investment company and to
avoid income reporting and excise taxes at the Fund level. PIK bonds are
subject to similar tax rules concerning the amount, character and timing of
income required to be accrued by the Fund. Bonds acquired in the secondary
market for a price less than their stated redemption price, or revised issue
price in the case of a bond having OID, are said to have been acquired with
market discount. For these bonds, the Fund may elect to accrue market
discount on a current basis, in which case the Fund will be required to
distribute any such accrued discount. If the Fund does not elect to accrue
market discount into income currently, gain recognized on sale will be
recharacterized as ordinary income instead of capital gain to the extent of
any accumulated market discount on the obligation.
DEFAULTED OBLIGATIONS. The Fund may be required to accrue income on defaulted
obligations and to distribute such income to you even though it is not
currently receiving interest or principal payments on such obligations. In
order to generate cash to satisfy these distribution requirements, 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.
THE FUND'S UNDERWRITER
Pursuant to an underwriting agreement, Distributors acts as principal
underwriter in a continuous public offering 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.
The table below shows the aggregate underwriting commissions received by
Distributors in connection with the offering of the Fund's shares and the net
underwriting discounts and commissions retained by Distributors after
allowances to dealers for the fiscal years ended October 31, 1995, 1996 and
1997. Distributors did not receive compensation in connection with
redemptions or repurchases of shares for the respective years.
Aggregate
Underwriting Underwriting
Commissions Commissions
Received by Retained by
Fund Distributors Distributors
1995
Global
Currency Fund............. $ 142,677 $ 16,705
Hard Currency Fund........ 1,598,530 180,116
High Income Fund.......... 24,176 2,774
German
Government Fund........... 256,910 28,562
1996
Global
Currency Fund............. $ 63,202 $ 7,349
Hard Currency Fund........ 858,684 96,666
High Income Fund.......... 22,131 2,545
German
Government Fund........... 94,674 11,183
1997
Global
Currency Fund............. $ 39,015 $ 4,434
Hard Currency Fund........ 337,549 36,786
High Income Fund.......... 10,330 1,311
German
Government Fund........... 21,795 2,674
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, each of
the Currency Funds may pay up to a maximum of 0.45% per year of its average
daily net assets, payable quarterly, for expenses incurred in the promotion
and distribution of its Class I shares. Of this amount, the Fund may
reimburse up to 0.45% to Distributors or others, out of which 0.20% will
generally be retained by Distributors for its distribution expenses. The
German Government 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 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 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, 1997, the Global Currency Fund paid
$108,554, the Hard Currency Fund paid $227,407, the High Income Fund paid
$18,875 and the German Government Fund paid $28,912 pursuant to the plans.
These amounts were used for the following purposes:
German Global Hard High
Government Currency Currency Income
Fund Fund Fund Fund
Advertising................... $ 348 $ 1,607 $ 3,764 $ 334
Printing and mailing
of prospectuses
other than to current
shareholders................. 7,242 21,225 14,608 1,068
Payments to underwriters...... 519 1,495 11,660 513
Payments to broker-dealers.... 20,803 84,227 197,375 16,960
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 the periods indicated below
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 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, 1997, was as follows:
Inception One Five Ten From
Fund Name Date Year Year Year Inception
Global Currency Fund ..... 06/27/86 -4.45% 3.08% 5.76% 6.60%
Hard Currency Fund ....... 11/17/89 -11.03% 1.11% -- 5.72%
High Income Fund ......... 11/17/89 -3.16% 3.14% -- 6.15%
German Government Fund ... 12/31/92 -10.95% -- -- 4.66%
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 each period at the end of each period
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, is based
on the actual return for a specified period rather than on the average return
over the periods indicated above. The Fund's cumulative total return for the
indicated periods ended October 31, 1997, was as follows:
INCEPTION ONE FIVE TEN FROM
FUND NAME DATE YEAR YEAR YEAR INCEPTION
Global Currency Fund.......... 06/27/86 -4.45% 16.35% 75.00% 106.60%
Hard Currency Fund............ 11/17/89 -11.03% 5.67% -- 55.70%
High Income Fund.............. 11/17/89 -3.16% 16.70% -- 60.74%
German Government Fund........ 12/31/92 -10.95% -- -- 24.60%
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, 1997, was as follows:
Fund Name Yield
Global Currency Fund .......... 4.04%
Hard Currency Fund ............ 3.09%
High Income Fund .............. 3.47%
German Government Fund ........ 3.71%
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. 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 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 Fund's current
distribution rate for the 30-day period ended October 31, 1997, was as
follows:
Current
Fund Name Distribution Rate
Global Currency Fund........ 3.75%
Hard Currency Fund.......... 3.28%
High Income Fund............ 3.30%
German Government Fund...... 3.94%
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(R)
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(R) 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, and 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 CS First Boston
Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill Lynch,
Lehman Brothers and Bloomberg L.P.
m) Standard & Poor's(R) 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 2.9 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, a pioneer in
international investing. The Mutual Series team, 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 $221 billion in
assets under management for more than 6 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.
Currently, there are more mutual funds than there are stocks listed on the
NYSE. While many of them have similar investment objectives, no two are
exactly alike. As noted in the Prospectus, shares of the Fund are generally
sold through Securities Dealers. Investment representatives of such
Securities Dealers are experienced professionals who can offer advice on the
type of investment suitable to your unique goals and needs, as well as the
types of risks associated with such investment.
As of February 2, 1998, the principal shareholders of the Fund, beneficial or
of record, were as follows:
Share
Name and Address Amount Percentage
German Government Fund - Advisor Class
Franklin Resources, Inc.
Attn: Corporate Treasury
1850 Gateway Dr., 6th Flr.
San Mateo, CA 94404 1,650.287 49.9%
FTC & Co
C/O Datalynx
P.O. Box 173736
Denver, CO 80217-3736 876.042 26.5%
FTTC Cust for the IRA of
Pamela A. Gould
1916 Trinidad Cir.
Claremont, CA 91711-2979 554.462 16.8%
FTTC Cust for the IRA of
Mark F. Sadowski
7116 91st St. E.
Palmetto, FL 34221-9246 212.876 6.4%
Hard Currency Fund - Advisor Class
FTTC Cust for the IRA of
Pamela A. Gould
1916 Trinidad Cir.
Claremont, CA 91711-2979 668.009 13.3%
Share
Name and Address Amount Percentage
Hard Currency Fund - Advisor Class (cont.)
Frances M. Arnone
1322 Holly
San Carlos, CA 94070-2347 272.364 5.4%
Franklin Resources, Inc.
Attn: Corporate Treasury
1850 Gateway Dr., 6th Flr.
San Mateo, CA 94404 1,866.689 37.1%
John M. Sawaya
8849 Roediger Ln.
Fair Oaks, CA 95628 637.174 12.7%
Albert A. Haust III
1156 Morningside Ave.
South San Francisco, CA 94080-1352 327.452 6.5%
Donald P. Gould
1916 Trinidad Cir.
Claremont, CA 91711-2979 352.398 7.0%
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 by the close of the business day following the
day clearance is granted; (ii) copies of all brokerage confirmations and
statements must be sent to a compliance officer; (iii) all brokerage accounts
must be disclosed on an annual basis; and (iv)access persons involved in
preparing and making investment decisions must, in addition to (i), (ii) and
(iii) 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, 1997, 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 Hard Currency and German Government Funds
offer two classes of shares, designated "Class I" and "Advisor Class." The
two classes have proportionate interests in the Hard Currency Fund and German
Government Fund portfolios. 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 Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, 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 COUNSEL - 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
MANAGERS - Advisers and Investment Counsel
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 front-end sales charge. The maximum front-end
sales charge is 3.00%.
PROSPECTUS - The prospectus for the Fund's Class I shares dated March 1,
1998, 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.
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
FRANKLIN TEMPLETON HARD CURRENCY FUND - ADVISOR CLASS
FRANKLIN TEMPLETON GERMAN GOVERNMENT BOND
FUND - ADVISOR CLASS
STATEMENT OF
ADDITIONAL INFORMATION
MARCH 1, 1998
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 Risks of Investing
in the Fund?......................................... 6
Investment Restrictions............................... 6
Potential Benefits of Investing in
German Government Obligations........................ 8
Officers and Trustees................................. 9
Investment Management
and Other Services................................... 13
How Does the Fund Buy
Securities for Its Portfolio?........................ 15
How Do I Buy, Sell and Exchange Shares?............... 16
How Are Fund Shares Valued?........................... 18
Additional Information on
Distributions and Taxes.............................. 18
The Fund's Underwriter................................ 23
How Does the Fund
Measure Performance?................................. 23
Miscellaneous Information............................. 26
Financial Statements.................................. 27
Useful Terms and Definitions.......................... 27
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 "Hard Currency Fund") and the
Franklin Templeton German Government Bond Fund (the "German Government Fund")
(individually or collectively the "Fund(s)") are non-diversified series of
the Franklin Templeton Global Trust (the "Trust"), an open-end management
investment company. The Hard Currency 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 Managers, follow economic policies conducive to
continued low rates of inflation and currency appreciation versus the U.S.
dollar over the long term. The German Government Fund's investment objective
is to seek, over the long-term, total return. 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, 1998, 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.
THIS SAI IS NOT A PROSPECTUS. IT CONTAINS INFORMATION IN ADDITION TO AND IN
MORE DETAIL THAN SET FORTH IN THE PROSPECTUS. THIS SAI IS INTENDED TO PROVIDE
YOU WITH ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF
THE FUND, AND SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS.
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MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
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.
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HOW DOES THE FUND INVEST ITS ASSETS?
The following provides more detailed information about some of the securities
the Fund may buy and its investment policies. You should read it together
with the section in the Prospectus entitled "How Does the Fund Invest Its
Assets?"
HARD CURRENCY FUND
FLOATING AND VARIABLE RATE NOTES. Floating and variable rate notes generally
are unsecured obligations issued by financial institutions and other
entities. These obligations typically have a stated maturity in excess of one
year. The interest rate on these notes is based on an identified interest
rate index and is adjusted automatically at specified intervals, generally
not less frequently than semiannually.
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs.
CONCENTRATION IN FINANCIAL SERVICES OBLIGATIONS. Under normal market
conditions, the Fund intends to invest at least 25% of its net assets in
obligations of companies engaged in the financial services industry. These
investments include obligations of the character described below:
CERTIFICATES OF DEPOSIT. 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 Fund 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 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.
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
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 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.
GERMAN GOVERNMENT 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 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
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 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
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 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.
BOTH FUNDS
INVESTING IN FOREIGN SECURITIES. Foreign securities markets generally are not
as developed or efficient as those in the U.S. Securities of some foreign
issuers are less liquid and more volatile than securities of comparable U.S.
issuers. Similarly, volume and liquidity in most foreign securities markets
are less than in the U.S. and, at times, volatility of prices can be greater
than in the U.S. In addition, there may be less publicly available
information about a non-U.S. issuer, and non-U.S. issuers are not generally
subject to uniform accounting and financial reporting standards, practices
and requirements comparable to those applicable to U.S. issuers.
Because foreign securities (e.g., non-U.S. money market instruments) are
purchased with and payable in currencies of foreign countries, the value of
these assets as measured in U.S. dollars will be affected favorably or
unfavorably by changes in currency exchange rates and exchange control
regulations. Currency exchange costs may be incurred when the Fund sells
instruments denominated in one currency and purchases instruments denominated
in another.
Some of the foreign securities may be subject to transaction taxes charged by
foreign governments. This would have the effect of increasing the cost of the
investments and reduce the realized gain or increase the realized loss on the
securities at the time of sale. Transaction costs and custodial expenses for
a portfolio of non-U.S. securities generally are higher than for a portfolio
of U.S. securities. Interest payments from certain foreign securities may be
subject to foreign withholding taxes on interest income payable on the
securities.
U.S. government policies have, in the past, through taxation and other
restrictions, discouraged certain investments abroad by U.S. investors. While
no such restrictions are currently in effect, they could be reinstituted. In
that event, it may be necessary for the Fund to temporarily invest all or
substantially all of its assets in U.S. money market instruments, or it may
become necessary to liquidate the Fund.
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 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 Managers to treat a restricted security as liquid on
a quarterly basis, including the 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
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 RISKS OF INVESTING IN THE FUND?
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 thereby 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:
HARD CURRENCY FUND
1. Purchase common stocks, preferred stocks, warrants or other equity
securities, or purchase municipal bonds or industrial revenue bonds.
2. 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.
3. 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.
4. 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.
5. 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.
6. Invest in securities of other investment companies, except as they may be
acquired as part of a merger, consolidation or acquisition of assets.
GERMAN GOVERNMENT FUND
1. Purchase common stocks, preferred stocks, warrants or other equity
securities.
2. 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. 4 below.
3. 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.
4. 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.
5. 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.
6. 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.
7. Invest in securities of other investment companies.
8. 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.
9. 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.
BOTH FUNDS
1. 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.
2. 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.
3. Underwrite the securities of other issuers.
4. 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.
5. Invest in companies for the purpose of exercising control.
6. 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 bankruptcy or other extraordinary event occurs concerning a particular
security owned by the Fund, the Fund may receive stock, real estate, or other
investments that the Fund would not, or could not, buy. In this case, the
Fund intends to dispose of the investment as soon as practicable while
maximizing the return to shareholders.
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 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 (*).
NAME, AGE POSITIONS AND OFFICES PRINCIPAL OCCUPATION
AND ADDRESS WITH THE TRUST DURING THE PAST FIVE YEARS
Frank H. Abbott, III (76) Trustee
1045 Sansome Street
San Francisco, CA 94111
President and Director, Abbott Corporation (an investment company); and
director or trustee, as the case may be, of 28 of the investment companies in
the Franklin Templeton Group of Funds.
Harris J. Ashton (65) Trustee
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045
Director, RBC Holdings, Inc. (a bank holding company) and Bar-S Foods (a meat
packing company); and director or trustee, as the case may be, of 52 of the
investment companies in the Franklin Templeton Group of Funds; and formerly
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers).
David K. Eiteman (68) Trustee
15340 Albright Street #301
Pacific Palasades, CA 90272
Since 1959, Professor of Finance in the John E. Anderson Graduate School of
Management, University of California, Los Angeles, and Professor Emeritus
since 1991; from 1988 to June 1993, a Trustee of the Huntington Investment
Trust.
S. Joseph Fortunato (65) 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 or trustee,
as the case may be, of 54 of the investment companies in the Franklin
Templeton Group of Funds; and Director, General Host Corporation (nursery and
craft centers).
Donald P. Gould (39) President
777 Mariners Island Blvd. and Trustee
San Mateo, CA 94404
Managing Director, Templeton Worldwide, Inc.;Portfolio Manager, Franklin
Advisers, Inc.; and officer and/or trustee of two of the investment companies
in the Franklin Templeton Group of Funds; formerly, officer and trustee of
Huntington Funds; President and Director of Huntington Advisers, Inc. (a
mutual fund investment adviser) and President of Huntington Investments, Inc.
(a mutual fund underwriter).
Gerald R. Healy (56) Trustee
8421 Elderberry Road
Madison, WI 53714
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.
*Charles B. Johnson (65) Chairman
777 Mariners Island Blvd. of the Board and Trustee
San Mateo, CA 94404
President, Chief Executive Officer and Director, Franklin Resources, Inc.;
Chairman of the Board and Director, Franklin Advisers, Inc., Franklin
Advisory Services, Inc. and Franklin Investment Advisory Services, Inc. and
Franklin Templeton Distributors, Inc.; Director, Franklin/Templeton Investor
Services, Inc., Franklin Templeton Services, Inc.; officer and/or director or
trustee, as the case may be, of most of the other subsidiaries of Franklin
Resources, Inc. and of 53 of the investment companies in the Franklin
Templeton Group of Funds; and formerly Director, General Host Corporation
(nursery and craft centers).
*Rupert H. Johnson, Jr. (57) 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 or trustee, as the case
may be, of most of the other subsidiaries of Franklin Resources, Inc. and of
56 of the investment companies in the Franklin Templeton Group of Funds.
David P. Kraus (40) Trustee
Bet Tzedek Legal Services
145 South Fairfax Ave., Suite 200
Los Angeles, CA 90036-2166
Since 1981, an attorney with various private law firms in Los Angeles. Also,
since October 1995, an attorney with Bet Tzedek Legal Services.
Frank W.T. LaHaye (68) 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 Corporation (software
firm); Director, Fischer Imaging Corporation (medical imaging systems) and
Digital Transmission Systems, Inc. (wireless communications); 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 (69) Trustee
8212 Burning Tree Road
Bethesda, MD 20817
Chairman, White River Corporation (financial services); Director, Fund
American Enterprises Holdings, Inc., MCI Communications Corporation, CCC
Information Services Group, Inc. (information services), MedImmune, Inc.
(biotechnology), Shoppers Express (home shopping), and Spacehab, Inc.
(aerospace services); and director or trustee, as the case may be, of 51 of
the investment companies in the Franklin Templeton Group of Funds; formerly
Chairman, Hambrecht and Quist Group, Director, H & Q Healthcare Investors,
and President, National Association of Securities Dealers, Inc.
Harmon E. Burns (53) 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.
and Franklin Templeton Services, Inc.; Executive Vice President, Franklin
Advisers, Inc.; Director, Franklin/Templeton Investor Services, Inc.; and
officer and/or director or trustee, as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and of 56 of the investment
companies in the Franklin Templeton Group of Funds.
Martin L. Flanagan (37) Vice President
777 Mariners Island Blvd. and Chief
San Mateo, CA 94404 Financial Officer
Senior Vice President and Chief Financial Officer, Franklin Resources, Inc.;
Executive Vice President and Director, Templeton Worldwide, Inc.; Executive
Vice President, Chief Operating Officer and Director, Templeton Investment
Counsel, Inc.; Senior Vice President and Treasurer, Franklin Advisers, Inc.;
Treasurer, Franklin Advisory Services, Inc.; Treasurer and Chief Financial
Officer, Franklin Investment Advisory Services, Inc.; President, Franklin
Templeton Services, Inc.; Senior Vice President, Franklin/Templeton Investor
Services, Inc.; and officer and/or director or trustee, as the case may be,
of 56 of the investment companies in the Franklin Templeton Group of Funds.
Deborah R. Gatzek (49) 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. and Franklin
Advisory Services, Inc.; Vice President, Chief Legal Officer and Chief
Operating Officer, Franklin Investment Advisory Services, Inc.; and officer
of 56 of the investment companies in the Franklin Templeton Group of Funds.
Charles E. Johnson (41) 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.; President, Chief Executive Officer, Chief
Investment Officer and Director, Franklin Institutional Services Corporation;
Chairman and Director, Templeton Investment Counsel, Inc.; Vice President,
Franklin Advisers, Inc.; officer and/or director of some of the subsidiaries
of Franklin Resources, Inc.; and officer and/or director or trustee, as the
case may be, of 37 of the investment companies in the Franklin Templeton
Group of Funds.
Diomedes Loo-Tam (59) Treasurer
777 Mariners Island Blvd. and Principal
San Mateo, CA 94404 Accounting Officer
Senior Vice President, Franklin Templeton Services, Inc.; and officer of 33
of the investment companies in the Franklin Templeton Group of Funds.
Edward V. McVey (60) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
Senior Vice President and National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 29 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 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 or trustees
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....... $4,000 $165,937 28
Harris J. Ashton .......... 4,000 344,642 52
David K. Eiteman .......... 2,400 3,200 1
S. Joseph Fortunato ....... 4,000 361,562 54
David W. Garbellano+ ...... 2,200 91,317 N/A
Gerald R. Healy ........... 3,200 4,000 1
David P. Kraus............. 4,000 4,800 1
Frank W.T. LaHaye.......... 4,000 141,433 27
Gordon S. Macklin.......... 4,000 337,292 51
+Deceased, September 27, 1997.
*For the fiscal year ended October 31, 1997
**For the calendar year ended December 31, 1997
***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 57 registered investment companies, with
approximately 170 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 or
trustee. 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 2, 1998, the officers and Board members, as a group, owned of
record and beneficially approximately 149.989 shares of the German Government
Fund - Class I, and 158.533 shares of the Hard Currency Fund - Class I, or
less that 1% of the total outstanding shares of each Fund's Class I shares,
and 352,398 shares of the Hard Currency Fund- Advisor Class or 7% of the Hard
Currency Fund's Advisor Class 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, Investment Counsel is the Fund's
subadvisor. The 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 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 and its officers, directors and
employees are covered by fidelity insurance for the protection of the Fund.
The Managers and their affiliates act as investment managers to numerous
other investment companies and accounts. The 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 Managers are not obligated to
recommend, buy or sell, or to refrain from recommending, buying or selling
any security that they and access persons, as defined by the 1940 Act, may
buy or sell for their own account or for the accounts of any other fund. The
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 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."
Investment Counsel provides Advisers with investment management advice and
assistance. Investment Counsel 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 Hard Currency Fund pays
Advisers a management fee equal to an annual rate of 0.65% of the average
daily net assets of the Fund and the German Government Fund pays a management
fee equal to an annual rate of 0.55% of the value of the average daily net
assets of the Fund. The fee is computed at the close of business on the 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 Investment Counsel 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.
Investment Counsel 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.
The table below shows the management fees paid by the Fund and the
sub-advisory fee paid by Advisers to Investment Counsel for the fiscal years
ended October 31, 1995, 1996 and 1997.
FISCAL YEAR MANAGEMENT SUB-ADVISORY
ENDED OCTOBER 31, FEES FEES
1997
Hard Currency Fund ........ $682,152 $262,370
German Government
Fund ..................... 83,958 32,294
1996
Hard Currency Fund ........ 811,115 339,115
German Government
Fund ..................... 117,798 54,526
1995
Hard Currency Fund ........ 634,188 259,832
German Government
Fund ..................... 91,422* 37,416
*For the fiscal year ended October 31, 1995, management fees before any
advance waiver totaled $97,759. Under an agreement by Advisers to limit its
fees, the German Government Fund paid the management fees shown.
MANAGEMENT AGREEMENTS. The management and sub-advisory agreements are in
effect until February 28, 1999. 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 on 60
day's written notice to Advisers, or by Advisers on 60 days' written notice
to the Fund, 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 Investment Counsel on 60 days' written notice, and will automatically
terminate in the event of its assignment, as defined in the 1940 Act.
ADMINISTRATIVE SERVICES. Under an agreement with Advisers, FT Services
provides certain administrative services and facilities for the Fund. These
include preparing and maintaining books, records, and tax and financial
reports, and monitoring compliance with regulatory requirements. FT Services
is a wholly owned subsidiary of Resources.
Under its administration agreement, Advisers pays FT Services a monthly
administration fee equal to an annual rate of 0.15% of the Fund's average
daily net assets up to $200 million, 0.135% of average daily net assets over
$200 million up to $700 million, 0.10% of average daily net assets over $700
million up to $1.2 billion, and 0.075% of average daily net assets over $1.2
billion. The fee is paid by Advisers. It is not a separate expense of the
Fund.
SHAREHOLDER SERVICING AGENT. Investor Services, a wholly owned subsidiary of
Resources, is the Fund's shareholder servicing agent and acts as the Fund's
transfer agent and dividend-paying agent. Investor Services is compensated on
the basis of a fixed fee per account. The Fund may also reimburse Investor
Services for certain out-of-pocket expenses, which may include payments by
Investor Services to entities, including affiliated entities, that provide
sub-shareholder services, recordkeeping and/or transfer agency services to
beneficial owners of the Fund. The amount of reimbursements for these
services per benefit plan participant Fund account per year may not exceed
the per account fee payable by the Fund to Investor Services in connection
with maintaining shareholder accounts.
CUSTODIAN. The Chase Manhattan Bank, at its principal office at MetroTech
Center, Brooklyn, New York 11245, and at the offices of its branches and
agencies throughout the world, acts as custodian of the Fund's assets. The
custodian does not participate in decisions relating to the purchase and sale
of portfolio securities.
AUDITORS. 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, 1997, 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,
1997.
HOW DOES THE FUND BUY
SECURITIES FOR ITS PORTFOLIO?
The 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 subadvisory
agreement, Advisers may delegate to Investment Counsel the authority to
select securities dealers to execute portfolio transactions for the Fund.
When placing a portfolio transaction, the 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 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 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 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 Managers may pay certain brokers commissions that are higher than those
another broker may charge, if the 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 Managers' overall responsibilities to client
accounts over which they exercise investment discretion. The services that
brokers may provide to the 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 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 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 Managers receive from dealers effecting
transactions in portfolio securities. The allocation of transactions in order
to obtain additional research services permits the 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 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, 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 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 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 years ended October 31, 1995, 1996 and 1997, the Fund paid
no brokerage commissions.
As of October 31, 1997, 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.
Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin
Templeton Funds and are afforded the opportunity to speak with portfolio
managers. Invitation to these meetings is not conditioned on selling a
specific number of shares, however, those who have shown an interest in the
Franklin Templeton Funds are more likely to be considered. To the extent
permitted by their firm's policies and procedures, a registered
representative's expenses in attending these meetings may be covered by
Distributors.
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 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. 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.
Distribution or redemption checks sent to you do not earn interest or any
other income during the time the checks remain uncashed. Neither the Fund nor
its affiliates will be liable for any loss caused by your failure to cash
such checks. The Fund is not responsible for tracking down uncashed checks,
unless a check is returned as undeliverable.
In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional 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. 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 close of the NYSE,
normally 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, Martin Luther King Jr. 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 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 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 foreign security is valued within the range of
the most recent quoted bid and ask prices. 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 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 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
Distributions of Net Investment Income. The Fund receives income generally in
the form of interest and other income derived from its investments. This
income, less expenses incurred in the operation of the Fund, constitute its
net investment income from which dividends may be paid to you. Any
distributions by the Fund from such income will be taxable to you as ordinary
income, whether you take them in cash or in additional shares.
Distributions of Capital Gains. The Fund may derive capital gains and losses
in connection with sales or other dispositions of its portfolio securities.
Distributions derived from the excess of net short-term capital gain over net
long-term capital loss will be taxable to you as ordinary income.
Distributions paid from long-term capital gains realized by the Fund will be
taxable to you as long-term capital gain, regardless of how long you have
held your shares in the Fund. Any net short-term or long-term capital gains
realized by the Fund (net of any capital loss carryovers) generally will be
distributed once each year, and may be distributed more frequently, if
necessary, in order to reduce or eliminate federal excise or income taxes on
the Fund.
Under the Taxpayer Relief Act of 1997 (the "1997 Act"), the Fund is required
to report the capital gain distributions paid to you from gains realized on
the sale of portfolio securities using the following categories:
"28% RATE GAINS": gains resulting from securities sold by the Fund after July
28, 1997 that were held for more than one year but not more than 18 months,
and securities sold by the Fund before May 7, 1997 that were held for more
than one year. These gains will be taxable to individual investors at a
maximum rate of 28%.
"20% RATE GAINS": gains resulting from securities sold by the Fund after July
28, 1997 that were held for more than 18 months, and under a transitional
rule, securities sold by the Fund between May 7 and July 28, 1997 (inclusive)
that were held for more than one year. These gains will be taxable to
individual investors at a maximum rate of 20% for individual investors in the
28% or higher federal income tax brackets, and at a maximum rate of 10% for
investors in the 15% federal income tax bracket.
The 1997 Act also provides for a new maximum rate of tax on capital gains of
18% for individuals in the 28% or higher federal income tax brackets and 8%
for individuals in the 15% federal income tax bracket for "qualified 5-year
gains." For individuals in the 15% bracket, qualified 5-year gains are net
gains on securities held for more than 5 years which are sold after December
31, 2000. For individuals who are subject to tax at higher rates, qualified
5-year gains are net gains on securities which are purchased after December
31, 2000 and are held for more than 5 years. Taxpayers subject to tax at the
higher rates may also make an election for shares held on January 1, 2001 to
recognize gain on their shares in order to qualify such shares as qualified
5-year property.
The Fund will advise you at the end of each calendar year of the amount of
its capital gain distributions paid during the calendar year that qualify for
these maximum federal tax rates. Additional information on reporting these
distributions on your personal income tax returns is available in Franklin
Templeton's Tax Information Handbook. This handbook has been revised to
include 1997 Act tax law changes. Please call Fund Information to request a
copy. Questions concerning each investor's personal tax reporting should be
addressed to the investor's personal tax advisor.
CERTAIN DISTRIBUTIONS PAID IN JANUARY. Distributions which are declared in
October, November or December and paid to you in January of the following
year, will be treated for tax purposes as if they had been received by you on
December 31 of the year in which they were declared. The Fund will report
this income to you on your Form 1099-DIV for the year in which these
distributions were declared.
EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS. Most foreign exchange gains
realized on the sale of debt instruments are treated as ordinary income by
the Fund. Similarly, foreign exchange losses realized by the Fund on the sale
of debt instruments are generally treated as ordinary losses by the Fund.
These gains when distributed will be taxable to you as ordinary dividends,
and any losses will reduce the Fund's ordinary income otherwise available for
distribution to you. This treatment could increase or reduce the Fund's
ordinary income distributions to you, and may cause some or all of the Fund's
previously distributed income to be classified as a return of capital.
The 1997 Act also simplifies the procedures by which investors in funds that
invest in foreign securities can claim tax credits on their individual income
tax returns for the foreign taxes paid by the Fund. These provisions will
allow investors who claim a credit for foreign taxes paid of $300 or less on
a single return or $600 or less on a joint return during any year (all of
which must be reported on IRS Form 1099-DIV from the Fund to the investor) to
bypass the burdensome and detailed reporting requirements on the supporting
foreign tax credit schedule (Form 1116) and report foreign taxes paid
directly on page 2 of Form 1040. YOU SHOULD NOTE THAT THIS SIMPLIFIED
PROCEDURE WILL NOT BE AVAILABLE UNTIL CALENDAR YEAR 1998.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS. The Fund will inform you
of the amount and character of your distributions at the time they are paid,
and will advise you of the tax status for federal income tax purposes of such
distributions shortly after the close of each calendar year. If you have not
held Fund shares for a full year, you may have designated and distributed to
you as ordinary income or capital gain a percentage of income that is not
equal to the actual amount of such income earned during the period of your
investment in the Fund.
TAXES
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY. The Fund has elected
to be treated as a regulated investment company under Subchapter M of the
Code, has qualified as such for its most recent fiscal year, and intends to
so qualify during the current fiscal year. The Board reserves the right not
to maintain the qualification of the Fund as a regulated investment company
if it determines such course of action to be beneficial to you. In such case,
the Fund will be subject to federal, and possibly state, corporate taxes on
its taxable income and gains, and distributions to you will be taxed as
ordinary dividend income to the extent of the Fund's available earnings and
profits.
In order to qualify as a regulated investment company for tax purposes, the
Fund must meet certain specific requirements, including:
o The Fund must maintain a diversified portfolio of securities, wherein no
security (other than U.S. government securities and securities of other
regulated investment companies) can exceed 25% of the Fund's total assets,
and, with respect to 50% of the Fund's total assets, no investment (other
than cash and cash items, U.S. government securities and securities of
other regulated investment companies) can exceed 5% of the Fund's total
assets;
o The Fund must derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, and gains from the
sale or disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities, or currencies; and
o The Fund must distribute to its shareholders at least 90% of its net
investment income and net tax-exempt income for each of its fiscal years.
EXCISE TAX DISTRIBUTION REQUIREMENTS. The Code requires the Fund to
distribute at least 98% of its taxable ordinary income earned during the
calendar year and 98% of its capital gain net income earned during the twelve
month period ending October 31 (in addition to undistributed amounts from the
prior year) to you by December 31 of each year in order to avoid federal
excise taxes. The Fund intends to declare and pay sufficient dividends in
December (or in January that are treated by you as received in December) but
does not guarantee and can give no assurances that its distributions will be
sufficient to eliminate all such taxes.
REDEMPTION OF FUND SHARES. Redemptions and exchanges of Fund shares are
taxable transactions for federal and state income tax purposes. The tax law
requires that you recognize a gain or loss in an amount equal to the
difference between your tax basis and the amount you received in exchange for
your shares, subject to the rules described below. If you hold your shares as
a capital asset, the gain or loss that you realize will be capital gain or
loss, and will be long-term for federal income tax purposes if you have held
your shares for more than one year at the time of redemption or exchange. Any
loss incurred on the redemption or exchange of shares held for six months or
less will be treated as a long-term capital loss to the extent of any
long-term capital gains distributed to you by the Fund on those shares. The
holding periods and categories of capital gain that apply under the 1997 Act
are described above in the "Distributions" section.
All or a portion of any loss that you realize upon the redemption of your
Fund shares will be disallowed to the extent that you purchase other shares
in the Fund (through reinvestment of dividends or otherwise) within 30 days
before or after your share redemption. Any loss disallowed under these rules
will be added to your tax basis in the new shares you purchase.
DEFERRAL OF BASIS. All or a portion of the sales charge that you paid for
your shares in the Fund will be excluded from your tax basis in any of the
shares sold within 90 days of their purchase (for the purpose of determining
gain or loss upon the sale of such shares) if you reinvest the sales proceeds
in the Fund or in another of the Franklin Templeton Funds, and the sales
charge that would otherwise apply to your reinvestment is reduced or
eliminated because of your reinvestment in one of the Franklin Templeton
Funds. The portion of the sales charge excluded from your tax basis in the
shares sold will equal the amount that the sales charge is reduced on your
reinvestment. Any portion of the sales charge excluded from your tax basis in
the shares sold will be added to the tax basis of the shares you acquire from
your reinvestment in one of the Franklin Templeton Funds.
U.S. GOVERNMENT OBLIGATIONS. Many states grant tax-free status to dividends
paid to you from interest earned on direct obligations of the U.S.
government, subject in some states to minimum investment requirements that
must be met by the Fund. Investments in GNMA/FNMA securities, bankers'
acceptances, commercial paper and repurchase agreements collateralized by
U.S. government securities do not generally qualify for tax-free treatment.
At the end of each calendar year, the Fund will provide you with the
percentage of any dividends paid that may qualify for tax-free treatment on
your personal income tax return. You should consult with your own tax advisor
to determine the application of your state and local laws to these
distributions. Because the rules on exclusion of this income are different
for corporations, corporate shareholders should consult with their corporate
tax advisors about whether any of their distributions may be exempt from
corporate income or franchise taxes.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS. Because the Fund's income is
derived primarily from investments in foreign securities rather than
dividend-paying domestic U.S. securities, no portion of its distributions
will generally be eligible for the intercorporate dividends-received
deduction. None of the dividends paid by the Fund for the most recent
calendar year qualified for such deduction, and it is anticipated that none
of the current year's dividends will so qualify.
INVESTMENT IN COMPLEX SECURITIES. 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. Over-the-counter options on debt securities
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. Certain other
options, futures and forward contracts entered into by the Fund are 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 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 on
other dates as prescribed by the Code), and all gain or loss associated with
fiscal year transactions and mark-to-market positions at fiscal year end
(except certain currency gain or loss covered by Section 988 of the Code)
will generally be treated as 60% long-term capital gain or loss and 40%
short-term capital gain or loss. Under legislation pending in technical
corrections to the 1997 Act, the 60% long-term capital gain portion will
qualify as 20% rate gain and will be subject to tax to individual investors
at a maximum rate of 20% for investors in the 28% or higher federal income
tax brackets, or at a maximum rate of 10% for investors in the 15% federal
income tax bracket. While foreign currency is marked-to-market at year end,
gain or loss realized as a result will always be ordinary. Even though
marked-to-market, gains and losses realized on foreign currency and foreign
security investments will generally be treated as ordinary income. 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 the amount, character and timing 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, possibly resulting in deferral of
losses, adjustments in the holding periods and conversion of short-term
capital losses into long-term capital losses. The Fund may make certain tax
elections 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.
The 1997 Act has also added new provisions for dealing with transactions that
are generally called "Constructive Sale Transactions." Under these rules, the
Fund must recognize gain (but not loss) on any constructive sale of an
appreciated financial position in stock, a partnership interest or certain
debt instruments. The Fund will generally be treated as making a constructive
sale when it: 1) enters into a short sale on the same property, 2) enters
into an offsetting notional principal contract, or 3) enters into a futures
or forward contract to deliver the same or substantially similar property.
Other transactions (including certain financial instruments called collars)
will be treated as constructive sales as provided in Treasury regulations to
be published. There are also certain exceptions that apply for transactions
that are closed before the end of the 30th day after the close of the taxable
year.
Distributions paid to you by the Fund of ordinary income and short-term
capital gains arising from the Fund's investments, including investments in
options, forwards, and futures contracts, will be taxable to you as ordinary
income. 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.
INVESTMENTS IN FOREIGN CURRENCIES AND FOREIGN SECURITIES. The Fund is
authorized to invest in foreign currency denominated securities. Such
investments, if made, will have the following additional tax consequences:
Under the Code, gains or losses attributable to fluctuations in foreign
currency exchange rates which occur between the time the Fund accrues income
(including dividends), or accrues expenses which are denominated in a foreign
currency, and the time the Fund actually collects such income or pays such
expenses generally are treated as ordinary income or loss. Similarly, on the
disposition of debt securities denominated in a foreign currency and on the
disposition of certain options, futures, forward contracts, gain or loss
attributable to fluctuations in the value of foreign currency between the
date of acquisition of the security or contract and the date of its
disposition are also treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "Section 988" gains or losses, may increase or
decrease the amount of the Fund's net investment company taxable income,
which, in turn, will affect the amount of income to be distributed to you by
the Fund.
If the Fund's Section 988 losses exceed the Fund's other net investment
company taxable income during a taxable year, the Fund generally will not be
able to make ordinary dividend distributions to you for that year, or
distributions made before the losses were realized will be recharacterized as
return of capital distributions for federal income tax purposes, rather than
as an ordinary dividend or capital gain distribution. If a distribution is
treated as a return of capital, your tax basis in your Fund shares will be
reduced by a like amount (to the extent of such basis), and any excess of the
distribution over your tax basis in your Fund shares will be treated as
capital gain to you.
CONVERSION TRANSACTIONS. Gains realized by a Fund from transactions that are
deemed to be "conversion transactions" under the Code, and that would
otherwise produce capital gain may be recharacterized as ordinary income to
the extent that such gain does not exceed an amount defined as the
"applicable imputed income amount." A conversion transaction is any
transaction in which substantially all of the Fund's expected return is
attributable to the time value of the Fund's net investment in such
transaction, and any one of the following criteria are met:
1) there is an acquisition of property with a substantially contemporaneous
agreement to sell the same or substantially identical property in the future;
2) the transaction is an applicable straddle;
3) the transaction was marketed or sold to the Fund on the basis that it
would have the economic characteristics of a loan but would be taxed as
capital gain; or
4) the transaction is specified in Treasury regulations to be promulgated in
the future.
The applicable imputed income amount, which represents the deemed return on
the conversion transaction based upon the time value of money, is computed
using a yield equal to 120 percent of the applicable federal rate, reduced by
any prior recharacterizations under this provision or the provisions of
Section 263(g) of the Code dealing with capitalized carrying costs.
INVESTMENTS IN ORIGINAL ISSUE DISCOUNT (OID) AND MARKET DISCOUNT (MD) BONDS.
The Fund's investments in zero coupon bonds, bonds issued or acquired at a
discount, delayed interest bonds, or bonds that provide for payment of
interest-in-kind (PIK) may cause the Fund to recognize income and make
distributions to you prior to its receipt of cash payments. Zero coupon and
delayed interest bonds are normally issued at a discount and are therefore
generally subject to tax reporting as OID obligations. The Fund is required
to accrue as income a portion of the discount at which these securities were
issued, and to distribute such income each year (as ordinary dividends) in
order to maintain its qualification as a regulated investment company and to
avoid income reporting and excise taxes at the Fund level. PIK bonds are
subject to similar tax rules concerning the amount, character and timing of
income required to be accrued by the Fund. Bonds acquired in the secondary
market for a price less than their stated redemption price, or revised issue
price in the case of a bond having OID, are said to have been acquired with
market discount. For these bonds, the Fund may elect to accrue market
discount on a current basis, in which case the Fund will be required to
distribute any such accrued discount. If the Fund does not elect to accrue
market discount into income currently, gain recognized on sale will be
recharacterized as ordinary income instead of capital gain to the extent of
any accumulated market discount on the obligation.
DEFAULTED OBLIGATIONS. The Fund may be required to accrue income on defaulted
obligations and to distribute such income to you even though it is not
currently receiving interest or principal payments on such obligations. In
order to generate cash to satisfy these distribution requirements, 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.
THE FUND'S UNDERWRITER
Pursuant to an underwriting agreement, Distributors acts as principal
underwriter in a continuous public offering 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 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 the periods indicated below
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 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 indicated periods
ended October 31, 1997, was as follows:
INCEPTION ONE- FIVE- SINCE
FUND NAME DATE YEAR YEAR INCEPTION
- --------------------------------------------------------------------------------
Hard Currency Fund .............. 11/17/89 -8.12% 1.75% 6.15%
German Government Fund .......... 12/31/92 -7.95% 2.83% 5.37%
These figures were calculated according to the SEC formula:
P(1+T)n = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of each period at the end of each period
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, is based on the actual
return for a specified period rather than on the average return over the
periods indicated above. The cumulative total return for Advisor Class for
the indicated periods ended October 31, 1997, was as follows:
INCEPTION ONE- FIVE- SINCE
FUND NAME DATE YEAR YEAR INCEPTION
- --------------------------------------------------------------------------------
Hard Currency Fund............... 11/17/89 -8.12% 9.07% 60.70%
German Government Fund........... 12/31/92 -7.95% 8.72% 28.80%
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 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 during the base period. The
yield for Advisor Class for the 30-day period ended October 31, 1997, was
3.42% for the Hard Currency Fund and 4.02% for the German Government Fund.
These figures were obtained using the following SEC formula:
6
Yield = 2 [(A-B + 1) - 1]
----
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the Net Asset Value per share on the last day of the period
CURRENT DISTRIBUTION RATE
Current yield, which is calculated according to a formula prescribed by the
SEC, is not indicative of the amounts which were or will be paid to
shareholders of 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 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,
1997, was 3.53% for the Hard Currency Fund and 4.26% for the German
Government Fund.
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 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(R) 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(R) 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, AND 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 CS First Boston
Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill Lynch,
Lehman Brothers and Bloomberg L.P.
m) Standard & Poor's(R) 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, if any, as well as the value of its shares that are
based upon the value of such portfolio investments, can be expected to
decrease. Conversely, when interest rates decrease, the value of the Fund's
shares can be expected to increase. CDs are frequently insured by an agency
of the U.S. government. An investment in the Fund is not insured by any
federal, state or private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not
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 50 years
and now services more than 2.9 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, a pioneer in
international investing. The Mutual Series team, 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 $221 billion in
assets under management for more than 6 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.
As of February 2, 1998, the principal shareholders of the Fund, beneficial or
of record, were as follows:
SHARE
NAME AND ADDRESS AMOUNT PERCENTAGE
German Government
Fund - Advisor Class
Franklin Resources, Inc.
Attn: Corporate Treasury
1850 Gateway Dr., 6th Flr.
San Mateo, CA 94404 1,650.287 49.9%
FTC & Co
C/O Datalynx
P.O. Box 173736
Denver, CO 80217-3736 876.042 26.5%
FTTC Cust for the IRA of
Pamela A. Gould
1916 Trinidad Cir.
Claremont, CA 91711-2979 554.462 16.8%
FTTC Cust for the IRA of
Mark F. Sadowski
7116 91st St. E.
Palmetto, FL 34221-9246 212.876 6.4%
Hard Currency
Fund - Advisor Class
FTTC Cust for the IRA of
Pamela A. Gould
1916 Trinidad Cir.
Claremont, CA 91711-2979 668.009 13.3%
Frances M. Arnone
1322 Holly
San Carlos, CA 94070-2347 272.364 5.4%
Franklin Resources, Inc.
Attn: Corporate Treasury
1850 Gateway Dr., 6th Flr.
San Mateo, CA 94404 1,866.689 37.1%
John M. Sawaya
8849 Roediger Ln.
Fair Oaks, CA 95628 637.174 12.7%
Albert A. Haust III
1156 Morningside Ave.
South San Francisco, CA
94080-1352 327.452 6.5%
Donald P. Gould
1916 Trinidad Cir.
Claremont, CA 91711-2979 352.398 7.0%
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 by the close of the business day following the
day clearance is granted; (ii) copies of all brokerage confirmations and
statements must be sent to a compliance officer; (iii) all brokerage accounts
must be disclosed on an annual basis; and (iv)access persons involved in
preparing and making investment decisions must, in addition to (i), (ii), and
(iii) 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, 1997,
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 COUNSEL - 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 SAI, 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.
MANAGERS - Advisers and Investment Counsel
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, 1998, 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.
U.S. - United States
WE/OUR/US - Unless a different meaning is indicated by the context, these
terms refer to the Fund and/or Investor Services, Distributors, or other
wholly owned subsidiaries of Resources.
FRANKLIN TEMPLETON GLOBAL TRUST
FILE NOS. 33-01212
& 811-4450
FORM N-1A
PART C
OTHER INFORMATION
ITEM 24 FINANCIAL STATEMENTS AND EXHIBITS
a) Financial Statements for the fiscal year ended October 31, 1997
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 12, 1998
(i) Financial Highlights
(ii) Statement of Investments - October 31, 1997
(iii) Statement of Assets and Liabilities - October 31, 1997
(iv) Statement of Operations - for the year ended October 31,
1997
(v) Statements of Changes in Net Assets - for the years ended
October 31, 1997 and 1996
(vi) Notes to Financial Statements
(vii) Report of Independent Accountants
b) Exhibits:
The following exhibits, where applicable, are incorporated by
reference with the exceptions of Exhibits 5(i), 5(ii), 6(i),
8(ii), 8(iii), 8(iv), 8(v), 11(i), 15(i), 27(i), 27(ii), 27(iii),
27(iv), 27(v), and 27(vi) 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) Management Agreement between Registrant and Franklin
Advisers, Inc. dated August 28, 1996
(ii) Subadvisory Agreement on behalf of Registrant between
Franklin Advisers, Inc. and Templeton Investment Counsel,
Inc. dated August 28, 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) Amended and Restated Distribution Agreement between
Registrant and Franklin/Templeton Distributors, Inc. dated
August 28, 1996
(ii) Forms of Dealer Agreements between Franklin/Templeton
Distributors, Inc. and securities dealers
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File Nos. 33-01212
Filing Date: December 29, 1995
(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
Filing Date: December 29, 1995
(ii) Master Custody Agreement between Registrant and Bank of New
York dated February 16, 1996
(iii) Amendment to Master Custody Agreement between Registrant and
Bank of New York dated May 7, 1997
(iv) Amendment to Master Custody Agreement between Registrant
and Bank of New York dated October 15, 1997
(v) Terminal Link Agreement between Registrant and Bank of New
York dated February 16, 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 Accountants
(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) Distribution Plan pursuant to Rule 12b-1 between Registrant
and Franklin/Templeton Distributors, Inc. dated August 28,
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
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 dated September 17, 1996
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 dated September 17, 1996
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 - Class I
(ii) Financial Data Schedule for Franklin Templeton German
Government Bond Fund - Advisor Class
(iii) Financial Data Schedule for Franklin Templeton Global
Currency Fund
(iv) Financial Data Schedule for Franklin Templeton Hard
Currency Fund - Class I
(v) Financial Data Schedule for Franklin Templeton Hard
Currency Fund - Advisor Class
(vi) Financial Data Schedule for Franklin Templeton High Income
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, 1997, 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
stated value $.01 per share 2,332
Hard Currency Fund Class I: 5,766
stated value $.01 per share Advisor: 23
High Income Currency Fund
stated value $.01 per share 914
German Government Bond Fund Class I: 1,201
stated value $.01 per share Advisor: 19
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 was formerly 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 Floating Rate Trust
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
Franklin New York Tax-Free Trust
Franklin Real Estate Securities Trust
Franklin Strategic Mortgage Portfolio
Franklin Strategic Series
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton Fund Allocator Series
Franklin Templeton Global 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 Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of San Mateo and the State of California, on the 26th day
of February, 1998.
FRANKLIN TEMPLETON GLOBAL TRUST
(REGISTRANT)
BY: DONALD P. GOULD*
DONALD P. GOULD
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
Donald P. Gould* Chief Executive Officer and Trustee
Donald P. Gould Dated: February 26, 1998
Martin L. Flanagan* Principal Financial Officer
Martin L. Flanagan Dated: February 26, 1998
Diomedes Loo-Tam* Principal Accounting Officer
Diomedes Loo-Tam Dated: February 26, 1998
Frank H. Abbott, III* Trustee
Frank H. Abbott, III Dated: February 26, 1998
Harris J. Ashton* Trustee
Harris J. Ashton Dated: February 26, 1998
David K. Eiteman* Trustee
David K. Eiteman Dated: February 26, 1998
S. Joseph Fortunato* Trustee
S. Joseph Fortunato Dated: February 26, 1998
Gerald R. Healy* Trustee
Gerald R. Healy Dated: February 26, 1998
Charles B. Johnson* Chairman of the Board and
Charles B. Johnson Trustee
Dated: February 26, 1998
Rupert H. Johnson, Jr.* Trustee
Rupert H. Johnson, Jr. Dated: February 26, 1998
David P. Kraus* Trustee
David P. Kraus Dated: February 26, 1998
Frank W. T. LaHaye* Trustee
Frank W. T. LaHaye Dated: February 26, 1998
Gordon S. Macklin* Trustee
Gordon S. Macklin Dated: February 26, 1998
*By: /s/ Larry L. Greene, Attorney-in-Fact
(pursuant to Power of Attorney previously filed)
FRANKLIN TEMPLETON GLOBAL TRUST
REGISTRATION STATEMENT
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO. IN
SEQUENTIAL
NUMBERING SYSTEM
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) Management Agreement between Attached
Registrant and Franklin Advisers,
Inc. dated August 28, 1996
EX-99.B5(ii) Subadvisory Agreement on behalf of Attached
Registrant between Franklin
Advisers, Inc. and Templeton
Investment Counsel, Inc. dated
August 28, 1996
EX-99.B6(i) Amended and Restated Distribution Attached
Agreement between Registrant and
Franklin/Templeton Distributors,
Inc. dated August 28, 1996
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) Master Custody Agreement between Attached
Registrant and Bank of New York
dated February 16, 1996
EX-99.B8(iii) Amendment to Master Custody Attached
Agreement between Registrant and
Bank of New York dated May 7, 1997
EX-99.B8(iv) Amendment to Master Custody Attached
Agreement between Registrant and
Bank of New York dated October 15,
1997
EX-99.B8(v) Terminal Link Agreement between Attached
Registrant and Bank of New York
dated February 16, 1996
EX-99.B11(i) Consent of Independent Accountants 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) Distribution Plan pursuant to Rule Attached
12b-1 between Registrant and
Franklin/Templeton Distributors,
Inc. dated August 28, 1996
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 dated
September 17, 1996
EX-99.B18(ii) Multiple Class Plan on behalf of *
Franklin Templeton Hard Currency
Fund dated September 17, 1996
EX-27.B1 Financial Data Schedule for Attached
Franklin Templeton German
Government Bond Fund - Class I
EX-27.B2 Financial Data Schedule for Attached
Franklin Templeton German
Government Bond Fund - Advisor Class
EX-27.B3 Financial Data Schedule for Attached
Franklin Templeton Global Currency
Fund
EX-27.B4 Financial Data Schedule for Attached
Franklin Templeton Hard Currency
Fund - Class I
EX-27.B5 Financial Data Schedule for Attached
Franklin Templeton Hard Currency
Fund - Advisor Class
EX-27.B6 Financial Data Schedule for Attached
Franklin Templeton High Income
Currency Fund
* Incorporated by Reference
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT is made between FRANKLIN TEMPLETON GLOBAL
TRUST, a Delaware business trust (successor to Franklin Templeton Global
Trust, a Massachusetts business trust formerly known as Huntington Funds),
hereinafter called the "Trust," on behalf of its various separate series, and
FRANKLIN ADVISERS, INC., a California corporation, hereinafter called the
"Manager."
WHEREAS, the Trust has been organized and intends to operate as an
investment company registered under the Investment Company Act of 1940 (the
"1940 Act") for the purpose of investing and reinvesting its assets in
securities, as set forth in its Agreement and Declaration of Trust, its
By-Laws and its Registration Statements under the 1940 Act and the Securities
Act of 1933, all as heretofore and hereafter amended and supplemented;
WHEREAS, the Trust desires to avail itself of the services,
information, advice, assistance and facilities of an investment manager and
to have an investment manager perform various management, statistical,
research, investment advisory and other services for each of the funds
currently or hereafter organized as separate series of the Trust (the "Fund"
or together, the "Funds"); and
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, is engaged in the business of rendering
management, investment advisory, counselling and supervisory services to
investment companies and other investment counselling clients, and desires to
provide these services to the Funds.
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is mutually agreed as follows:
l. EMPLOYMENT OF THE MANAGER. The Trust hereby employs the Manager
to manage the investment and reinvestment of each Fund's assets and to
administer its affairs, subject to the direction of the Board of Trustees and
the officers of the Trust, for the period and on the terms hereinafter set
forth. The Manager hereby accepts such employment and agrees during such
period to render the services and to assume the obligations herein set forth
for the compensation herein provided. The Manager shall for all purposes
herein be deemed to be an independent contractor and shall, except as
expressly provided or authorized (whether herein or otherwise), have no
authority to act for or represent the Funds in any way or otherwise be deemed
an agent of the Funds or the Trust.
2. OBLIGATIONS OF AND SERVICES TO BE PROVIDED BY THE MANAGER. The
Manager undertakes to provide the services hereinafter set forth and to
assume the following obligations:
A. ADMINISTRATIVE SERVICES. The Manager shall furnish each
Fund adequate (i) office space, which may be space within the offices of the
Manager or in such other place as may be agreed upon from time to time, (ii)
office furnishings, facilities and equipment as may be reasonably required
for managing the affairs and conducting the business of the Funds, including
conducting correspondence and other communications with the shareholders of
the Funds, maintaining all internal bookkeeping, accounting and auditing
services and records in connection with the Funds' investment and business
activities. The Manager shall employ or provide and compensate the
executive, secretarial and clerical personnel necessary to provide such
services. The Manager shall also compensate all officers and employees of
the Trust who are officers or employees of the Manager or its affiliates.
B. INVESTMENT MANAGEMENT SERVICES.
(a) The Manager shall manage each Fund's assets subject
to and in accordance with the respective investment objectives and policies
of each Fund and any directions which the Trust's Board of Trustees may issue
from time to time. In pursuance of the foregoing, the Manager shall make all
determinations with respect to the investment of each Fund's assets and the
purchase and sale of its investment securities, and shall take such steps as
may be necessary to implement the same. Such determinations and services
shall include determining the manner in which any voting rights, rights to
consent to corporate action and any other rights pertaining to each Fund's
investment securities shall be exercised. The Manager shall render or cause
to be rendered regular reports to the Trust, at regular meetings of its Board
of Trustees and at such other times as may be reasonably requested by the
Trust's Board of Trustees, of (i) the decisions made with respect to the
investment of each Fund's assets and the purchase and sale of their
investment securities, (ii) the reasons for such decisions, and (iii) the
extent to which those decisions have been implemented.
(b) The Manager, subject to and in accordance with any
directions which the Trust's Board of Trustees may issue from time to time,
shall place, in the name of each Fund, orders for the execution of the Fund's
securities transactions. When placing such orders the Manager shall seek to
obtain the best net price and execution for the Funds, but this requirement
shall not be deemed to obligate the Manager to place any order solely on the
basis of obtaining the lowest commission rate if the other standards set
forth in this section have been satisfied. The parties recognize that there
are likely to be many cases in which different brokers or dealers are equally
able to provide such best price and execution and that, in selecting among
such brokers or dealers with respect to particular trades, it is desirable to
choose those brokers or dealers who furnish research, statistical quotations
and other information to the Funds and the Manager in accord with the
standards set forth below. Moreover, to the extent that it continues to be
lawful to do so and so long as the Board of Trustees determines that the
Funds will benefit, directly or indirectly, by doing so, the Manager may
place orders with a broker who charges a commission for that transaction
which is in excess of the amount of commission that another broker would have
charged for effecting that transaction, provided that the excess commission
is reasonable in relation to the value of "brokerage and research services"
(as defined in Section 28(e) (3) of the Securities Exchange Act of 1934)
provided by that broker.
Accordingly, the Trust and the Manager agree that the Manager shall select
brokers for the execution of each Fund's transactions from among:
(i) those brokers and dealers who provide
quotations and other services to the Funds,
specifically including the quotations necessary
to determine the Funds' net assets, in such
amount of total brokerage as may reasonably be
required in light of such services; and
(ii) those brokers and dealers who supply research,
statistical and other data to the Manager or
its affiliates which the Manager or its
affiliates may lawfully and appropriately use
in their investment advisory capacities, which
relate directly to securities, actual or
potential, of the Funds, or which place the
Manager in a better position to make decisions
in connection with the management of each
Fund's assets and securities, whether or not
such data may also be useful to the Manager and
its affiliates in managing other portfolios or
advising other clients, in such amount of total
brokerage as may reasonably be required.
Provided that the Trust's officers are
satisfied that the best execution is obtained,
the sale of shares of the Funds may also be
considered as a factor in the selection of
broker-dealers to execute the Funds' portfolio
transactions.
(c) It is acknowledged that the Manager may contract with
one or more firms to undertake some or all of the manager's investment
management services as set forth herein pursuant to an agreement which is
subject to substantially the same provisions as contained in paragraphs 6, 7
and 10 herein.
(d) When the Manager has determined that any of the Funds
should tender securities pursuant to a "tender offer solicitation,"
Franklin/Templeton Distributors, Inc. ("Distributors") shall be designated
as the "tendering dealer" so long as it is legally permitted to act in such
capacity under the federal securities laws and rules thereunder and the rules
of any securities exchange or association of which Distributors may be a
member. Neither the Manager nor Distributors shall be obligated to make any
additional commitments of capital, expense or personnel beyond that already
committed (other than normal periodic fees or payments necessary to maintain
its corporate existence and membership in the National Association of
Securities Dealers, Inc.) as of the date of this Agreement. This Agreement
shall not obligate the Manager or Distributors (i) to act pursuant to the
foregoing requirement under any circumstances in which they might reasonably
believe that liability might be imposed upon them as a result of so acting,
or (ii) to institute legal or other proceedings to collect fees which may be
considered to be due from others to it as a result of such a tender, unless
the applicable Fund shall enter into an agreement with the Manager and/or
Distributors to reimburse them for all such expenses connected with
attempting to collect such fees, including legal fees and expenses and that
portion of the compensation due to their employees which is attributable to
the time involved in attempting to collect such fees.
(e) The Manager shall render regular reports to the
Trust, not more frequently than quarterly, of how much total brokerage
business has been placed by the Manager with brokers falling into each of the
categories referred to above and the manner in which the allocation has been
accomplished.
(f) The Manager agrees that no investment decision will
be made or influenced by a desire to provide brokerage for allocation in
accordance with the foregoing, and that the right to make such allocation of
brokerage shall not interfere with the Manager's paramount duty to obtain the
best net price and execution for each Fund.
C. PROVISION OF INFORMATION NECESSARY FOR PREPARATION OF
SECURITIES REGISTRATION STATEMENTS - AMENDMENTS AND OTHER MATERIALS. The
Manager, its officers and employees will make available and provide
accounting and statistical information required by the Funds in the
preparation of registration statements, reports and other documents required
by federal and state securities laws and with such information as the Funds
may reasonably request for use in the preparation of such documents or of
other materials necessary or helpful for the underwriting and distribution of
the Funds' shares.
D. OTHER OBLIGATIONS AND SERVICES. The Manager shall make its
officers and employees available to the Board of Trustees and officers of the
Trust for consultation and discussions regarding the administration and
management of the Funds and their investment activities.
3. EXPENSES OF THE FUNDS. It is understood that each Fund will pay
all of its own expenses other than those expressly assumed by the Manager
herein, which expenses payable by the Funds shall include:
A. Fees and expenses paid to the Manager as provided herein;
B. Expenses of all audits by independent public accountants;
C. Expenses of transfer agent, registrar, custodian, dividend
disbursing agent and shareholder record-keeping services, including the
expenses of issue, repurchase or redemption of their shares;
D. Expenses of obtaining quotations for calculating the value
of each Fund's net assets;
E. Salaries and other compensations of executive officers of
the Trust who are not officers, directors, stockholders or employees of the
Manager or its affiliates;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with the
purchase and sale of securities for each Fund;
H. Costs, including the interest expense, of borrowing money;
I. Costs incident to meetings of Board of Trustees and
shareholders of each Fund, reports to each Fund's shareholders, the filing of
reports with regulatory bodies and the maintenance of each Fund's and the
Trust's legal existence;
J. Legal fees, including the legal fees related to the
registration and continued qualification of each Fund's shares for sale;
K. Trustees' fees and expenses to trustees who are not
directors, officers, employees or stockholders of the Manager or any of its
affiliates;
L. Costs and expense of registering and maintaining the
registration of the Funds and their shares under federal and any applicable
state laws; including the printing and mailing of prospectuses to their
shareholders;
M. Trade association dues; and
N. Each Fund's pro rata portion of fidelity bond, errors and
omissions, and trustees and officer liability insurance premiums.
4. COMPENSATION OF THE MANAGER. Each Fund shall pay a monthly
management fee in cash to the Manager based upon a percentage of the value of
the respective Fund's net assets, calculated as set forth below, as
compensation for the services rendered and obligations assumed by the
Manager, during the preceding month, on the first business day of the month
in each year. The initial management fee under this Agreement shall be
payable on the first business day of the first month following the effective
date of this Agreement, and shall be reduced by the amount of any advance
payments made by the Funds relating to the previous month.
A. For purposes of calculating such fee, the value of the net
assets of each Fund shall be the average daily net assets of each Fund during
each month, determined in the same manner as each Fund uses to compute the
value of its net assets in connection with the determination of the net asset
value of its shares, all as set forth more fully in the Trust's current
prospectus and statement of additional information. The rate of the monthly
fee payable to the Manager by each of the Funds shall be based upon the
following annual rates:
0.65% of the value of the average daily net assets of each of the
Franklin Templeton Global Currency Fund, the Franklin Templeton
High Income Currency Fund, and the Franklin Templeton Hard
Currency Fund; and
0.55% of the value of the average daily net assets of the
Franklin Templeton German Government Bond Fund.
B. The management fee payable by a Fund shall be reduced or
eliminated to the extent that Distributors has actually received cash
payments of tender offer solicitation fees less certain costs and expenses
incurred in connection therewith as set forth in paragraph 2. B. (c) of this
Agreement and to the extent necessary to comply with the limitations on
expenses which may be borne by the Fund as set forth in the laws, regulations
and administrative interpretations of those states in which the Fund's shares
are registered. The Manager may waive all or a portion of its fees provided
for hereunder and such waiver shall be treated as a reduction in purchase
price of its services. The Manager shall be contractually bound hereunder by
the terms of any publicly announced waiver of its fee, or any limitation of a
Fund's expenses, as if such waiver or limitation were full set forth herein.
C. If this Agreement is terminated prior to the end of any
month, the management fee shall be paid to the date of termination.
5. ACTIVITIES OF THE MANAGER. The services of the Manager to the
Funds hereunder are not to be deemed exclusive, and the Manager and any of
its affiliates shall be free to render similar services to others. Subject
to and in accordance with the Agreement and Declaration of Trust and By-Laws
of the Trust and Section 10(a) of the 1940 Act, it is understood that
trustees, officers, agents and shareholders of the Trust are or may be
interested in the Manager or its affiliates as directors, officers, agents or
stockholders; that directors, officers, agents or stockholders of the Manager
or its affiliates are or may be interested in the Trust as trustees,
officers, agents, shareholders or otherwise; that the Manager or its
affiliates may be interested in the Funds as shareholders or otherwise; and
that the effect of any such interests shall be governed by said Agreement and
Declaration of Trust, By-Laws and the 1940 Act.
6. LIABILITIES OF THE MANAGER.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties hereunder on the
part of the Manager, the Manager shall not be subject to liability to the
Trust or any of the Funds or to any shareholder of the Funds for any act or
omission in the course of, or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale of any
security by any of the Funds.
B. Notwithstanding the foregoing the Manager agrees to
reimburse the Trust for any and all costs, expenses, and counsel and
trustees' fees reasonably incurred by the Trust in the preparation, printing
and distribution of proxy statements, amendments to its Registration
Statement, holdings of meetings of its shareholders or trustees, the conduct
of factual investigations, any legal or administrative proceedings (including
any applications for exemptions or determinations by the Securities and
Exchange Commission) which the Trust incurs as the result of action or
inaction of the Manager or any of its affiliates or any of their officers,
directors, employees or stockholders where the action or inaction
necessitating such expenditures (i) is directly or indirectly related to any
transactions or proposed transaction in the stock or control of the Manager
or its affiliates (or litigation related to any pending or proposed or future
transaction in such shares or control) which shall have been undertaken
without the prior, express approval of the Trust's Board of Trustees; or,
(ii) is within the control of the Manager or any of its affiliates or any of
their officers, directors, employees or stockholders. The Manager shall not
be obligated, pursuant to the provisions of this Subparagraph 6 B., to
reimburse the Trust for any expenditures related to the institution of an
administrative proceeding or civil litigation by the Trust or a shareholder
seeking to recover all or a portion of the proceeds derived by any
stockholder of the Manager or any of its affiliates from the sale of his
shares of the Manager, or similar matters. So long as this Agreement is in
effect, the Manager shall pay to the Trust the amount due for expenses
subject to this Subparagraph 6 B. within 30 days after a bill or statement
has been received by the Manager therefor. This provision shall not be
deemed to be a waiver of any claim the Trust may have or may assert against
the Manager or others for costs, expenses or damages heretofore incurred by
the Trust or for costs, expenses or damages the Trust may hereafter incur
which are not reimbursable to it hereunder.
C. No provision of this Agreement shall be construed to
protect any trustee or officer of the Trust, or director or officer of the
Manager, from liability in violation of Sections 17(h) and (i) of the 1940
Act.
7. RENEWAL AND TERMINATION.
A. This Agreement shall become effective on the date written
below and shall continue in effect for two (2) years thereafter, unless
sooner terminated as hereinafter provided and shall continue in effect
thereafter as to each Fund for periods not exceeding one (1) year so long as
such continuation is approved at least annually (i) by a vote of a majority
of the outstanding voting securities of each Fund or by a vote of the Board
of Trustees of the Trust, and (ii) by a vote of a majority of the Trustees of
the Trust who are not parties to the Agreement or interested persons of any
parties to the Agreement (other than as Trustees of the Trust), cast in
person at a meeting called for the purpose of voting on the Agreement.
B. This Agreement:
(i) may at any time be terminated with respect to any of
the Funds without the payment of any penalty either by vote of the Board of
Trustees of the Trust or by vote of a majority of the outstanding voting
securities of the Fund, on 60 days' written notice to the Manager;
(ii) shall immediately terminate with respect to all of
the Funds in the event of its assignment; and
(iii) may be terminated by the Manager with respect to any
of the Funds on 60 days' written notice to the applicable Fund.
C. As used in this Paragraph the terms "assignment,"
"interested person" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth for any such terms in the 1940
Act.
D. Any notice under this Agreement shall be given in writing
addressed and delivered, or mailed post-paid, to the other party at any
office of such party.
8. SEVERABILITY. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
9. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
10. LIMITATION OF LIABILITY. The Manager acknowledges that it has
received notice of and accepts the limitations of each Fund's liability as
set forth in its Agreement and Declaration of Trust. The Manager agrees that
each Fund's obligations hereunder shall be limited to the assets of the Fund,
and that the Manager shall not seek satisfaction of any such obligation from
any shareholders, of the Fund nor from any trustee, officer, employee or
agent of the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed and effective on the 28TH day of AUGUST , 1996.
FRANKLIN TEMPLETON GLOBAL TRUST
By: /S/ DEBORAH R. GATZEK
Deborah R. Gatzek
Vice President & Secretary
FRANKLIN ADVISERS, INC.
By: /S/ HARMON E. BURNS
Harmon E. Burns
Executive Vice President
SUBADVISORY AGREEMENT
FRANKLIN TEMPLETON GLOBAL TRUST (formerly known as Huntington Funds),
on behalf of its series, FRANKLIN TEMPLETON GERMAN GOVERNMENT BOND FUND,
FRANKLIN TEMPLETON GLOBAL CURRENCY FUND, FRANKLIN TEMPLETON HARD CURRENCY
FUND AND FRANKLIN TEMPLETON HIGH INCOME CURRENCY FUND
THIS SUBADVISORY AGREEMENT is made as of the 28TH day of AUGUST,
1996, by and between FRANKLIN ADVISERS, INC., a corporation organized and
existing under the laws of the State of California (hereinafter called
"FAI"), and TEMPLETON INVESTMENT COUNSEL, INC., a Florida corporation
(hereinafter called "TICI").
W I T N E S S E T H
WHEREAS, FAI is registered as an investment adviser under the
Investment Advisers Act of 1940 (the "Advisers Act"), and is engaged in the
business of supplying investment advice, and investment management services,
as an independent contractor; and
WHEREAS, FAI has been retained to render investment management services
to Franklin Templeton German Government Bond Fund, Franklin Templeton Global
Currency Fund, Franklin Templeton Hard Currency Fund and Franklin Templeton
High Income Currency Fund, (the "Funds"), series of Franklin Templeton Global
Trust (the "Trust")(formerly known as the Huntington Funds), an investment
company registered with the U.S. Securities and Exchange Commission (the
"SEC") pursuant to the Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, FAI desires to retain TICI to render investment advisory,
research and related services to the Funds pursuant to the terms and
provisions of this Agreement, and TICI is interested in furnishing said
services.
NOW, THEREFORE, in consideration of the covenants and the mutual
promises hereinafter set forth, the parties hereto, intending to be legally
bound hereby, mutually agree as follows:
1. FAI hereby retains TICI and TICI hereby accepts such engagement,
to furnish certain investment advisory services with respect to the assets of
the Funds, as more fully set forth herein.
(a) Subject to the overall policies, control, direction and
review of the Trust's Board of Trustees (the "Board") and to the instructions
and supervision of FAI, TICI will provide a continuous investment program for
the Funds, including allocation of the Funds' assets among the various
securities markets of the world and, investment research and advice with
respect to securities and investments and cash equivalents in the Funds. So
long as the Board and FAI determine, on no less frequently than an annual
basis, to grant the necessary delegated authority to TICI, and subject to
paragraph (b) below, TICI will determine what securities and other
investments will be purchased, retained or sold by the Funds, and will place
all purchase and sale orders on behalf of the Funds except that orders
regarding U.S. domiciled securities and money market instruments may also be
placed on behalf of the Funds by FAI.
(b) In performing these services, TICI shall adhere to the
Funds' investment objectives, policies and restrictions as contained in their
Prospectus and Statement of Additional Information, and in the Trust's
Declaration of Trust, and to the investment guidelines most recently
established by FAI and shall comply with the provisions of the 1940 Act and
the rules and regulations of the SEC thereunder in all material respects and
with the provisions of the United States Internal Revenue Code of 1986, as
amended, which are applicable to regulated investment companies.
(c) Unless otherwise instructed by FAI or the Board, and
subject to the provisions of this Agreement and to any guidelines or
limitations specified from time to time by FAI or by the Board, TICI shall
report daily all transactions effected by TICI on behalf of the Funds to FAI
and to other entities as reasonably directed by FAI or the Board.
(d) TICI shall provide the Board at least quarterly, in advance
of the regular meetings of the Board, a report of its activities hereunder on
behalf of the Funds and its proposed strategy for the next quarter, all in
such form and detail as requested by the Board. TICI shall also make an
investment officer available to attend such meetings of the Board as the
Board may reasonably request.
(e) In carrying out its duties hereunder, TICI shall comply
with all reasonable instructions of the Funds or FAI in connection
therewith. Such instructions may be given by letter, telex, telefax or
telephone confirmed by telex, by the Board or by any other person authorized
by a resolution of the Board, provided a certified copy of such resolution
has been supplied to TICI.
2. In performing the services described above, TICI shall use its
best efforts to obtain for the Funds the most favorable price and execution
available. Subject to prior authorization of appropriate policies and
procedures by the Board, TICI may, to the extent authorized by law and in
accordance with the terms of the Funds' Prospectus and Statement of
Additional Information, cause the Funds to pay a broker who provides
brokerage and research services an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission
another broker would have charged for effecting that transaction, in
recognition of the brokerage and research services provided by the broker.
To the extent authorized by applicable law, TICI shall not be deemed to have
acted unlawfully or to have breached any duty created by this Agreement or
otherwise solely by reason of such action.
3. (a) TICI shall, unless otherwise expressly provided and
authorized, have no authority to act for or represent FAI or the Funds in any
way, or in any way be deemed an agent for FAI or the Funds.
(b) It is understood that the services provided by TICI are not
to be deemed exclusive. FAI acknowledges that TICI may have investment
responsibilities, or render investment advice to, or perform other investment
advisory services, for individuals or entities, including other investment
companies registered pursuant to the 1940 Act, ("Clients") which may invest
in the same type of securities as the Funds. FAI agrees that TICI may give
advice or exercise investment responsibility and take such other action with
respect to such Clients which may differ from advice given or the timing or
nature of action taken with respect to the Funds.
4. TICI agrees to use its best efforts in performing the services to
be provided by it pursuant to this Agreement.
5. FAI has furnished or will furnish to TICI as soon as available
copies properly certified or authenticated of each of the following documents:
(a) the Trust's Declaration of Trust, as filed with the
Secretary of State of the State of Delaware on March 22, 1991, and any other
organizational documents and all amendments thereto or restatements thereof;
(b) resolutions of the Trust's Board of Trustees authorizing
the appointment of TICI and approving this Agreement;
(c) the Trust's original Notification of Registration on Form
N-8A under the 1940 Act as filed with the SEC and all amendments thereto if
possessed by or available to FAI;
(d) the Trust's current Registration Statement on Form N-1A
under the Securities Act of 1933, as amended and under the 1940 Act as filed
with the SEC, and all amendments thereto, as it relates to the Funds;
(e) the Funds' most recent Prospectus and Statement of
Additional Information; and
(f) the Investment Management Agreement between the Funds and
FAI.
FAI will furnish TICI with copies of all amendments of or supplements to the
foregoing documents.
6. TICI will treat confidentially and as proprietary information of
the Funds all records and other information relative to the Funds and prior,
present or potential shareholders, and will not use such records and
information for any purpose other than performance of its responsibilities
and duties hereunder, except after prior notification to and approval in
writing by the Funds, which approval shall not be unreasonably withheld and
may not be withheld where TICI may be exposed to civil or criminal contempt
proceedings for failure to comply when requested to divulge such information
by duly constituted authorities, or when so requested by the Funds.
7. FAI shall pay a monthly fee in cash to TICI based upon a
percentage of the value of each Fund's net assets, calculated as set forth
below, on the first business day of each month in each year as compensation
for the services rendered and obligations assumed by TICI during the
preceding month. The advisory fee under this Agreement shall be payable on
the first business day of the first month following the effective date of
this Agreement, and shall be reduced by the amount of any advance payments
made by FAI relating to the previous month.
(a) For purposes of calculating such fee, the value of the net assets
of each Fund shall be the average daily net assets of each Fund during each
month, determined in the same manner as the Funds use to compute the value of
their net assets in connection with the determination of the net asset value
of their shares, all as set forth more fully in the Funds' current
Prospectus. The rate of the monthly fee payable to TICI shall be based upon
the following annual rates:
0.25% of the value of the average daily net assets of each
of the Franklin Templeton German Government Bond Fund,
Franklin Templeton Global Currency Fund, Franklin Templeton
Hard Currency Fund and Franklin Templeton High Income
Currency Fund.
(b) FAI and TICI shall share equally in any voluntary reduction
or waiver by FAI of the management fee due FAI under the Management Agreement
between FAI and the Funds.
(c) If this Agreement is terminated prior to the end of any
month, the monthly fee shall be prorated for the portion of any month in
which this Agreement is in effect which is not a complete month according to
the proportion which the number of calendar days in the month during which
the Agreement is in effect bears to the total number of calendar days in the
month, and shall be payable within 10 days after the date of termination.
8. Nothing herein contained shall be deemed to relieve or deprive
the Board of its responsibility for and control of the conduct of the affairs
of the Funds.
9. (a) In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of its obligations or duties hereunder on
the part of TICI, neither TICI nor any of its directors, officers, employees
or affiliates shall be subject to liability to FAI or the Funds or to any
shareholder of the Funds for any error of judgment or mistake of law or any
other act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security by the Funds.
(b) Notwithstanding paragraph 9(a), to the extent that FAI is
found by a court of competent jurisdiction, or the SEC or any other
regulatory agency to be liable to the Funds or any shareholder (a
"liability"), for any acts undertaken by TICI pursuant to authority delegated
as described in Paragraph 1(a), TICI shall indemnify and save FAI and each of
its affiliates, officers, directors and employees (each a "Franklin
Indemnified Party") harmless from, against, for and in respect of all losses,
damages, costs and expenses incurred by a Franklin Indemnified Party with
respect to such liability, together with all legal and other expenses
reasonably incurred by any such Franklin Indemnified Party, in connection
with such liability.
(c) No provision of this Agreement shall be construed to
protect any director or officer of FAI or TICI, from liability in violation
of Sections 17(h) or (i), respectively, of the 1940 Act.
(d) FAI will not be liable under this indemnification provision
with respect to any claim made against a Franklin Indemnified Party unless
such Franklin Indemnified Party shall have notified FAI in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Franklin Indemnified Party (or after such Franklin Indemnified Party shall
have received notice of such service on any designated agent). In case any
such action is brought against the Indemnified Parties, FAI will be entitled
to participate, at its own expense, in the defense thereof. FAI also will be
entitled, at its own expense, to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from FAI to such
party of FAI's election to assume the defense thereof and not withstanding
paragraph (d) of this Section 9, the Franklin Indemnified Party will bear the
fees and expenses of any additional counsel retained by it, and FAI will not
be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof.
10. During the term of this Agreement, subject to the indemnity in
Section 9(d) above, TICI will pay all expenses incurred by it in connection
with its activities under this Agreement other than the cost of securities
(including brokerage commissions, if any) purchased for the Funds. The Funds
and FAI will be responsible for all of their respective expenses and
liabilities.
11. This Agreement shall be effective as of August 28, 1996, and
shall continue in effect for two years. It is renewable annually thereafter
for successive periods not to exceed one year each (i) by a vote of the Board
or by the vote of a majority of the outstanding voting securities of the
Funds, and (ii) by the vote of a majority of the trustees of the Trust who
are not parties to this Agreement or interested persons thereof, cast in
person at a meeting called for the purpose of voting on such approval.
12. This Agreement may be terminated at any time, without payment of
any penalty, by the Board or by vote of a majority of the outstanding voting
securities of the Funds, upon sixty (60) days' written notice to FAI and
TICI, and by FAI or TICI upon sixty (60) days' written notice to the other
party.
13. This Agreement shall terminate automatically in the event of any
transfer or assignment thereof, as defined in the 1940 Act, and in the event
of any act or event that terminates the Management Agreement between FAI and
the Funds.
14. In compliance with the requirements of Rule 31a-3 under the 1940
Act, TICI hereby agrees that all records which it maintains for the Funds are
the property of the Funds and further agrees to surrender promptly to a Fund,
or to any third party at the Fund's direction, any of such records upon the
Fund's request. TICI further agrees to preserve for the periods prescribed
by Rule 31a-2 under the 1940 Act the records required to be maintained by
Rule 31a-1 under the 1940 Act.
15. This Agreement may not be materially amended, transferred,
assigned, sold or in any manner hypothecated or pledged without the
affirmative vote or written consent of the holders of a majority of the
outstanding voting securities of the Funds and may not be amended without the
written consent of FAI and TICI.
16. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule, or otherwise, the remainder of this
Agreement shall not be affected thereby.
17. The terms "majority of the outstanding voting securities" of the
Funds and "interested persons" shall have the meanings as indicated in the
1940 Act.
18. This Agreement shall be interpreted in accordance with and
governed by the laws of the State of California of the United States of
America.
19. TICI acknowledges that it has received notice of and accepts the
limitations of the Trust's liability as set forth in Article VII of its
Agreement and Declaration of Trust. TICI agrees that the Trust's obligations
hereunder shall be limited to the assets of the Funds, and that TICI shall
not seek satisfaction of any such obligation from any shareholders of the
Funds nor from any trustee, officer, employee or agent of the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested by their duly authorized officers.
FRANKLIN ADVISERS, INC.
By: /S/ HARMON E. BURNS
Harmon E. Burns
Executive Vice President
TEMPLETON INVESTMENT COUNSEL, INC.
By: /S/ MARTIN L. FLANAGAN
Martin L. Flanagan
Executive Vice President, Coo
FRANKLIN TEMPLETON GERMAN GOVERNMENT BOND FUND, FRANKLIN TEMPLETON GLOBAL
CURRENCY FUND, FRANKLIN TEMPLETON HARD CURRENCY FUND AND FRANKLIN TEMPLETON
HIGH INCOME CURRENCY FUND, hereby acknowledge and agree to the provisions of
paragraphs 9(a) and 10 of this Agreement.
FRANKLIN TEMPLETON GLOBAL TRUST (formerly known as Huntington Funds) on
behalf of FRANKLIN TEMPLETON GERMAN GOVERNMENT BOND FUND, FRANKLIN TEMPLETON
GLOBAL CURRENCY FUND, FRANKLIN TEMPLETON HARD CURRENCY FUND AND FRANKLIN
TEMPLETON HIGH INCOME CURRENCY FUND
By: /S/ DEBORAH R. GATZEK
Deborah R. Gatzek
Vice President & Secretary
FRANKLIN TEMPLETON GLOBAL TRUST
777 Mariners Island Blvd.
San Mateo, California 94404
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404
RE: Amended and Restated Distribution Agreement
Gentlemen:
We (the "Fund") are a corporation or business trust operating as an open-end
management investment company or "mutual fund", which is registered under the
Investment Company Act of 1940 (the "1940 Act") and whose shares are
registered under the Securities Act of 1933 (the "1933 Act"). We desire to
issue one or more series or classes of our authorized but unissued shares of
capital stock or beneficial interest (the "Shares") to authorized persons in
accordance with applicable Federal and State securities laws. The Fund's
Shares may be made available in one or more separate series, each of which
may have one or more classes.
You have informed us that your company is registered as a broker-dealer under
the provisions of the Securities Exchange Act of 1934 and that your company
is a member of the National Association of Securities Dealers, Inc. You have
indicated your desire to act as the exclusive selling agent and distributor
for the Shares. We have been authorized to execute and deliver this
Distribution Agreement ("Agreement") to you by a resolution of our Board of
Directors or Trustees ("Board") passed at a meeting at which a majority of
Board members, including a majority who are not otherwise interested persons
of the Fund and who are not interested persons of our investment adviser, its
related organizations or with you or your related organizations, were present
and voted in favor of the said resolution approving this Agreement.
1. APPOINTMENT OF UNDERWRITER. Upon the execution of this
Agreement and in consideration of the agreements on your part herein
expressed and upon the terms and conditions set forth herein, we hereby
appoint you as the exclusive sales agent for our Shares and agree that we
will deliver such Shares as you may sell. You agree to use your best efforts
to promote the sale of Shares, but are not obligated to sell any specific
number of Shares.
However, the Fund and each series retain the right to make direct sales
of its Shares without sales charges consistent with the terms of the then
current prospectus and applicable law, and to engage in other legally
authorized transactions in its Shares which do not involve the sale of Shares
to the general public. Such other transactions may include, without
limitation, transactions between the Fund or any series or class and its
shareholders only, transactions involving the reorganization of the Fund or
any series, and transactions involving the merger or combination of the Fund
or any series with another corporation or trust.
2. INDEPENDENT CONTRACTOR. You will undertake and discharge your
obligations hereunder as an independent contractor and shall have no
authority or power to obligate or bind us by your actions, conduct or
contracts except that you are authorized to promote the sale of Shares. You
may appoint sub-agents or distribute through dealers or otherwise as you may
determine from time to time, but this Agreement shall not be construed as
authorizing any dealer or other person to accept orders for sale or
repurchase on our behalf or otherwise act as our agent for any purpose.
3. OFFERING PRICE. Shares shall be offered for sale at a price
equivalent to the net asset value per share of that series and class plus any
applicable percentage of the public offering price as sales commission or as
otherwise set forth in our then current prospectus. On each business day on
which the New York Stock Exchange is open for business, we will furnish you
with the net asset value of the Shares of each available series and class
which shall be determined in accordance with our then effective prospectus.
All Shares will be sold in the manner set forth in our then effective
prospectus and statement of additional information, and in compliance with
applicable law.
4. COMPENSATION.
A. SALES COMMISSION. You shall be entitled to charge a sales
commission on the sale or redemption, as appropriate, of each series and
class of each Fund's Shares in the amount of any initial, deferred or
contingent deferred sales charge as set forth in our then effective
prospectus. You may allow any sub-agents or dealers such commissions or
discounts from and not exceeding the total sales commission as you shall deem
advisable, so long as any such commissions or discounts are set forth in our
current prospectus to the extent required by the applicable Federal and State
securities laws. You may also make payments to sub-agents or dealers from
your own resources, subject to the following conditions: (a) any such
payments shall not create any obligation for or recourse against the Fund or
any series or class, and (b) the terms and conditions of any such payments
are consistent with our prospectus and applicable federal and state
securities laws and are disclosed in our prospectus or statement of
additional information to the extent such laws may require.
B. DISTRIBUTION PLANS. You shall also be entitled to
compensation for your services as provided in any Distribution Plan adopted
as to any series and class of any Fund's Shares pursuant to Rule 12b-1 under
the 1940 Act.
5. TERMS AND CONDITIONS OF SALES. Shares shall be offered for
sale only in those jurisdictions where they have been properly registered or
are exempt from registration, and only to those groups of people which the
Board may from time to time determine to be eligible to purchase such shares.
6. ORDERS AND PAYMENT FOR SHARES. Orders for Shares shall be
directed to the Fund's shareholder services agent, for acceptance on behalf
of the Fund. At or prior to the time of delivery of any of our Shares you
will pay or cause to be paid to the custodian of the Fund's assets, for our
account, an amount in cash equal to the net asset value of such Shares.
Sales of Shares shall be deemed to be made when and where accepted by the
Fund's shareholder services agent. The Fund's custodian and shareholder
services agent shall be identified in its prospectus.
7. PURCHASES FOR YOUR OWN ACCOUNT. You shall not purchase our
Shares for your own account for purposes of resale to the public, but you may
purchase Shares for your own investment account upon your written assurance
that the purchase is for investment purposes and that the Shares will not be
resold except through redemption by us.
8. SALE OF SHARES TO AFFILIATES. You may sell our Shares at net
asset value to certain of your and our affiliated persons pursuant to the
applicable provisions of the federal securities statutes and rules or
regulations thereunder (the "Rules and Regulations"), including Rule 22d-1
under the 1940 Act, as amended from time to time.
9. ALLOCATION OF EXPENSES. We will pay the expenses:
(a) Of the preparation of the audited and certified financial
statements of our company to be included in any
Post-Effective Amendments ("Amendments") to our
Registration Statement under the 1933 Act or 1940 Act,
including the prospectus and statement of additional
information included therein;
(b) Of the preparation, including legal fees, and printing of
all Amendments or supplements filed with the Securities and
Exchange Commission, including the copies of the
prospectuses included in the Amendments and the first 10
copies of the definitive prospectuses or supplements
thereto, other than those necessitated by your (including
your "Parent's") activities or Rules and Regulations
related to your activities where such Amendments or
supplements result in expenses which we would not otherwise
have incurred;
(c) Of the preparation, printing and distribution of any
reports or communications which we send to our existing
shareholders; and
(d) Of filing and other fees to Federal and State securities
regulatory authorities necessary to continue offering our
Shares.
You will pay the expenses:
(a) Of printing the copies of the prospectuses and any
supplements thereto and statements of additional
information which are necessary to continue to offer our
Shares;
(b) Of the preparation, excluding legal fees, and printing of
all Amendments and supplements to our prospectuses and
statements of additional information if the Amendment or
supplement arises from your (including your "Parent's")
activities or Rules and Regulations related to your
activities and those expenses would not otherwise have been
incurred by us;
(c) Of printing additional copies, for use by you as sales
literature, of reports or other communications which we
have prepared for distribution to our existing
shareholders; and
(d) Incurred by you in advertising, promoting and selling our
Shares.
10. FURNISHING OF INFORMATION. We will furnish to you such
information with respect to each series and class of Shares, in such form and
signed by such of our officers as you may reasonably request, and we warrant
that the statements therein contained, when so signed, will be true and
correct. We will also furnish you with such information and will take such
action as you may reasonably request in order to qualify our Shares for sale
to the public under the Blue Sky Laws of jurisdictions in which you may wish
to offer them. We will furnish you with annual audited financial statements
of our books and accounts certified by independent public accountants, with
semi-annual financial statements prepared by us, with registration statements
and, from time to time, with such additional information regarding our
financial condition as you may reasonably request.
11. CONDUCT OF BUSINESS. Other than our currently effective
prospectus, you will not issue any sales material or statements except
literature or advertising which conforms to the requirements of Federal and
State securities laws and regulations and which have been filed, where
necessary, with the appropriate regulatory authorities. You will furnish us
with copies of all such materials prior to their use and no such material
shall be published if we shall reasonably and promptly object.
You shall comply with the applicable Federal and State laws and
regulations where our Shares are offered for sale and conduct your affairs
with us and with dealers, brokers or investors in accordance with the Rules
of Fair Practice of the National Association of Securities Dealers, Inc.
12. REDEMPTION OR REPURCHASE WITHIN SEVEN DAYS. If Shares are
tendered to us for redemption or repurchase by us within seven business days
after your acceptance of the original purchase order for such Shares, you
will immediately refund to us the full sales commission (net of allowances to
dealers or brokers) allowed to you on the original sale, and will promptly,
upon receipt thereof, pay to us any refunds from dealers or brokers of the
balance of sales commissions reallowed by you. We shall notify you of such
tender for redemption within 10 days of the day on which notice of such
tender for redemption is received by us.
13. OTHER ACTIVITIES. Your services pursuant to this Agreement shall
not be deemed to be exclusive, and you may render similar services and act as
an underwriter, distributor or dealer for other investment companies in the
offering of their shares.
14. TERM OF AGREEMENT. This Agreement shall become effective on
the date of its execution, and shall remain in effect for a period of two (2)
years. The Agreement is renewable annually thereafter, with respect to the
Fund or, if the Fund has more than one series, with respect to each series,
for successive periods not to exceed one year (i) by a vote of (a) a majority
of the outstanding voting securities of the Fund or, if the Fund has more
than one series, of each series, or (b) by a vote of the Board, AND (ii) by a
vote of a majority of the members of the Board who are not parties to the
Agreement or interested persons of any parties to the Agreement (other than
as members of the Board), cast in person at a meeting called for the purpose
of voting on the Agreement.
This Agreement may at any time be terminated by the Fund or by
any series without the payment of any penalty, (i) either by vote of the
Board or by vote of a majority of the outstanding voting securities of the
Fund or any series on 90 days' written notice to you; or (ii) by you on 90
days' written notice to the Fund; and shall immediately terminate with
respect to the Fund and each series in the event of its assignment.
15. SUSPENSION OF SALES. We reserve the right at all times to
suspend or limit the public offering of Shares upon two days' written notice
to you.
16. MISCELLANEOUS. This Agreement shall be subject to the laws of
the State of California and shall be interpreted and construed to further
promote the operation of the Fund as an open-end investment company. This
Agreement shall supersede all Distribution Agreements and Amendments
previously in effect between the parties. As used herein, the terms "Net
Asset Value," "Offering Price," "Investment Company," "Open-End Investment
Company," "Assignment," "Principal Underwriter," "Interested Person,"
"Parent," "Affiliated Person," and "Majority of the Outstanding Voting
Securities" shall have the meanings set forth in the 1933 Act or the 1940 Act
and the Rules and Regulations thereunder.
Nothing herein shall be deemed to protect you against any liability to us or
to our securities holders to which you would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in the performance of
your duties hereunder, or by reason of your reckless disregard of your
obligations and duties hereunder.
If the foregoing meets with your approval, please acknowledge your acceptance
by signing each of the enclosed copies, whereupon this will become a binding
agreement as of the date set forth below.
Very truly yours,
FRANKLIN TEMPLETON GLOBAL TRUST
By: /S/ DEBORAH R. GATZEK
Deborah R. Gatzek
Vice President & Secretary
Accepted:
Franklin/Templeton Distributors, Inc.
By: /S/ HARMON E. BURNS
Harmon E. Burns
Executive Vice President
DATED: AUGUST 28, 1996
MASTER CUSTODY AGREEMENT
THIS CUSTODY AGREEMENT ("Agreement") is made and entered into as of
February 16, 1996, by and between each Investment Company listed on Exhibit A,
for itself and for each of its Series listed on Exhibit A, and BANK OF NEW YORK,
a New York corporation authorized to do a banking business (the "Custodian").
RECITALS
A. Each Investment Company is an investment company registered under
the Investment Company Act of 1940, as amended (the "Investment Company Act")
that invests and reinvests, for itself or on behalf of its Series, in Domestic
Securities and Foreign Securities.
B. The Custodian is, and has represented to each Investment Company
that the Custodian is, a "bank" as that term is defined in Section 2(a)(5) of
the Investment Company Act of 1940, as amended, and is eligible to receive and
maintain custody of investment company assets pursuant to Section 17(f) and Rule
17f-2 thereunder.
C. The Custodian and each Investment Company, for itself and for each
of its Series, desire to provide for the retention of the Custodian as a
custodian of the assets of each Investment Company and each Series, on the terms
and subject to the provisions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
Section 1.0 FORM OF AGREEMENT
Although the parties have executed this Agreement in the form of a
Master Custody Agreement for administrative convenience, this Agreement shall
create a separate custody agreement for each Investment Company and for each
Series designated on Exhibit A, as though each Investment Company had separately
executed an identical custody agreement for itself and for each of its Series.
No rights, responsibilities or liabilities of any Investment Company or Series
shall be attributed to any other Investment Company or Series.
Section 1.1 DEFINITIONS
For purposes of this Agreement, the following terms shall have the
respective meanings specified below:
"Agreement" shall mean this Custody Agreement.
"Board" shall mean the Board of Trustees, Directors or Managing
General Partners, as applicable, of an Investment Company.
"Business Day" with respect to any Domestic Security means any day,
other than a Saturday or Sunday, that is not a day on which banking institutions
are authorized or required by law to be closed in The City of New York and, with
respect to Foreign Securities, a London Business Day. "London Business Day"
shall mean any day on which dealings and deposits in U.S. dollars are transacted
in the London interbank market.
"Custodian" shall mean Bank of New York.
"Domestic Securities" shall have the meaning provided in Subsection
2.1 hereof.
"Executive Committee" shall mean the executive committee of a Board.
"Foreign Custodian" shall have the meaning provided in Section 4.1
hereof.
"Foreign Securities" shall have the meaning provided in Section 2.1
hereof.
"Foreign Securities Depository" shall have the meaning provided in
Section 4.1 hereof.
"Fund" shall mean an entity identified on Exhibit A as an Investment
Company, if the Investment Company has no series, or a Series.
"Investment Company" shall mean an entity identified on Exhibit A
under the heading "Investment Company."
"Investment Company Act" shall mean the Investment Company Act of
1940, as amended.
"Securities" shall have the meaning provided in Section 2.1 hereof.
"Securities System" shall have the meaning provided in Section 3.1
hereof.
"Securities System Account" shall have the meaning provided in
Subsection 3.8(a) hereof.
"Series" shall mean a series of an Investment Company which is
identified as such on Exhibit A.
"Shares" shall mean shares of beneficial interest of the Investment
Company.
"Subcustodian" shall have the meaning provided in Subsection 3.7
hereof, but shall not include any Foreign Custodian.
"Transfer Agent" shall mean the duly appointed and acting transfer
agent for each Investment Company.
"Writing" shall mean a communication in writing, a communication by
telex, facsimile transmission, bankwire or other teleprocess or electronic
instruction system acceptable to the Custodian.
Section 2. APPOINTMENT OF CUSTODIAN; DELIVERY OF ASSETS
2.1 Appointment of Custodian. Each Investment Company hereby appoints
and designates the Custodian as a custodian of the assets of each Fund,
including cash denominated in U.S. dollars or foreign currency ("cash"),
securities the Fund desires to be held within the United States ("Domestic
Securities") and securities it desires to be held outside the United States
("Foreign Securities"). Domestic Securities and Foreign Securities are sometimes
referred to herein, collectively, as "Securities." The Custodian hereby accepts
such appointment and designation and agrees that it shall maintain custody of
the assets of each Fund delivered to it hereunder in the manner provided for
herein.
2.2 Delivery of Assets. Each Investment Company may deliver to the
Custodian Securities and cash owned by the Funds, payments of income, principal
or capital distributions received by the Funds with respect to Securities owned
by the Funds from time to time, and the consideration received by the Funds for
such Shares or other securities of the Funds as may be issued and sold from time
to time. The Custodian shall have no responsibility whatsoever for any property
or assets of the Funds held or received by the Funds and not delivered to the
Custodian pursuant to and in accordance with the terms hereof. All Securities
accepted by the Custodian on behalf of the Funds under the terms of this
Agreement shall be in "street name" or other good delivery form as determined by
the Custodian.
2.3 Subcustodians. The Custodian may appoint BNY Western Trust Company
as a Subcustodian to hold assets of the Funds in accordance with the provisions
of this Agreement. In addition, upon receipt of Proper Instructions and a
certified copy of a resolution of the Board or of the Executive Committee, and
certified by the Secretary or an Assistant Secretary, of an Investment Company,
the Custodian may from time to time appoint one or more other Subcustodians or
Foreign Custodians to hold assets of the affected Funds in accordance with the
provisions of this Agreement.
2.4 No Duty to Manage. The Custodian, a Subcustodian or a Foreign
Custodian shall not have any duty or responsibility to manage or recommend
investments of the assets of any Fund held by them or to initiate any purchase,
sale or other investment transaction in the absence of Proper Instructions or
except as otherwise specifically provided herein.
Section 3. DUTIES OF THE CUSTODIAN WITH RESPECT TO ASSETS OF THE FUNDS
HELD BY THE CUSTODIAN
3.1 Holding Securities. The Custodian shall hold and physically
segregate from any property owned by the Custodian, for the account of each
Fund, all non-cash property delivered by each Fund to the Custodian hereunder
other than Securities which, pursuant to Subsection 3.8 hereof, are held through
a registered clearing agency, a registered securities depository, the Federal
Reserve's book-entry securities system (referred to herein, individually, as a
"Securities System"), or held by a Subcustodian, Foreign Custodian or in a
Foreign Securities Depository.
3.2 Delivery of Securities. Except as otherwise provided in Subsection
3.5 hereof, the Custodian, upon receipt of Proper Instructions, shall release
and deliver Securities owned by a Fund and held by the Custodian in the
following cases or as otherwise directed in Proper Instructions:
(a) except as otherwise provided herein, upon sale of such
Securities for the account of the Fund and receipt by the Custodian, a
Subcustodian or a Foreign Custodian of payment therefor;
(b) upon the receipt of payment by the Custodian, a Subcustodian
or a Foreign Custodian in connection with any repurchase agreement related to
such Securities entered into by the Fund;
(c) in the case of a sale effected through a Securities System,
in accordance with the provisions of Subsection 3.8 hereof;
(d) to a tender agent or other authorized agent in connection
with (i) a tender or other similar offer for Securities owned by the Fund, or
(ii) a tender offer or repurchase by the Fund of its own Shares;
(e) to the issuer thereof or its agent when such Securities are
called, redeemed, retired or otherwise become payable; provided, that in any
such case, the cash or other consideration is to be delivered to the Custodian,
a Subcustodian or a Foreign Custodian;
(f) to the issuer thereof, or its agent, for transfer into the
name or nominee name of the Fund, the name or nominee name of the Custodian, the
name or nominee name of any Subcustodian or Foreign Custodian; or for exchange
for a different number of bonds, certificates or other evidence representing the
same aggregate face amount or number of units; provided that, in any such case,
the new Securities are to be delivered to the Custodian, a Subcustodian or
Foreign Custodian;
(g) to the broker selling the same for examination in accordance
with the "street delivery" custom;
(h) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, or reorganization of the issuer of such
Securities, or pursuant to a conversion of such Securities; provided that, in
any such case, the new Securities and cash, if any, are to be delivered to the
Custodian or a Subcustodian;
(i) in the case of warrants, rights or similar securities, the
surrender thereof in connection with the exercise of such warrants, rights or
similar Securities or the surrender of interim receipts or temporary Securities
for definitive Securities; provided that, in any such case, the new Securities
and cash, if any, are to be delivered to the Custodian, a subcustodian or a
Foreign Custodian;
(j) for delivery in connection with any loans of Securities made
by the Fund, but only against receipt by the Custodian, a Subcustodian or a
Foreign Custodian of adequate collateral as determined by the Fund (and
identified in Proper Instructions communicated to the Custodian), which may be
in the form of cash or obligations issued by the United States government, its
agencies or instrumentalities, except that in connection with any loans for
which collateral is to be credited to the account of the Custodian, a
Subcustodian or a Foreign Custodian in the Federal Reserve's book-entry
securities system, the Custodian will not be held liable or responsible for the
delivery of Securities owned by the Fund prior to the receipt of such
collateral;
(k) for delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets by the Fund, but only against receipt by
the Custodian, a Subcustodian or a Foreign Custodian of amounts borrowed;
(l) for delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, a Subcustodian or a Foreign Custodian
and a broker-dealer relating to compliance with the rules of registered clearing
corporations and of any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund;
(m) for delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, a Subcustodian or a Foreign Custodian
and a futures commission merchant, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any contract market, or any similar
organization or organizations, regarding account deposits in connection with
transactions by the Fund;
(n) upon the receipt of instructions from the Transfer Agent for
delivery to the Transfer Agent or to the holders of Shares in connection with
distributions in kind in satisfaction of requests by holders of Shares for
repurchase or redemption; and
(o) for any other proper purpose, but only upon receipt of Proper
Instructions, and a certified copy of a resolution of the Board or of the
Executive Committee certified by the Secretary or an Assistant Secretary of the
Fund, specifying the securities to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose to be a proper
purpose, and naming the person or persons to whom delivery of such securities
shall be made.
3.3 Registration of Securities. Securities held by the Custodian, a
Subcustodian or a Foreign Custodian (other than bearer Securities) shall be
registered in the name or nominee name of the appropriate Fund, in the name or
nominee name of the Custodian or in the name or nominee name of any Subcustodian
or Foreign Custodian. Each Fund agrees to hold the Custodian, any such nominee,
Subcustodian or Foreign Custodian harmless from any liability as a holder of
record of such Securities.
3.4 Bank Accounts. The Custodian shall open and maintain a separate
bank account or accounts for each Fund, subject only to draft or order by the
Custodian acting pursuant to the terms of this Agreement, and shall hold in such
account or accounts, subject to the provisions hereof, all cash received by it
hereunder from or for the account of each Fund, other than cash maintained by a
Fund in a bank account established and used in accordance with Rule 17f-3 under
the Fund Act. Funds held by the Custodian for a Fund may be deposited by it to
its credit as Custodian in the banking departments of the Custodian, a
Subcustodian or a Foreign Custodian. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity. In the event a Fund's account for any reason
becomes overdrawn, or in the event an action requested in Proper Instructions
would cause such an account to become overdrawn, the Custodian shall immediately
notify the affected Fund.
3.5 Collection of Income; Trade Settlement; Crediting of Accounts. The
Custodian shall collect income payable with respect to Securities owned by each
Fund, settle Securities trades for the account of each Fund and credit and debit
each Fund's account with the Custodian in connection therewith as stated in this
Subsection 3.5. This Subsection shall not apply to repurchase agreements, which
are treated in Subsection 3.2(b), above.
(a) Upon receipt of Proper Instructions, the Custodian shall
effect the purchase of a Security by charging the account of the Fund on the
contractual settlement date, and by making payment against delivery. If the
seller or selling broker fails to deliver the Security within a reasonable
period of time, the Custodian shall notify the Fund and credit the transaction
amount to the account of the Fund, but the Custodian shall have no further
liability or responsibility for the transaction.
(b) Upon receipt of Proper Instructions, the Custodian shall
effect the sale of a Security by withdrawing a certificate or other indicia of
ownership from the account of the Fund and by making delivery against payment,
and shall credit the account of the Fund with the amount of such proceeds on the
contractual settlement date. If the purchaser or the purchasing broker fails to
make payment within a reasonable period of time, the Custodian shall notify the
Fund, debit the Fund's account for any amounts previously credited to it by the
Custodian as proceeds of the transaction and, if delivery has not been made,
redeposit the Security into the account of the Fund.
(c) The Fund is responsible for ensuring that the Custodian
receives timely and accurate Proper Instructions to enable the Custodian to
effect settlement of any purchase or sale. If the Custodian does not receive
such instructions within the required time period, the Custodian shall have no
liability of any kind to any person, including the Fund, for failing to effect
settlement on the contractual settlement date. However, the Custodian shall use
its best reasonable efforts to effect settlement as soon as possible after
receipt of Proper Instructions.
(d) The Custodian shall credit the account of the Fund with
interest income payable on interest bearing Securities on payable date.
Dividends and other amounts payable with respect to Domestic Securities and
Foreign Securities shall be credited to the account of the Fund when received by
the Custodian. The Custodian shall not be required to commence suit or
collection proceedings or resort to any extraordinary means to collect such
income and other amounts payable with respect to Securities owned by the Fund.
The collection of income due the Fund on Domestic Securities loaned pursuant to
the provisions of Subsection 3.2(j) shall be the responsibility of the Fund. The
Custodian will have no duty or responsibility in connection therewith, other
than to provide the Fund with such information or data as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian of the
income to which the Fund is entitled. The Custodian shall have no liability to
any person, including the Fund, if the Custodian credits the account of the Fund
with such income or other amounts payable with respect to Securities owned by
the Fund (other than Securities loaned by the Fund pursuant to Subsection 3.2(j)
hereof) and the Custodian subsequently is unable to collect such income or other
amounts from the payors thereof within a reasonable time period, as determined
by the Custodian in its sole discretion. In such event, the Custodian shall be
entitled to reimbursement of the amount so credited to the account of the Fund.
3.6 Payment of Fund Monies. Upon receipt of Proper Instructions the
Custodian shall pay out monies of a Fund in the following cases or as otherwise
directed in Proper Instructions:
(a) upon the purchase of Securities, futures contracts or options
on futures contracts for the account of the Fund but only, except as otherwise
provided herein, (i) against the delivery of such securities, or evidence of
title to futures contracts or options on futures contracts, to the Custodian or
a Subcustodian registered pursuant to Subsection 3.3 hereof or in proper form
for transfer; (ii) in the case of a purchase effected through a Securities
System, in accordance with the conditions set forth in Subsection 3.8 hereof; or
(iii) in the case of repurchase agreements entered into between the Fund and the
Custodian, another bank or a broker-dealer (A) against delivery of the
Securities either in certificated form to the Custodian or a Subcustodian or
through an entry crediting the Custodian's account at the appropriate Federal
Reserve Bank with such Securities or (B) against delivery of the confirmation
evidencing purchase by the Fund of Securities owned by the Custodian or such
broker-dealer or other bank along with written evidence of the agreement by the
Custodian or such broker-dealer or other bank to repurchase such Securities from
the Fund;
(b) in connection with conversion, exchange or surrender of
Securities owned by the Fund as set forth in Subsection 3.2 hereof;
(c) for the redemption or repurchase of Shares issued by the
Fund;
(d) for the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments for the account of the
Fund: custodian fees, interest, taxes, management, accounting, transfer agent
and legal fees and operating expenses of the Fund whether or not such expenses
are to be in whole or part capitalized or treated as deferred expenses; and
(e) for the payment of any dividends or distributions declared by
the Board with respect to the Shares.
3.7 Appointment of Subcustodians. The Custodian may appoint BNY
Western Trust Company or, upon receipt of Proper Instructions, another bank or
trust company, which is itself qualified under the Investment Company Act to act
as a custodian (a "Subcustodian"), as the agent of the Custodian to carry out
such of the duties of the Custodian hereunder as a Custodian may from time to
time direct; provided, however, that the appointment of any Subcustodian shall
not relieve the Custodian of its responsibilities or liabilities hereunder.
3.8 Deposit of Securities in Securities Systems. The Custodian may
deposit and/or maintain Domestic Securities owned by a Fund in a Securities
System in accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the following
provisions:
(a) the Custodian may hold Domestic Securities of the Fund in the
Depository Trust Company or the Federal Reserve's book entry system or, upon
receipt of Proper Instructions, in another Securities System provided that such
securities are held in an account of the Custodian in the Securities System
("Securities System Account") which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or otherwise for
customers;
(b) the records of the Custodian with respect to Domestic
Securities of the Fund which are maintained in a Securities System shall
identify by book-entry those Domestic Securities belonging to the Fund;
(c) the Custodian shall pay for Domestic Securities purchased for
the account of the Fund upon (i) receipt of advice from the Securities System
that such securities have been transferred to the Securities System Account, and
(ii) the making of an entry on the records of the Custodian to reflect such
payment and transfer for the account of the Fund. The Custodian shall transfer
Domestic Securities sold for the account of the Fund upon (A) receipt of advice
from the Securities System that payment for such securities has been transferred
to the Securities System Account, and (B) the making of an entry on the records
of the Custodian to reflect such transfer and payment for the account of the
Fund. Copies of all advices from the Securities System of transfers of Domestic
Securities for the account of the Fund shall be maintained for the Fund by the
Custodian and be provided to the Fund at its request. Upon request, the
Custodian shall furnish the Fund confirmation of the transfer to or from the
account of the Fund in the form of a written advice or notice; and
(d) upon request, the Custodian shall provide the Fund with any
report obtained by the Custodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding domestic securities
deposited in the Securities System.
3.9 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts for and on
behalf of a Fund, into which account or accounts may be transferred cash and/or
Securities, including Securities maintained in an account by the Custodian
pursuant to Section 3.8 hereof, (i) in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer or futures
commission merchant, relating to compliance with the rules of registered
clearing corporations and of any national securities exchange (or the Commodity
Futures Trading Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund, (ii) for purposes of segregating cash
or securities in connection with options purchased, sold or written by the Fund
or commodity futures contracts or options thereon purchased or sold by the Fund,
and (iii) for other proper corporate purposes, but only, in the case of this
clause (iii), upon receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board or of the Executive Committee certified by the
Secretary or an Assistant Secretary, setting forth the purpose or purposes of
such segregated account and declaring such purposes to be proper corporate
purposes.
3.10 Ownership Certificates for Tax Purposes. The Custodian shall
execute ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Fund held by it and in connection with
transfers of such securities.
3.11 Proxies. The Custodian shall, with respect to the Securities held
hereunder, promptly deliver to each Fund all proxies, all proxy soliciting
materials and all notices relating to such Securities. If the Securities are
registered otherwise than in the name of a Fund or a nominee of a Fund, the
Custodian shall use its best reasonable efforts, consistent with applicable law,
to cause all proxies to be promptly executed by the registered holder of such
Securities in accordance with Proper Instructions.
3.12 Communications Relating to Fund Portfolio Securities. The
Custodian shall transmit promptly to each Fund all written information
(including, without limitation, pendency of calls and maturities of Securities
and expirations of rights in connection therewith and notices of exercise of put
and call options written by the Fund and the maturity of futures contracts
purchased or sold by the Fund) received by the Custodian from issuers of
Securities being held for the Fund. With respect to tender or exchange offers,
the Custodian shall transmit promptly to each Fund all written information
received by the Custodian from issuers of the Securities whose tender or
exchange is sought and from the party (or its agents) making the tender or
exchange offer. If a Fund desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the Fund shall notify
the Custodian at least three Business Days prior to the date of which the
Custodian is to take such action.
3.13 Reports by Custodian. The Custodian shall each business day
furnish each Fund with a statement summarizing all transactions and entries for
the account of the Fund for the preceding day. At the end of every month, the
Custodian shall furnish each Fund with a list of the cash and portfolio
securities showing the quantity of the issue owned, the cost of each issue and
the market value of each issue at the end of each month. Such monthly report
shall also contain separate listings of (a) unsettled trades and (b) when-issued
securities. The Custodian shall furnish such other reports as may be mutually
agreed upon from time-to-time.
Section 4. CERTAIN DUTIES OF THE CUSTODIAN WITH RESPECT TO ASSETS OF THE
FUNDS HELD OUTSIDE THE UNITED STATES
4.1 Custody Outside the United States. Each Fund authorizes the
Custodian to hold Foreign Securities and cash in custody accounts which have
been established by the Custodian with (i) its foreign branches, (ii) foreign
banking institutions, foreign branches of United States banks and subsidiaries
of United States banks or bank holding companies (each a "Foreign Custodian")
and (iii) Foreign Securities depositories or clearing agencies (each a "Foreign
Securities Depository"); provided, however, that the appropriate Board or
Executive Committee has approved in advance the use of each such Foreign
Custodian and Foreign Securities Depository and the contract between the
Custodian and each Foreign Custodian and that such approval is set forth in
Proper Instructions and a certified copy of a resolution of the Board or of the
Executive Committee certified by the Secretary or an Assistant Secretary of the
appropriate Investment Company. Unless expressly provided to the contrary in
this Section 4, custody of Foreign Securities and assets held outside the United
States by the Custodian, a Foreign Custodian or through a Foreign Securities
Depository shall be governed by this Agreement, including Section 3 hereof.
4.2 Assets to be Held. The Custodian shall limit the securities and
other assets maintained in the custody of its foreign branches, Foreign
Custodians and Foreign Securities Depositories to: (i) "foreign securities", as
defined in paragraph (c) (1) of Rule 17f-5 under the Fund Act, and (ii) cash and
cash equivalents in such amounts as the Custodian or an affected Fund may
determine to be reasonably necessary to effect the Fund's Foreign Securities
transactions.
4.3 Omitted.
4.4 Segregation of Securities. The Custodian shall identify on its
books and records as belonging to the appropriate Fund, the Foreign Securities
of each Fund held by each Foreign Custodian.
4.5 Agreements with Foreign Custodians. Each agreement between the
Custodian and a Foreign Custodian shall be substantially in the form as
delivered to the Investment Companies for their Boards' review, and shall not be
amended in a way that materially adversely affects any Fund without the prior
written consent of the Fund. Upon request, the Custodian shall certify to the
Funds that an agreement between the Custodian and a Foreign Custodian meets the
requirements of Rule 17f-5 under the 1940 Act.
4.6 Access of Independent Accountants of the Funds. Upon request of a
Fund, the Custodian will use its best reasonable efforts to arrange for the
independent accountants or auditors of the Fund to be afforded access to the
books and records of any Foreign Custodian insofar as such books and records
relate to the custody by any such Foreign Custodian of assets of the Fund.
4.7 Transactions in Foreign Custody Accounts. Upon receipt of Proper
Instructions, the Custodian shall instruct the appropriate Foreign Custodian to
transfer, exchange or deliver Foreign Securities owned by a Fund, but, except to
the extent explicitly provided herein, only in any of the cases specified in
Subsection 3.2. Upon receipt of Proper Instructions, the Custodian shall pay out
or instruct the appropriate Foreign Custodian to pay out monies of a Fund in any
of the cases specified in Subsection 3.6. Notwithstanding anything herein to the
contrary, settlement and payment for Foreign Securities received for the account
of a Fund and delivery of Foreign Securities maintained for the account of a
Fund may be effected in accordance with the customary or established securities
trading or securities processing practices and procedures in the jurisdiction or
market in which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the expectation of
receiving later payment for such securities from such purchaser or dealer.
Foreign Securities maintained in the custody of a Foreign Custodian may be
maintained in the name of such entity or its nominee name to the same extent as
set forth in Section 3.3 of this Agreement and each Fund agrees to hold any
Foreign Custodian and its nominee harmless from any liability as a holder of
record of such securities.
4.8 Liability of Foreign Custodian. Each agreement between the
Custodian and a Foreign Custodian shall, unless otherwise mutually agreed to by
the Custodian and a Fund, require the Foreign Custodian to exercise reasonable
care or, alternatively, impose a contractual liability for breach of contract
without an exception based upon a standard of care in the performance of its
duties and to indemnify and hold harmless the Custodian from and against any
loss, damage, cost, expense, liability or claim arising out of or in connection
with the Foreign Custodian's performance of such obligations, excepting,
however, Citibank, N.A., and its subsidiaries and branches, where the
indemnification is limited to direct money damages and requires that the claim
be promptly asserted. At the election of a Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claims against a
Foreign Custodian as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made whole
for any such loss, damage, cost, expense, liability or claim, unless such
subrogation is prohibited by local law.
4.9 Monitoring Responsibilities.
(a) The Custodian will promptly inform each Fund in the event
that the Custodian learns of a material adverse change in the financial
condition of a Foreign Custodian or learns that a Foreign Custodian's financial
condition has declined or is likely to decline below the minimum levels required
by Rule 17f-5 of the 1940 Act.
(b) The custodian will furnish such information as may be
reasonably necessary to assist each Investment Company's Board in its annual
review and approval of the continuance of all contracts or arrangements with
Foreign Subcustodians.
Section 5. PROPER INSTRUCTIONS
As used in this Agreement, the term "Proper Instructions" means
instructions of a Fund received by the Custodian via telephone or in Writing
which the Custodian believes in good faith to have been given by Authorized
Persons (as defined below) or which are transmitted with proper testing or
authentication pursuant to terms and conditions which the Custodian may specify.
Any Proper Instructions delivered to the Custodian by telephone shall promptly
thereafter be confirmed in accordance with procedures, and limited in subject
matter, as mutually agreed upon by the parties. Unless otherwise expressly
provided, all Proper Instructions shall continue in full force and effect until
canceled or superseded. If the Custodian requires test arrangements,
authentication methods or other security devices to be used with respect to
Proper Instructions, any Proper Instructions given by the Funds thereafter shall
be given and processed in accordance with such terms and conditions for the use
of such arrangements, methods or devices as the Custodian may put into effect
and modify from time to time. The Funds shall safeguard any testkeys,
identification codes or other security devices which the Custodian shall make
available to them. The Custodian may electronically record any Proper
Instructions given by telephone, and any other telephone discussions, with
respect to its activities hereunder. As used in this Agreement, the term
"Authorized Persons" means such officers or such agents of a Fund as have been
properly appointed pursuant to a resolution of the appropriate Board or
Executive Committee, a certified copy of which has been provided to the
Custodian, to act on behalf of the Fund under this Agreement. Each of such
persons shall continue to be an Authorized Person until such time as the
Custodian receives Proper Instructions that any such officer or agent is no
longer an Authorized Person.
Section 6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from a
Fund:
(a) make payments to itself or others for minor expenses of
handling Securities or other similar items relating to its duties under this
Agreement, provided that all such payments shall be accounted for to the Fund;
(b) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
(c) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase, transfer and other
dealings with the Securities and property of the Fund except as otherwise
provided in Proper Instructions.
Section 7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions
(conveyed by telephone or in Writing), notice, request, consent, certificate or
other instrument or paper believed by it to be genuine and to have been properly
given or executed by or on behalf of a Fund. The Custodian may receive and
accept a certified copy of a resolution of a Board or Executive Committee as
conclusive evidence (a) of the authority of any person to act in accordance with
such resolution or (b) of any determination or of any action by the Board or
Executive Committee as described in such resolution, and such resolution may be
considered as in full force and effect until receipt by the Custodian of written
notice by an Authorized Person to the contrary.
Section 8. DUTY OF CUSTODIAN TO SUPPLY INFORMATION
The Custodian shall cooperate with and supply necessary information in
its possession (to the extent permissible under applicable law) to the entity or
entities appointed by the appropriate Board to keep the books of account of a
Fund and/or compute the net asset value per Share of the outstanding Shares of a
Fund.
Section 9. RECORDS
The Custodian shall create and maintain all records relating to its
activities under this Agreement which are required with respect to such
activities under Section 31 of the Investment Company Act and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of the appropriate
Investment Company and shall at all times during the regular business hours of
the Custodian be open for inspection by duly authorized officers, employees or
agents of the Investment Company and employees and agents of the Securities and
Exchange Commission. The Custodian shall, at a Fund's request, supply the Fund
with a tabulation of Securities and Cash owned by the Fund and held by the
Custodian and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
Section 10. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
each Investment Company, on behalf of each Fund, and the Custodian. In addition,
should the Custodian in its discretion advance funds (to include overdrafts) to
or on behalf of a Fund pursuant to Proper Instructions, the Custodian shall be
entitled to prompt reimbursement of any amounts advanced. In the event of such
an advance, and to the extent permitted by the 1940 Act and the Fund's policies,
the Custodian shall have a continuing lien and security interest in and to the
property of the Fund in the possession or control of the Custodian or of a third
party acting in the Custodian's behalf, until the advance is reimbursed. Nothing
in this Agreement shall obligate the Custodian to advance funds to or on behalf
of a Fund, or to permit any borrowing by a Fund except for borrowings for
temporary purposes, to the extent permitted by the Fund's policies.
Section 11. RESPONSIBILITY OF CUSTODIAN
The Custodian shall be responsible for the performance of only such
duties as are set forth herein or contained in Proper Instructions and shall use
reasonable care in carrying out such duties. The Custodian shall be liable to a
Fund for any loss which shall occur as the result of the failure of a Foreign
Custodian engaged directly or indirectly by the Custodian to exercise reasonable
care with respect to the safekeeping of securities and other assets of the Fund
to the same extent that the Custodian would be liable to the Fund if the
Custodian itself were holding such securities and other assets. Nothing in this
Agreement shall be read to limit the responsibility or liability of the
Custodian or a Foreign Custodian for their failure to exercise reasonable care
with regard to any decision or recommendation made by the Custodian or
Subcustodian regarding the use or continued use of a Foreign Securities
Depository. In the event of any loss to a Fund by reason of the failure of the
Custodian or a Foreign Custodian engaged by such Foreign Custodian or the
Custodian to utilize reasonable care, the Custodian shall be liable to the Fund
to the extent of the Fund's damages, to be determined based on the market value
of the property which is the subject of the loss at the date of discovery of
such loss and without reference to any special conditions or circumstances. The
Custodian shall be held to the exercise of reasonable care in carrying out this
Agreement, and shall not be liable for acts or omissions unless the same
constitute negligence or willful misconduct on the part of the Custodian or any
Foreign Custodian engaged directly or indirectly by the Custodian. Each Fund
agrees to indemnify and hold harmless the Custodian and its nominees from all
taxes, charges, expenses, assessments, claims and liabilities (including legal
fees and expenses) incurred by the Custodian or its nominess in connection with
the performance of this Agreement with respect to such Fund, except such as may
arise from any negligent action, negligent failure to act or willful misconduct
on the part of the indemnified entity or any Foreign Custodian. The Custodian
shall be entitled to rely, and may act, on advice of counsel (who may be counsel
for a Fund) on all matters and shall be without liability for any action
reasonably taken or omitted pursuant to such advice. The Custodian need not
maintain any insurance for the benefit of any Fund.
All collections of funds or other property paid or distributed in
respect of Securities held by the Custodian, agent, Subcustodian or Foreign
Custodian hereunder shall be made at the risk of the Funds. The Custodian shall
have no liability for any loss occasioned by delay in the actual receipt of
notice by the Custodian, agent, Subcustodian or by a Foreign Custodian of any
payment, redemption or other transaction regarding securities in respect of
which the Custodian has agreed to take action as provided in Section 3 hereof.
The Custodian shall not be liable for any action taken in good faith upon Proper
Instructions or upon any certified copy of any resolution of the Board and may
rely on the genuineness of any such documents which it may in good faith believe
to be validly executed. Notwithstanding the foregoing, the Custodian shall not
be liable for any loss resulting from, or caused by, the direction of a Fund to
maintain custody of any Securities or cash in a foreign country including, but
not limited to, losses resulting from nationalization, expropriation, currency
restrictions, civil disturbance, acts of war or terrorism, insurrection,
revolution, nuclear fusion, fission or radiation or other similar occurrences,
or events beyond the control of the Custodian. Finally, the Custodian shall not
be liable for any taxes, including interest and penalties with respect thereto,
that may be levied or assessed upon or in respect of any assets of any Fund held
by the Custodian.
Section 12. LIMITED LIABILITY OF EACH INVESTMENT COMPANY
The Custodian acknowledges that it has received notice of and accepts
the limitations of liability as set forth in each Investment Company's Agreement
and Declaration of Trust, Articles of Incorporation, or Agreement of Limited
Partnership. The Custodian agrees that each Fund's obligation hereunder shall be
limited to the assets of the Fund, and that the Custodian shall not seek
satisfaction of any such obligation from the shareholders of the Fund nor from
any Board Member, officer, employee, or agent of the Fund or the Investment
Company on behalf of the Fund.
Section 13. EFFECTIVE PERIOD; TERMINATION
This Agreement shall become effective as of the date of its execution
and shall continue in full force and effect until terminated as hereinafter
provided. This Agreement may be terminated by each Investment Company, on behalf
of a Fund, or by the Custodian by 90 days notice in Writing to the other
provided that any termination by an Investment Company shall be authorized by a
resolution of the Board, a certified copy of which shall accompany such notice
of termination, and provided further, that such resolution shall specify the
names of the persons to whom the Custodian shall deliver the assets of the
affected Funds held by the Custodian. If notice of termination is given by the
Custodian, the affected Investment Companies shall, within 90 days following the
giving of such notice, deliver to the Custodian a certified copy of a resolution
of the Boards specifying the names of the persons to whom the Custodian shall
deliver assets of the affected Funds held by the Custodian. In either case the
Custodian will deliver such assets to the persons so specified, after deducting
therefrom any amounts which the Custodian determines to be owed to it hereunder
(including all costs and expenses of delivery or transfer of Fund assets to the
persons so specified). If within 90 days following the giving of a notice of
termination by the Custodian, the Custodian does not receive from the affected
Investment Companies certified copies of resolutions of the Boards specifying
the names of the persons to whom the Custodian shall deliver the assets of the
Funds held by the Custodian, the Custodian, at its election, may deliver such
assets to a bank or trust company doing business in the State of California to
be held and disposed of pursuant to the provisions of this Agreement or may
continue to hold such assets until a certified copy of one or more resolutions
as aforesaid is delivered to the Custodian. The obligations of the parties
hereto regarding the use of reasonable care, indemnities and payment of fees and
expenses shall survive the termination of this Agreement.
Section 14. MISCELLANEOUS
14.1 Relationship. Nothing contained in this Agreement shall (i)
create any fiduciary, joint venture or partnership relationship between the
Custodian and any Fund or (ii) be construed as or constitute a prohibition
against the provision by the Custodian or any of its affiliates to any Fund of
investment banking, securities dealing or brokerages services or any other
banking or financial services.
14.2 Further Assurances. Each party hereto shall furnish to the other
party hereto such instruments and other documents as such other party may
reasonably request for the purpose of carrying out or evidencing the
transactions contemplated by this Agreement.
14.3 Attorneys' Fees. If any lawsuit or other action or proceeding
relating to this Agreement is brought by a party hereto against the other party
hereto, the prevailing party shall be entitled to recover reasonable attorneys'
fees, costs and disbursements (including allocated costs and disbursements of
in-house counsel), in addition to any other relief to which the prevailing party
may be entitled.
14.4 Notices. Except as otherwise specified herein, each notice or
other communication hereunder shall be in Writing and shall be delivered to the
intended recipient at the following address (or at such other address as the
intended recipient shall have specified in a written notice given to the other
parties hereto):
if to a Fund or Investment Company: if to the Custodian:
[Fund or Investment Company] The Bank of New York
c/o Franklin Resources, Inc. Mutual Fund Custody Manager
777 Mariners Island Blvd. BNY Western Trust Co.
San Mateo, CA 94404 550 Kearney St., Suite 60
Attention: Chief Legal Officer San Francisco, CA 94108
14.5 Headings. The underlined headings contained herein are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the interpretation
hereof.
14.6 Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original and both of which, when taken
together, shall constitute one agreement.
14.7 Governing Law. This Agreement shall be construed in accordance
with, and governed in all respects by, the laws of the State of New York
(without giving effect to principles of conflict of laws).
14.8 Force Majeure. Notwithstanding the provisions of Section 11
hereof regarding the Custodian's general standard of care, no failure, delay or
default in performance of any obligation hereunder shall constitute an event of
default or a breach of this agreement, or give rise to any liability whatsoever
on the part of one party hereto to the other, to the extent that such failure to
perform, delay or default arises out of a cause beyond the control and without
negligence of the party otherwise chargeable with failure, delay or default;
including, but not limited to: action or inaction of governmental, civil or
military authority; fire; strike; lockout or other labor dispute; flood; war;
riot; theft; earthquake; natural disaster; breakdown of public or common carrier
communications facilities; computer malfunction; or act, negligence or default
of the other party. This paragraph shall in no way limit the right of either
party to this Agreement to make any claim against third parties for any damages
suffered due to such causes.
14.9 Successors and Assigns. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors and assigns, if any.
14.10 Waiver. No failure on the part of any person to exercise any
power, right, privilege or remedy hereunder, and no delay on the part of any
person in the exercise of any power, right, privilege or remedy hereunder, shall
operate as a waiver thereof; and no single or partial exercise of any such
power, right, privilege or remedy shall preclude any other or further exercise
thereof or of any other power, right, privilege or remedy.
14.11 Amendments. This Agreement may not be amended, modified, altered
or supplemented other than by means of an agreement or instrument executed on
behalf of each of the parties hereto.
14.12 Severability. In the event that any provision of this Agreement,
or the application of any such provision to any person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
14.13 Parties in Interest. None of the provisions of this Agreement is
intended to provide any rights or remedies to any person other than the
Investment Companies, for themselves and for the Funds, and the Custodian and
their respective successors and assigns, if any.
14.14 Pre-Emption of Other Agreements. In the event of any conflict
between this Agreement, including without limitation any amendments hereto, and
any other agreement which may now or in the future exist between the parties,
the provisions of this Agreement shall prevail.
14.15 Variations of Pronouns. Whenever required by the context hereof,
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first above written.
THE BANK OF NEW YORK
By: /s/ Fred Ricciardi
Its: Senior Vice President
THE INVESTMENT COMPANIES LISTED ON EXHIBIT A
By: /s/ Harmon E. Burns
Harmon E. Burns
Their: Vice President
By: /s/ Deborah R. Gatzek
Deborah R. Gatzek
Their: Vice President & Secretary
<TABLE>
<CAPTION>
THE BANK OF NEW YORK
MASTER CUSTODY AGREEMENT
EXHIBIT A
The following is a list of the Investment Companies and their respective Series for which the Custodian shall serve under the Master
Custody Agreement dated as of February 16, 1996.
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Adjustable Rate Securities Portfolios Delaware Business Trust U.S. Government Adjustable Rate Mortgage Portfolio
Adjustable Rate Securities Portfolio
AGE High Income Fund, Inc. Colorado Corporation
Franklin California Tax-Free Income Maryland Corporation
Fund, Inc.
Franklin California Tax-Free Trust Massachusetts Business Franklin California Insured Tax-Free Income Fund
Trust Franklin California Tax-Exempt Money Fund
Franklin California Intermediate-Term Tax-Free
Income Fund
Franklin Custodian Funds, Inc. Maryland Corporation Growth Series
Utilities Series
Dynatech Series
Income Series
U.S. Government Securities Series
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax-Free Income Fund California Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Gold Fund California Corporation
Franklin Government Securities Trust Massachusetts Business
Trust
Franklin Templeton International Trust Delaware Business Trust Templeton Pacific Growth Fund
Franklin International Equity Fund
Franklin Investors Securities Trust Massachusetts Business Franklin Global Government Income Fund
Trust Franklin Short-Intermediate U.S. Gov't Securities
Fund
Franklin Convertible Securities Fund
Franklin Adjustable U.S. Government Securities Fund
Franklin Equity Income Fund
Franklin Adjustable Rate Securities Fund
Franklin Managed Trust Massachusetts Business Franklin Corporate Qualified Dividend Fund
Trust Franklin Rising Dividends Fund
Franklin Investment Grade Income Fund
Franklin Institutional Rising Dividends Fund
Franklin Money Fund California Corporation
Franklin Municipal Securities Trust Delaware Business Trust Franklin Hawaii Municipal Bond Fund
Franklin California High Yield Municipal Fund
Franklin Washington Municipal Bond Fund
Franklin Tennessee Municipal Bond Fund
Franklin Arkansas Municipal Bond Fund
Franklin New York Tax-Free Income New York Corporation
Fund, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin New York Tax-Free Trust Massachusetts Business Franklin New York Tax-Exempt Money Fund
Trust Franklin New York Intermediate-Term Tax-Free
Income Fund
Franklin New York Insured Tax-Free Income Fund
Franklin Tax-Advantaged International California Limited
Bond Fund Partnership
Franklin Tax-Advantaged U.S. Government California Limited
Securities Fund Partnership
Franklin Tax-Advantaged High Yield California Limited
Securities Fund Partnership
Franklin Premier Return Fund California Corporation
Franklin Real Estate Securities Trust Delaware Business Trust Franklin Real Estate Securities Fund
Franklin Strategic Mortgage Portfolio Delaware Business Trust
Franklin Strategic Series Delaware Business Trust Franklin California Growth Fund
Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Institutional MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Tax-Exempt Money Fund California Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Tax-Free Trust Massachusetts Business Franklin Massachusetts Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free
Income Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Templeton Global Trust Massachusetts Business Franklin Templeton German Government Bond Fund
Trust Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
Franklin Templeton Money Fund Trust Delaware Business Trust Franklin Templeton Money Fund II
Franklin Value Investors Trust Massachusetts Business Franklin Balance Sheet Investment Fund
Trust Franklin MicroCap Value Fund
Franklin Value Fund
Franklin Valuemark Funds Massachusetts Business Money Market Fund
Trust Growth and Income Fund
Precious Metals Fund
Real Estate Securities Fund
Utility Equity Fund
High Income Fund
Templeton Global Income Securities Fund
Investment Grade Intermediate Bond Fund
Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Fund - 2000
Zero Coupon Fund - 2005
Zero Coupon Fund - 2010
Adjustable U.S. Government Fund
Rising Dividends Fund
Templeton Pacific Growth Fund
Templeton International Equity Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton Global Asset Allocation Fund
Small Cap Fund
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Institutional Fiduciary Trust Massachusetts Business Money Market Portfolio
Trust Franklin Late Day Money Market Portfolio
Franklin U.S. Government Securities Money Market
Portfolio
Franklin U.S. Treasury Money Market Portfolio
Franklin Institutional Adjustable U.S. Government
Securities Fund
Franklin Institutional Adjustable Rate
Securities Fund
Franklin U.S. Government Agency Money Market Fund
Franklin Cash Reserves Fund
MidCap Growth Portfolio Delaware Business Trust
The Money Market Portfolios Delaware Business Trust The Money Market Portfolio
The U.S. Government Securities Money Market
Portfolio
CLOSED END FUNDS:
Franklin Multi-Income Trust Massachusetts Business
Trust
Franklin Principal Maturity Trust Massachusetts Business
Trust
Franklin Universal Trust Massachusetts Business
Trust
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AMENDMENT, dated May 7, 1997, to the Master Custody Agreement ("Agreement")
between each Investment Company listed on Exhibit A to the Agreement and The
Bank of New York dated February 16, 1996.
It is hereby agreed as follows:
A. Unless otherwise provided herein, all terms and conditions of the
Agreement are expressly incorporated herein by reference and, except as
modified hereby, the Agreement is confirmed in all respects. Capitalized
terms used herein without definition shall have the meanings ascribed to them
in the Agreement.
B. The Agreement shall be amended to add a new Section 4. 1 0 as
follows:
4.10 ADDITIONAL DUTIES WITH RESPECT TO RUSSIAN SECURITIES.
(a) Upon [2] business days prior notice from a Fund that it
will invest in any security issued by a Russian issuer ("Russian Security"),
the Custodian shall to the extent required and in accordance with the terms
of the Subcustodian Agreement between the Custodian and Credit Suisse
("Foreign Custodian") dated as of August 8, 1996 (the "Subcustodian
Agreement") direct the Foreign Custodian to enter into a contract ("Registrar
Contract") with the entity providing share registration services to the
Russian issuer ("Registrar") containing substantially the following
protective provisions:
(1) REGULAR SHARE CONFIRMATIONS. Each Registrar Contract
must establish the Foreign Custodian's right to conduct regular share
confirmations on behalf of the Foreign Custodian's customers.
(2) PROMPT RE-REGISTRATIONS. Registrars must be
obligated to effect re-registrations within 72 hours (or such other specified
time as the United States Securities and Exchange Commission (the "SEC") may
deem appropriate by rule, regulation, order or "no-action" letter) of
receiving the necessary documentation.
(3) USE OF NOMINEE NAME. The Registrar Contract must
establish the Foreign Custodian's right to hold shares not held directly in
the beneficial owner's name in the name of the Foreign Custodian's nominee.
(4) AUDITOR VERIFICATION. The Registrar Contract must
allow the independent auditors of the Custodian and the Custodian's clients
to obtain direct access to the share register for the independent auditors of
each of the Foreign Custodian's clients.
(5) SPECIFICATION OF REGISTRAR'S RESPONSIBILITIES AND
LIABILITIES. The contract must set forth: (1) the Registrar's responsibilities
with regard to corporate actions and other distributions; (ii) the Registrar's
liabilities as established under the regulations applicable to the Russian share
registration -system and (iii) the procedures for making a claim against and
receiving compensation from the registrar in the event a loss is incurred.
(b) The Custodian shall, in accordance with the Subcustodian
Agreement, direct the Foreign Custodian to conduct regular share
confirmations, which shall require the Foreign Custodian to (1) request
either a duplicate share extract or some other sufficient evidence of
verification and (2) determine if the Foreign Custodian's records correlate
with those of the Registrar. For at least the first two years following the
Foreign Custodian's first use of a Registrar in connection with a Fund
investment, and subject to the cooperation of the Registrar, the Foreign
Custodian will conduct these share confirmations on at least a quarterly
basis, although thereafter they may be conducted on a less frequent basis,
but no less frequently than annually, if the Fund's Board of Directors, in
consultation with the Custodian, determine it appropriate.
(c) The Custodian shall, pursuant to the Subcustodian
Agreement, direct the Subcustodian to maintain custody of the Fund's share
register extracts or other evidence of verification obtained pursuant to
paragraph (b) above.
(d) The Custodian shall, pursuant to the Subcustodian
Agreement, direct the Foreign Custodian to comply with the rules,
regulations, orders and "no-action" letters of the SEC with respect to
(1) the receipt, holding, maintenance, release and
delivery of Securities; and
(2) providing notice to the Fund and its Board of
Directors of events specified in such rules, regulations, orders and letters.
(e) The Custodian shall have no liability for the action or
inaction of any Registrar or securities depository utilized in connection
with Russian Securities except to the extent that any such action or inaction
was the result of the Custodian's negligence. With respect to any costs,
expenses, damages, liabilities or claims, including attorneys' and
accountants' fees (collectively, "Losses") incurred by a Fund as a result of
the acts or the failure to act by any Foreign Custodian or its subsidiary in
Russia ("Subsidiary"), the Custodian shall take appropriate action to recover
such Losses from the Foreign Custodian or Subsidiary. The Custodian's sole
responsibility and liability to a Fund with respect to any Losses shall be
limited to amounts so received from the Foreign Custodian or Subsidiary
(exclusive of costs and expenses incurred by the Custodian) except to the
extent that such losses were the result of the Custodian's negligence.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
THE BANK OF NEW YORK
By: /S/ STEPHEN E. GRUNSTON
Name: Stephen E. Grunston
Title: Vice President
THE INVESTMENT COMPANIES LISTED ON EXHIBIT A TO THE AGREEMENT
By: /S/ DEBORAH R. GATZEK
Name: Deborah R. Gatzek
Title: Vice President
By: /S/ KAREN L. SKIDMORE
Name: Karen L. Skidmore
Title: Assistant Vice President
Amendment to Master Custody Agreement
The Bank of New York and each of the Investment Companies listed on Exhibit
A, for itself and on behalf of its specified series, hereby amend the Master
Custody Agreement dated as of February 16, 1996, by replacing Exhibit A with
the attached.
Dated as of: October 15, 1997
INVESTMENT COMPANIES
By: /S/ DEBORAH R. GATZEK
Deborah R. Gatzek
Title: Vice President & Secretary
THE BANK OF NEW YORK
By: /S/ STEPHEN E. GRUNSTON
Stephen E. Grunston
Title: Vice President
<TABLE>
<CAPTION>
THE BANK OF NEW YORK
MASTER CUSTODY AGREEMENT
EXHIBIT A
The following is a list of the Investment Companies and their respective Series for which the Custodian shall serve under the Master
Custody Agreement dated as of February 16, 1996.
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Adjustable Rate Securities Portfolios Delaware Business Trust U.S. Government Adjustable Rate Mortgage Portfolio
Adjustable Rate Securities Portfolio
Franklin Asset Allocation Fund Delaware Business Trust
Franklin California Tax-Free Income Maryland Corporation
Fund, Inc.
Franklin California Tax-Free Trust Massachusetts Business Trust Franklin California Insured Tax-Free Income Fund
Franklin California Tax-Exempt Money Fund
Franklin California Intermediate-Term Tax-Free
Income Fund
Franklin Custodian Funds, Inc. Maryland Corporation Growth Series
Utilities Series
Dynatech Series
Income Series
U.S. Government Securities Series
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax- Free Income California Corporation
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
Franklin Gold Fund California Corporation
Franklin Government Securities Trust Massachusetts Business Trust
Franklin High Income Trust Delaware Business Trust AGE High Income Fund
Franklin Investors Securities Trust Massachusetts Business Trust Franklin Global Government Income Fund
Franklin Short-Intermediate U.S. Gov't
Securities Fund
Franklin Convertible Securities Fund
Franklin Adjustable U.S. Government Securities
Fund
Franklin Equity Income Fund
Franklin Adjustable Rate Securities Fund
Franklin Managed Trust Massachusetts Business Trust Franklin Corporate Qualified Dividend Fund
Franklin Rising Dividends Fund
Franklin Investment Grade Income Fund
Franklin Institutional Rising Dividends Fund
Franklin Money Fund California Corporation
Franklin Municipal Securities Trust Delaware Business Trust Franklin Hawaii Municipal Bond Fund
Franklin California High Yield Municipal Fund
Franklin Washington Municipal Bond Fund
Franklin Tennessee Municipal Bond Fund
Franklin Arkansas Municipal Bond Fund
Franklin New York Tax-Free Income Delaware Business Trust
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
Franklin New York Tax-Free Trust Massachusetts Business Trust Franklin New York Tax-Exempt Money Fund
Franklin New York Intermediate-Term Tax-Free
Income Fund
Franklin New York Insured Tax-Free Income Fund
Franklin Real Estate Securities Trust Delaware Business Trust Franklin Real Estate Securities Fund
Franklin Strategic Mortgage Portfolio Delaware Business Trust
Franklin Strategic Series Delaware Business Trust Franklin California Growth Fund
Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Blue Chip Fund
Franklin Biotechnology Discovery Fund
Franklin Tax-Exempt Money Fund California Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
Franklin Tax-Free Trust Massachusetts Business Trust Franklin Massachusetts Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free
Income Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income fund
Franklin Michigan Tax-Free Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
Franklin Templeton Fund Allocator Series Delaware Business Trust Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Global Trust Delaware Business Trust Franklin Templeton German Government Bond Fund
Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
Franklin Templeton International Trust Delaware Business Trust Templeton Pacific Growth Fund
Templeton Foreign Smaller Companies Fund
Franklin Templeton Money Fund Trust Delaware Business Trust Franklin Templeton Money Fund II
Franklin Value Investors Trust Massachusetts Business Trust Franklin Balance Sheet Investment Fund
Franklin MicroCap Value Fund
Franklin Value Fund
Franklin Valuemark Funds Massachusetts Business Trust Money Market Fund
Growth and Income Fund
Natural Resources Securities Fund
Real Estate Securities Fund
Utility Equity Fund
High Income Fund
Templeton Global Income Securities Fund
Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Fund - 2000
Zero Coupon Fund - 2005
Zero Coupon Fund - 2010
Rising Dividends Fund
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
Franklin Valuemark Funds Massachusetts Business Trust Templeton Pacific Growth Fund
Templeton International Equity Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton Global Asset Allocation Fund
Small Cap Fund
Capital Growth Fund
Templeton International Smaller Companies Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional Fiduciary Trust Massachusetts Business Trust Money Market Portfolio
Franklin U.S. Government Securities Money Market
Portfolio
Franklin U.S. Treasury Money Market Portfolio
Franklin Institutional Adjustable U.S. Government
Securities Fund
Franklin Institutional Adjustable Rate Securities
Fund
Franklin U.S. Government Agency Money Market Fund
Franklin Cash Reserves Fund
The Money Market Portfolios Delaware Business Trust The Money Market Portfolio
The U.S. Government Securities Money Market
Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
CLOSED END FUNDS:
Franklin Multi-Income Trust Massachusetts Business
Trust
Franklin Principal Maturity Trust Massachusetts Business
Trust
Franklin Universal Trust Massachusetts Business
Trust
- ------------------------------------------------------------------------------------------------------------------------------------
INTERVAL FUND:
Franklin Floating Rate Trust Delaware Business Trust
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TERMINAL LINK AGREEMENT
AGREEMENT made as of February 16, 1996 between The Bank of New York as custodian
(the "Custodian") and each Investment Company listed on Exhibit A, for itself
and for each of Series listed on Exhibit A (each, a "Fund").
WHEREAS, the parties have entered into a Master Custody Agreement dated as
of February 16, 1996;
WHEREAS, the parties desire to provide for the electronic transmission of
instructions from each Fund to the Custodian, as and to the extent permitted by
the Master Custody Agreement; and
WHEREAS, the Board of Directors, Trustees or Managing General Partners, as
applicable, of each Investment Company have previously authorized each
Investment Company to enter into the Master Custody Agreement;
NOW, THEREFORE, in consideration for the mutual promises set forth, the parties
agree as follows:
A. Except as otherwise provided herein, all terms shall have the same meaning as
in the Master Custody Agreement.
B. The term "Certificate" shall mean any Proper Instruction by a Fund to the
Custodian communicated by the Terminal Link.
C . The term "Officer" shall mean an Authorized Person as defined in section 5
of the Master Custody Agreement.
D. The term "Terminal Link" shall mean an electronic data transmission link
between a Fund, Franklin Templeton Investor Services, Inc. acting as agent for
the Fund ("FTISI"), and the Custodian requiring in connection with each use of
the Terminal Link by or on behalf of the Fund use of an authorization code
provided by the Custodian and at least two access codes established by the Fund.
Each Fund represents that FTISI will maintain a transmission line to the
Custodian and has been selected by the Fund to receive electronic data
transmissions from the Custodian or the Fund and forward the same to the Fund or
the Custodian, respectively.
E. Terminal Link
1. The Terminal Link shall be utilized by a Fund only for the purpose of the
Fund providing Certificates to the Custodian with respect to transactions
involving Securities or for the transfer of money to be applied to the payment
of dividends, distributions or redemptions of Fund Shares, and shall be utilized
by the Custodian only for the purpose of providing notices to the Fund. Such use
shall commence only after a Fund shall have established access codes and
safekeeping procedures to safeguard and protect the confidentiality and
availability of such access codes, and shall have reviewed the safekeeping
procedures established by FTISI to assure that transmissions inputted by the
Fund, and only such transmissions, are forwarded by FTISI to the Custodian
without any alteration or omission. Each use of the Terminal Link by a Fund
shall constitute a representation and warranty that the Terminal Link is being
used only for the purposes permitted hereby, that at least two Officers have
each utilized an access code, that such safekeeping procedures have been
established by the Fund, that FTISI has safekeeping procedures reviewed by the
Fund to assure that all transmissions inputted by the Fund, and only such
transmissions, are forwarded by FTISI to the Custodian without any alteration or
omission by FTISI, and that such use does not, to the Fund's knowledge,
contravene the Investment Company Act of 1940, as amended, or the rules or
regulations thereunder.
2. Each Fund shall obtain and maintain at its own cost and expense all equipment
and services, including, but not limited to communications services, necessary
for it to utilize the Terminal Link, and the Custodian shall not be responsible
for the reliability or availability of any such equipment or services.
3. Each Fund acknowledges that any data bases made available as part of, or
through the Terminal Link and any proprietary data, software, processes,
information and documentation (other than which are or become part of the public
domain or are legally required to be made available to the public)
(collectively, the "Information"), are the exclusive and confidential property
of the Custodian. Each Fund shall, and shall cause others to which it discloses
the Information, including without limitation FTISI, to keep the Information
confidential, by using the same care and discretion it uses with respect to its
own confidential property and trade secrets, and shall neither make nor permit
any disclosure without the express prior written consent of the Custodian.
4. Upon termination of this Agreement for any reason, the Fund shall return to
the Custodian any and all copies of the Information which are in the Fund's
possession or under its control, or which the Fund distributed to third parties,
including without limitation FTISI. The provisions of this Article shall not
affect the copyright status of any of the Information which may be copyrighted
and shall apply to all information whether or not copyrighted.
5. The Custodian reserves the right to modify the Terminal Link from time to
time without notice to the Funds or FTISI, except that the Custodian shall give
the Funds notice not less than 75 days in advance of any modification which
would materially adversely affect the Funds' operation. The Funds agree that
neither the Funds nor FTISI shall modify or attempt to modify the Terminal Link
without the Custodian's prior written consent. Each Fund acknowledges that any
software or procedures provided the Fund or FTISI as part of the Terminal Link
are the property of the Custodian and, accordingly, agrees that any
modifications to the Terminal Link, whether by the Fund, FTISI or the Custodian
and whether with or without the Custodian's consent, shall become the property
of the Custodian.
6. The Custodian, the Funds, FTISI and any manufacturers and suppliers utilized
by the Custodian, the Funds or FTISI in connection with the Terminal Link, make
no warranties or representations to any other party, express or implied, in fact
or in law, including but not limited to warranties of merchantability and
fitness for a particular purpose.
7. Each Fund will cause its officers and employees to treat the authorization
codes and the access codes applicable to Terminal Link with extreme care, and
irrevocably authorizes the Custodian to act in accordance with and rely on
Certificates received by it through the Terminal Link. Each Fund acknowledges
that it is its responsibility to assure that only its officers and authorized
persons of FTISI use the Terminal Link on its behalf, and that the Custodian
shall not be responsible nor liable for any action taken in good faith in
reliance upon a Certificate, nor for any alteration, omission, or failure to
promptly forward by FTISI.
8. (a) Except as otherwise specifically provided in Section 8(b) of this
Article, the Custodian shall have no liability for any losses, damages,
injuries, claims, costs or expenses arising out of or in connection with any
failure, malfunction or other problem relating to the Terminal Link except for
money damages suffered as the result of the negligence of the Custodian,
provided however, that the Custodian shall have no liability under this Section
8 if the Fund fails to comply with the provisions of section 10.
(b) The Custodian's liability for its negligence in executing or failing to
act in accordance with a Certificate received through Terminal Link shall be
only with respect to a transfer of funds or assets which is not made in
accordance with such Certificate, and shall be subject to Section 11 of this
Article and contingent upon the Fund complying with the provisions of Section 10
of this Article, and shall be limited to the extent of the Fund's damages,
without reference to any special conditions or circumstances.
9. Without limiting the generality of the foregoing, in no event shall the
Custodian or any manufacturer or supplier of its computer equipment, software or
services relating to the Terminal Link be responsible for any special, indirect,
incidental or consequential damages which a Fund or FTISI may incur or
experience by reason of any malfunction of such equipment or software, even if
the Custodian or any manufacturer or supplier has been advised of the
possibility of such damages, nor with respect to the use of the Terminal Link
shall the Custodian or any such manufacturer or supplier be liable for acts of
God, or with respect to the following to the extent beyond such person's
reasonable control: machine or computer breakdown or malfunction, interruption
or malfunction of communication facilities, labor difficulties or any other
similar or dissimilar cause.
10. Each Fund shall notify the Custodian of any errors, omissions or
interruptions in, or delay or unavailability of, the Terminal Link as promptly
as practicable, and in any event within 24 hours after the earliest of (i)
discovery thereof, or (ii) the business day on which discovery should have
occurred through the exercise of reasonable care. The Custodian shall promptly
advise the Fund or FTISI whenever the Custodian learns of any errors, omissions
or interruption in, or delay or unavailability of, the Terminal Link.
11. The Custodian shall acknowledge to each affected Fund or to FTISI, by use of
the Terminal Link, receipt of each Certificate the Custodian receives through
the Terminal Link, and in the absence of such acknowledgment the Custodian shall
not be liable for any failure to act in accordance with such Certificate and the
Funds may not claim that such Certificate was received by the Custodian. Such
acknowledgment, which may occur after the Custodian has acted upon such
Certificate, shall be given on the same day on which such Certificate is
received.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their respective officers, thereunto duly authorized and their respective
seals to be hereto affixed as of the day and year first above written.
THE BANK OF NEW YORK
By: /s/ Fred Ricciardi
Title: Senior Vice President
THE INVESTMENT COMPANIES LISTED ON EXHIBIT A
By: /s/ Harmon E. Burns
Harmon E. Burns
Title: Vice President
By: /s/ Deborah R. Gatzek
Deborah R. Garzek
Title: Vice President & Secretary
<TABLE>
<CAPTION>
THE BANK OF NEW YORK
MASTER CUSTODY AGREEMENT
EXHIBIT A
The following is a list of the Investment Companies and their respective Series for which the Custodian shall serve under the Master
Custody Agreement dated as of February 16, 1996.
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Adjustable Rate Securities Portfolios Delaware Business Trust U.S. Government Adjustable Rate Mortgage Portfolio
Adjustable Rate Securities Portfolio
AGE High Income Fund, Inc. Colorado Corporation
Franklin California Tax-Free Income Maryland Corporation
Fund, Inc.
Franklin California Tax-Free Trust Massachusetts Business Franklin California Insured Tax-Free Income Fund
Trust Franklin California Tax-Exempt Money Fund
Franklin California Intermediate-Term Tax-Free
Income Fund
Franklin Custodian Funds, Inc. Maryland Corporation Growth Series
Utilities Series
Dynatech Series
Income Series
U.S. Government Securities Series
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax-Free Income Fund California Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Gold Fund California Corporation
Franklin Government Securities Trust Massachusetts Business
Trust
Franklin Templeton International Trust Delaware Business Trust Templeton Pacific Growth Fund
Franklin International Equity Fund
Franklin Investors Securities Trust Massachusetts Business Franklin Global Government Income Fund
Trust Franklin Short-Intermediate U.S. Gov't Securities Fund
Franklin Convertible Securities Fund
Franklin Adjustable U.S. Government Securities Fund
Franklin Equity Income Fund
Franklin Adjustable Rate Securities Fund
Franklin Managed Trust Massachusetts Business Franklin Corporate Qualified Dividend Fund
Trust Franklin Rising Dividends Fund
Franklin Investment Grade Income Fund
Franklin Institutional Rising Dividends Fund
Franklin Money Fund California Corporation
Franklin Municipal Securities Trust Delaware Business Trust Franklin Hawaii Municipal Bond Fund
Franklin California High Yield Municipal Fund
Franklin Washington Municipal Bond Fund
Franklin Tennessee Municipal Bond Fund
Franklin Arkansas Municipal Bond Fund
Franklin New York Tax-Free Income Fund, New York Corporation
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin New York Tax-Free Trust Massachusetts Business Franklin New York Tax-Exempt Money Fund
Trust Franklin New York Intermediate-Term Tax-Free
Income Fund
Franklin New York Insured Tax-Free Income Fund
Franklin Tax-Advantaged International California Limited
Bond Fund Partnership
Franklin Tax-Advantaged U.S. Government California Limited
Securities Fund Partnership
Franklin Tax-Advantaged High Yield California Limited
Securities Fund. Partnership
Franklin Premier Return Fund California Corporation
Franklin Real Estate Securities Trust Delaware Business Trust Franklin Real Estate Securities Fund
Franklin Strategic Mortgage Portfolio Delaware Business Trust
Franklin Strategic Series Delaware Business Trust Franklin California Growth Fund
Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Institutional MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Tax-Exempt Money Fund California Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Tax-Free Trust Massachusetts Business Franklin Massachusetts Insured Tax-Free Income Fund
Trust Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free Income Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Templeton Global Trust Massachusetts Business Franklin Templeton German Government Bond Fund
Trust Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
Franklin Templeton Money Fund Trust Delaware Business Trust Franklin Templeton Money Fund II
Franklin Value Investors Trust Massachusetts Business Franklin Balance Sheet Investment Fund
Trust Franklin MicroCap Value Fund
Franklin Value Fund
Franklin Valuemark Funds Massachusetts Business Money Market Fund
Trust Growth and Income Fund
Precious Metals Fund
Real Estate Securities Fund
Utility Equity Fund
High Income Fund
Templeton Global Income Securities Fund
Investment Grade Intermediate Bond Fund
Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Fund -2000
Zero Coupon Fund -2005
Zero Coupon Fund -2010
Adjustable U.S. Government Fund
Rising Dividends Fund
Templeton Pacific Growth Fund
Templeton International Equity Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton Global Asset Allocation Fund
Small Cap Fund
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Institutional Fiduciary Trust Massachusetts Business Money Market Portfolio
Trust Franklin Late Day Money Market Portfolio
Franklin U.S. Government Securities Money Market
Portfolio
Franklin U.S. Treasury Money Market Portfolio
Franklin Institutional Adjustable U.S. Government
Securities Fund
Franklin Institutional Adjustable Rate Securities Fund
Franklin U.S. Government Agency Money Market Fund
Franklin Cash Reserves Fund
MidCap Growth Portfolio Delaware Business Trust
The Money Market Portfolios Delaware Business Trust The Money Market Portfolio
The U.S. Government Securities Money Market Portfolio
CLOSED END FUNDS:
Franklin Multi-Income Trust Massachusetts Business
Trust
Franklin Principal Maturity Trust Massachusetts Business
Trust
Franklin Universal Trust Massachusetts Business
Trust
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Post-Effective Amendment No. 18
to the Registration Statement of Franklin Templeton Global Trust on Form N-1A
File No. 33-01212 of our report dated November 26, 1997 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, 1997, which is incorporated by reference in the
Registration Statement.
/s/ COOPERS & LYBRAND L.L.P.
Ft. Lauderdale, Florida
February 26, 1998
FRANKLIN TEMPLETON GLOBAL TRUST
Preamble to Distribution Plan
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by the
FRANKLIN TEMPLETON GLOBAL TRUST (the "Trust") on behalf of Franklin Templeton
Global Currency Fund, Franklin Templeton High Income Currency Fund, Franklin
Templeton German Government Bond Fund, and Franklin Templeton Hard Currency
Fund (may be collectively or separately hereinafter referred to as the
"Funds" or a "Fund"). The Plan has been approved by a majority vote of the
Board of Trustees of the Trust (the "Board of Trustees"), including a
majority of the trustees who are not interested persons of the Trust and who
have no direct or indirect financial interest in the operation of the Plan
(the "non-interested trustees"), cast in person at a meeting called for the
purpose of voting on such Plan.
In reviewing the Plan, the Board of Trustees considered the proposed
schedule and nature of payments and terms of the Management Agreement between
the Trust and Franklin Advisers, Inc. (the "Manager"), and the terms of the
Underwriting Agreement between the Trust and Franklin/Templeton Distributors,
Inc. ("Distributors"). The Board of Trustees concluded that the proposed
compensation of the Manager, under the Management Agreement, and of
Distributors, under the Underwriting Agreement, was fair and not excessive;
however, the Board of Trustees also recognized that uncertainty may exist
from time to time with respect to whether payments to be made by the Funds to
the Manager or to Distributors or others or by the Manager or Distributors to
others may be deemed to constitute distribution expenses. Accordingly, the
Board of Trustees determined that the Plan should provide for such payments
and that adoption of the Plan would be prudent and in the best interest of
each Fund and its shareholders. Such approval included a determination that
in the exercise of their reasonable business judgment and in light of their
fiduciary duties, there is a reasonable likelihood that the Plan will benefit
each Fund and its shareholders.
DISTRIBUTION PLAN
1. Each Fund shall reimburse Distributors or others for all expenses
incurred by Distributors or others in the promotion and distribution of the
shares of each Fund, including, but not limited to, the printing of
prospectuses and reports used for sales purposes, expenses of preparing and
distributing sales literature and related expenses, advertisements, and other
distribution-related expenses, including a prorated portion of Distributors'
overhead expenses attributable to the distribution of Fund shares, as well as
any distribution or service fees paid to securities dealers or their firms or
others who have executed a servicing agreement with the Fund, Distributors or
its affiliates, which form of agreement has been approved from time to time
by the trustees, including the non-interested trustees.
2. The maximum amount which may be reimbursed by each Fund to Distributors
or others pursuant to Paragraph 1 herein shall be .45% per annum of the
average daily net assets of each Fund (other than the Franklin Templeton
German Government Bond Fund) and .25% per annum of the average daily net
assets of the Franklin Templeton German Government Bond Fund. Said
reimbursement shall be made quarterly by each Fund to Distributors or others.
3. In addition to the payments which each Fund is authorized to make
pursuant to paragraphs 1 and 2 hereof, to the extent that the Funds, the
Manager, Distributors or other parties on behalf of a Fund the Manager or
Distributors make payments that are deemed to be payments for the financing
of any activity primarily intended to result in the sale of shares issued by
a Fund within the context of Rule 12b-1 under the 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 specified in paragraphs 1 and 2, plus any other payments deemed to
be made pursuant to the Plan under this paragraph, exceed the amount
permitted to be paid pursuant to the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board of Trustees, for their review,
on a quarterly basis, a written report of the monies reimbursed to it and to
others under the Plan, and shall furnish the Board of Trustees with such
other information as the Board of Trustees may reasonably request in
connection with the payments made under the Plan in order to enable the Board
of Trustees to make an informed determination of whether the Plan should be
continued.
5. The Plan shall continue in effect for a period of more than one year
only so long as such continuance is specifically approved at least annually
by a vote of the Board of Trustees, including the non-interested trustees,
cast in person at a meeting called for the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to this Plan, may be
terminated at any time, without penalty, by vote of a majority of the
outstanding voting securities of a Fund or by vote of a majority of the
non-interested trustees, on not more than sixty (60) days' written notice, or
by Distributors on not more than sixty (60) days' written notice and shall
terminate automatically in the event of any act that constitutes an
assignment of the Management Agreement between the Trust and the Manager.
7. Without approval by a majority of the Trust's outstanding voting
securities, the Plan and any agreements entered into pursuant to the Plan may
not be amended to increase materially the amount to be spent for distribution
pursuant to Paragraph 2.
8. All material amendments to the Plan, or any agreements entered into
pursuant to the Plan, shall be approved by a vote of the non-interested
trustees cast in person at a meeting called for the purpose of voting on any
such amendment.
9. So long as the Plan is in effect, the selection and nomination of the
Trust's non-interested trustees shall be committed to the discretion of such
non-interested trustees.
10. This Plan shall take effect on the 28TH day of AUGUST , 1996.
This Plan and the terms and provisions thereof are hereby accepted and
agreed to by the Trust on behalf of each Fund and Distributors as evidenced
by their execution hereof.
FRANKLIN TEMPLETON GLOBAL TRUST
By: /S/ DEBORAH R. GATZEK
Deborah R. Gatzek
Vice President & Secretary
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By: /S/ HARMON E. BURNS
Harmon E. Burns
Executive Vice President
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The schedule contains summary financial information extracted from the Franklin
Templeton German Government Fund, October 31, 1997, annual report and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000780379
<NAME> FRANKLIN TEMPLETON GLOBAL TRUST
<SERIES>
<NUMBER> 001
<NAME> FRANKLIN TEMPLETON GERMAN GOVERNMENT BOND FUND-CLASS I
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 13165054
<INVESTMENTS-AT-VALUE> 12373977
<RECEIVABLES> 436514
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 343415
<TOTAL-ASSETS> 13153906
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 371941
<TOTAL-LIABILITIES> 371941
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13569897
<SHARES-COMMON-STOCK> 1108528
<SHARES-COMMON-PRIOR> 1333917
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (2295)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (2020)
<ACCUM-APPREC-OR-DEPREC> (783617)
<NET-ASSETS> 12781965
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 903482
<OTHER-INCOME> 0
<EXPENSES-NET> 215621
<NET-INVESTMENT-INCOME> 687861
<REALIZED-GAINS-CURRENT> (868123)
<APPREC-INCREASE-CURRENT> (1166241)
<NET-CHANGE-FROM-OPS> (1346503)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (724669)
<NUMBER-OF-SHARES-SOLD> 659919
<NUMBER-OF-SHARES-REDEEMED> (935734)
<SHARES-REINVESTED> 50426
<NET-CHANGE-IN-ASSETS> (4769848)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 83958
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 215621
<AVERAGE-NET-ASSETS> 14743177
<PER-SHARE-NAV-BEGIN> 13.16
<PER-SHARE-NII> 0.53
<PER-SHARE-GAIN-APPREC> (1.60)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (0.58)
<PER-SHARE-NAV-END> 11.51
<EXPENSE-RATIO> 1.42
<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 German Government Fund, October 31, 1997, annual report and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000780379
<NAME> FRANKLIN TEMPLETON GLOBAL TRUST
<SERIES>
<NUMBER> 011
<NAME> FRANKLIN TEMPLETON GERMAN GOVERNMENT BOND FUND-ADVISOR CLASS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997<F1>
<INVESTMENTS-AT-COST> 13165054
<INVESTMENTS-AT-VALUE> 12373977
<RECEIVABLES> 436514
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 343415
<TOTAL-ASSETS> 13153906
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 371941
<TOTAL-LIABILITIES> 371941
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13569897
<SHARES-COMMON-STOCK> 2430
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (2295)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (2020)
<ACCUM-APPREC-OR-DEPREC> (783617)
<NET-ASSETS> 12781965
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 903482
<OTHER-INCOME> 0
<EXPENSES-NET> 215621
<NET-INVESTMENT-INCOME> 687861
<REALIZED-GAINS-CURRENT> (868123)
<APPREC-INCREASE-CURRENT> (1166241)
<NET-CHANGE-FROM-OPS> (1346503)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (24821)
<NUMBER-OF-SHARES-SOLD> 208944
<NUMBER-OF-SHARES-REDEEMED> (208686)
<SHARES-REINVESTED> 2172
<NET-CHANGE-IN-ASSETS> (4769848)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 83958
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 215621
<AVERAGE-NET-ASSETS> 630864
<PER-SHARE-NAV-BEGIN> 12.98
<PER-SHARE-NII> 0.43
<PER-SHARE-GAIN-APPREC> (1.40)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (0.49)
<PER-SHARE-NAV-END> 11.52
<EXPENSE-RATIO> 1.27<F2>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>COMMENCEMENT OF OFFERING OF SALES JANUARY 2, 1997.
<F2>EXPENSE RATIO IS ANNUALIZED.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The schedule contains summary financial information extracted from the Franklin
Templeton Global Currency Fund, October 31, 1997, annual report and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000780379
<NAME> FRANKLIN TEMPLETON GLOBAL TRUST
<SERIES>
<NUMBER> 002
<NAME> FRANKLIN TEMPLETON GLOBAL CURRENCY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 39111160
<INVESTMENTS-AT-VALUE> 38598264
<RECEIVABLES> 5649726
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 344761
<TOTAL-ASSETS> 44592751
<PAYABLE-FOR-SECURITIES> 2070000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 728233
<TOTAL-LIABILITIES> 2798233
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 42639004
<SHARES-COMMON-STOCK> 3454471
<SHARES-COMMON-PRIOR> 3967384
<ACCUMULATED-NII-CURRENT> 265180
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (339636)
<ACCUM-APPREC-OR-DEPREC> (770030)
<NET-ASSETS> 41794518
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2335127
<OTHER-INCOME> 0
<EXPENSES-NET> 503976
<NET-INVESTMENT-INCOME> 1831151
<REALIZED-GAINS-CURRENT> (1811951)
<APPREC-INCREASE-CURRENT> (798869)
<NET-CHANGE-FROM-OPS> (779669)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (1895614)
<NUMBER-OF-SHARES-SOLD> 491508
<NUMBER-OF-SHARES-REDEEMED> (1134907)
<SHARES-REINVESTED> 130486
<NET-CHANGE-IN-ASSETS> (8978887)
<ACCUMULATED-NII-PRIOR> 12235
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (285576)
<GROSS-ADVISORY-FEES> 296670
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 503976
<AVERAGE-NET-ASSETS> 45641493
<PER-SHARE-NAV-BEGIN> 12.80
<PER-SHARE-NII> 0.49
<PER-SHARE-GAIN-APPREC> (0.68)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (0.51)
<PER-SHARE-NAV-END> 12.10
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FRANKLIN
TEMPLETON HAR CURRENCY FUND OCTOBER 31, 1997 ANNUAL REPORT AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000780379
<NAME> FRANKLIN TEMPLETON GLOBAL TRUST
<SERIES>
<NUMBER> 003
<NAME> FRANKLIN TEMPLETON HARD CURRENCY FUND-CLASS I
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 95560149
<INVESTMENTS-AT-VALUE> 95349204
<RECEIVABLES> 999295
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 817736
<TOTAL-ASSETS> 97166235
<PAYABLE-FOR-SECURITIES> 4550000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 390895
<TOTAL-LIABILITIES> 4940895
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 94048518
<SHARES-COMMON-STOCK> 8944016
<SHARES-COMMON-PRIOR> 10707928
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (817703)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1623677)
<ACCUM-APPREC-OR-DEPREC> 618202
<NET-ASSETS> 92225340
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4892141
<OTHER-INCOME> 0
<EXPENSES-NET> 1186041
<NET-INVESTMENT-INCOME> 3706100
<REALIZED-GAINS-CURRENT> (15811999)
<APPREC-INCREASE-CURRENT> 1406507
<NET-CHANGE-FROM-OPS> (10699392)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (3971925)
<NUMBER-OF-SHARES-SOLD> 6145940
<NUMBER-OF-SHARES-REDEEMED> (8200653)
<SHARES-REINVESTED> 290801
<NET-CHANGE-IN-ASSETS> (32440962)
<ACCUMULATED-NII-PRIOR> 158515
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1461368)
<GROSS-ADVISORY-FEES> 682152
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1186041
<AVERAGE-NET-ASSETS> 104739581
<PER-SHARE-NAV-BEGIN> 11.64
<PER-SHARE-NII> 0.37
<PER-SHARE-GAIN-APPREC> (1.33)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (0.40)
<PER-SHARE-NAV-END> 10.28
<EXPENSE-RATIO> 1.13
<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 Fund, October 31, 1997, annual report and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000780379
<NAME> FRANKLIN TEMPLETON GLOBAL TRUST
<SERIES>
<NUMBER> 023
<NAME> FRANKLIN TEMPLETON HARD CURRENCY FUND-ADVISOR CLASS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997<F1>
<INVESTMENTS-AT-COST> 95560149
<INVESTMENTS-AT-VALUE> 95349204
<RECEIVABLES> 999295
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 817736
<TOTAL-ASSETS> 97166235
<PAYABLE-FOR-SECURITIES> 4550000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 390895
<TOTAL-LIABILITIES> 4940895
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 94048518
<SHARES-COMMON-STOCK> 24262
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (817703)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1623677)
<ACCUM-APPREC-OR-DEPREC> 618202
<NET-ASSETS> 92225340
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4892141
<OTHER-INCOME> 0
<EXPENSES-NET> 1186041
<NET-INVESTMENT-INCOME> 3706100
<REALIZED-GAINS-CURRENT> (15811999)
<APPREC-INCREASE-CURRENT> 1406507
<NET-CHANGE-FROM-OPS> (10699392)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (7680)
<NUMBER-OF-SHARES-SOLD> 87809
<NUMBER-OF-SHARES-REDEEMED> (64231)
<SHARES-REINVESTED> 684
<NET-CHANGE-IN-ASSETS> (32440962)
<ACCUMULATED-NII-PRIOR> 158515
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1461368)
<GROSS-ADVISORY-FEES> 682152
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1186041
<AVERAGE-NET-ASSETS> 250106
<PER-SHARE-NAV-BEGIN> 11.28
<PER-SHARE-NII> 0.34
<PER-SHARE-GAIN-APPREC> (1.00)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (0.34)
<PER-SHARE-NAV-END> 10.28
<EXPENSE-RATIO> 0.94<F2>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>COMMENCEMENT OF OFFERING OF SALES JANUARY 2, 1997.
<F2>EXPENSE RATIO IS ANNUALIZED.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The schedule contains summary financial information extracted from the Franklin
Templeton High Income Currency Fund, October 31, 1997, annual report and is
qualified in its entirety by reference to such fianacial statements.
</LEGEND>
<CIK> 0000780379
<NAME> FRANKLIN TEMPLETON GLOBAL TRUST
<SERIES>
<NUMBER> 004
<NAME> FRANKLIN TEMPLETON HIGH INCOME CURRENCY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 8761166
<INVESTMENTS-AT-VALUE> 8807044
<RECEIVABLES> 22480
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 76041
<TOTAL-ASSETS> 8905565
<PAYABLE-FOR-SECURITIES> 415000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 114906
<TOTAL-LIABILITIES> 529906
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8371434
<SHARES-COMMON-STOCK> 792480
<SHARES-COMMON-PRIOR> 917518
<ACCUMULATED-NII-CURRENT> 25019
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (24312)
<ACCUM-APPREC-OR-DEPREC> 3518
<NET-ASSETS> 8375659
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 514124
<OTHER-INCOME> 0
<EXPENSES-NET> 136685
<NET-INVESTMENT-INCOME> 377439
<REALIZED-GAINS-CURRENT> (294100)
<APPREC-INCREASE-CURRENT> (107030)
<NET-CHANGE-FROM-OPS> (23691)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (19163)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (356921)
<NUMBER-OF-SHARES-SOLD> 224819
<NUMBER-OF-SHARES-REDEEMED> (375035)
<SHARES-REINVESTED> 25178
<NET-CHANGE-IN-ASSETS> (1737602)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (41061)
<OVERDIST-NET-GAINS-PRIOR> (22408)
<GROSS-ADVISORY-FEES> 59758
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 136685
<AVERAGE-NET-ASSETS> 9193602
<PER-SHARE-NAV-BEGIN> 11.02
<PER-SHARE-NII> 0.43
<PER-SHARE-GAIN-APPREC> (0.44)
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (0.42)
<PER-SHARE-NAV-END> 10.57
<EXPENSE-RATIO> 1.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
