PROSPECTUS
FRANKLIN
TEMPLETON
GLOBAL TRUST
CLASS A
FRANKLIN TEMPLETON GLOBAL CURRENCY FUND
FRANKLIN TEMPLETON HARD CURRENCY FUND
INVESTMENT STRATEGY
GLOBAL INCOME
MARCH 1, 1999
[INSERT FRANKLIN TEMPLETON BEN HEAD]
LIKE ALL MUTUAL FUND SHARES, THE SEC HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
CONTENTS
THE FUND
2 Franklin Templeton Global Currency Fund
11 Franklin Templeton HardCurrency Fund
20 Distributions and Taxes; Year 2000 Problem
YOUR ACCOUNT
22 Sales Charges
26 Buying Shares
28 Investor Services
31 Selling Shares
33 Account Policies
35 Questions
FOR MORE INFORMATION
Back Cover
[Begin callout]
INFORMATION ABOUT EACH FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]
[BEGIN CALLOUT]
INFORMATION ABOUT SALES CHARGES, ACCOUNT TRANSACTIONS AND SERVICES
[End callout]
[BEGIN CALLOUT]
Where to learn more about each fund
[End callout]
FRANKLIN TEMPLETON
GLOBAL CURRENCY FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is to maximize total return through a
combination of interest income and changes in the fund's net asset value due
to changes in currency exchange rates.
PRINCIPAL INVESTMENTS The fund invests in high-quality, short-term money
market instruments denominated in foreign and domestic currencies. Under
normal market conditions, the fund invests at least 65% of its total assets
in instruments denominated in any combination of three of more major
currencies and does not intend to invest (i) more than 50% in instruments
denominated in any one major currency, other than the U.S. dollar, (ii) 5% in
instruments denominated in any one non-major currency, or (iii) 25% in
instruments denominated in non-major currencies. The manager may vary its
emphasis between currency appreciation and interest income from time to time.
[Begin callout]
MAJOR CURRENCIES include the Australian dollar, Belgian franc, British pound
sterling, Canadian dollar, Danish krone, Netherlands guilder, the Euro,
French franc, German mark, Greek drachma, Irish punt, Italian lira, Japanese
yen, New Zealand dollar, Norwegian krona, Spanish peseta, Swedish krona,
Swiss franc and U.S. dollar.
[End callout]
Money market instruments are issued by foreign and domestic governments,
financial institutions, corporations and other entities to borrow money. The
issuer pays a fixed or variable rate of interest, and must repay the amount
borrowed at maturity. To try to reduce credit and interest rate risk to the
portfolio, the fund maintains a weighted average portfolio maturity of 120
days or less and only buys money market instruments:
o with effective maturities of one year or less at the time of purchase, and
o that the manager considers comparable in quality to instruments rated in
the top two ratings by U.S. nationally recognized rating services or
issued by companies with an outstanding unsecured debt issue rated in the
top two ratings.
To hedge (protect) against currency exchange rate fluctuations, the fund may,
but is not required to, enter into forward currency contracts. A forward
currency contract is an agreement to buy or sell a specific currency at a
future date and at a price set at the time of the contract. Forward contracts
may reduce the risk of loss from a change in value of a currency, but they
also limit any potential gains and do not protect against fluctuations in the
value of the underlying position. The fund may invest in a combination of
forward contracts and money market instruments to obtain an investment result
that is substantially the same as a direct investment in a foreign
currency-denominated instrument.
TEMPORARY INVESTMENTS The manager may take a temporary defensive position to
preserve capital or when it believes the currency markets or the economies of
countries where the fund invests are experiencing excessive volatility or a
prolonged general decline, or other adverse conditions exist. Under these
circumstances, the fund may be unable to pursue its investment goal, because
it may not invest or may invest substantially less in foreign
currency-denominated instruments.
THE VALUE OF FUND SHARES WILL FLUCTUATE. THE FUND SHOULD NOT BE CONSIDERED
A SUBSTITUTE FOR A U.S. DOLLAR MONEY MARKET FUND.
[INSERT GRAPHIC OF CHART WITH LINE GOING UP AND DOWN] MAIN RISKS
CURRENCY Many of the fund's investments are denominated in foreign
currencies. Changes in foreign currency exchange rates will affect the value
of what the fund owns and the fund's share price. Generally, when the U.S.
dollar rises in value against a foreign currency, an investment in that
country loses value because that currency is worth fewer U.S. dollars.
Devaluation of a currency by a country's government or banking authority also
will have a significant impact on the value of any investments denominated in
that currency. Currency markets generally are not as regulated as securities
markets.
[Begin callout]
Because currency exchange rates fluctuate, the value of your investment in
the fund will go up and down. This means you could lose money over short or
even extended periods.
[End callout]
EURO. On January 1, 1999, the European Monetary Union (EMU) introduced a new
single currency, the euro, which will replace the national currency for
participating member countries. If the fund holds investments in countries
with currencies replaced by the euro, the investment process, including
trading, foreign exchange, payments, settlements, cash accounts, custody and
accounting will be impacted.
Because this change to a single currency is new and untested, the
establishment of the euro may result in market volatility. For the same
reason, it is not possible to predict the impact of the euro on the business
or financial condition of European issuers which the fund may hold in its
portfolio, and their impact on fund performance. To the extent the fund holds
non-U.S. dollar (euro or other) denominated securities, it will still be
exposed to currency risk due to fluctuations in those currencies versus the
U.S. dollar.
FOREIGN MONEY MARKET INSTRUMENTS Investing in money market instruments of
companies and governments located outside the U.S. may involve risks that can
increase the potential for losses in the fund.
COUNTRY. General money market movements in any country where the fund has
investments are likely to affect the value of the investments the fund owns
which trade in that country. These movements will affect the fund's share
price and fund performance.
The political, economic and social structures of some countries the fund
invests in may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of the
imposition of exchange controls, currency devaluations, foreign ownership
limitations, expropriation, restrictions on removal of currency or other
assets, nationalization of assets, punitive taxes and certain custody and
settlement risks.
The fund's investments in developing or emerging money markets are subject to
all of the risks of foreign investing generally, and have additional
heightened risks due to a lack of established legal, business and social
frameworks to support money markets. Foreign money markets, including
emerging markets, may have substantially lower trading volumes than U.S.
markets, resulting in less liquidity and more volatility than experienced in
the U.S.
COMPANY. Foreign companies are not subject to the same disclosure,
accounting, auditing and financial reporting standards and practices as U.S.
companies and their money market instruments may not be as liquid as money
market instruments of similar U.S. companies. Foreign trading systems,
brokers and companies generally have less government supervision and
regulation than in the U.S. The fund may have greater difficulty pursuing
legal remedies and obtaining judgments with respect to foreign investments in
foreign courts than with respect to U.S. companies in U.S. courts.
INCOME RISK is the possibility that the fund's income will decrease due to
falling interest rates. Since the fund can only distribute what it earns, the
fund's distributions to its shareholders may decline when interest rates fall.
CREDIT RISK is the possibility that an issuer will be unable to make
interest payments or repay principal. Changes in an issuer's financial
strength or in a money market instrument's credit rating may affect a money
market instrument's value and, thus, impact the value of fund shares.
INTEREST RATE RISK is the risk that changes in interest rates can reduce the
value of a security. When interest rates go up, the price of money market
instruments may fall. The opposite is also true: the price of money market
instruments may go up when interest rates fall.
DERIVATIVE SECURITIES Forward currency contracts are considered derivative
investments, since their value depends on the value of the underlying asset
to be purchased or sold. The fund's investment in derivatives may involve a
small investment relative to the amount of risk assumed. To the extent the
fund enters into these transactions, their success will depend on the
manager's ability to predict market movements.
DIVERSIFICATION The fund is a non-diversified fund. It may invest a greater
portion of its assets in the money market instruments of one issuer than a
diversified fund. The fund may be more sensitive to economic, business,
political or other changes affecting similar issuers or money market
instruments, which may result in greater fluctuation in the value of the
fund's shares. The fund intends, however, to meet certain tax diversification
requirements.
YEAR 2000 When evaluating current and potential portfolio positions, Year
2000 is one of the factors the fund's manager considers.
The manager will rely upon public filings and other statements made by
issuers about their Year 2000 readiness. Issuers in countries outside the
U.S., particularly in emerging markets, may not be required to make the same
level of disclosure about Year 2000 readiness as is required in the U.S. The
manager, of course, cannot audit each issuer and its major suppliers to
verify their Year 2000 readiness.
If an issuer in which the fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its securities will also be
adversely affected. A decrease in the value of one or more of the fund's
portfolio holdings will have a similar impact on the fund's performance.
Please see page 21 for more information.
More detailed information about the fund, its policies (including temporary
investments), and risks can be found in the fund's Statement of Additional
Information (SAI).
[Begin callout]
Mutual fund shares 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. Mutual fund shares involve investment risks, including the
possible loss of principal.
[End callout]
[INSERT GRAPHIC OF BULL AND BEAR] PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns from year to year over the past 10 calendar
years. The table shows how the fund's average annual total returns compare to
those of a broad-based securities market index. Of course, past performance
cannot predict or guarantee future results.
ANNUAL TOTAL RETURNS 1
[Begin callout]
BEST
QUARTER:
Q2 '92
7.81%
WORST
QUARTER:
Q4 '92
- -3.84%
[End callout]
[Insert bar graph]
89 90 91 92 93 94 95 96 97 98
4.18% 14.44% 7.61% 3.63% 6.03% 8.07% 5.02% 2.76% -4.54% 7.21%
YEAR
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
1 YEAR 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------
Franklin Templeton Global Currency Fund 2 4.79% 3.14% 5.10%
Salomon Brothers World Money Market Index 3 9.11% 4.81% 6.61%
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Salomon Brothers World
Money Market Index provides an indication of the performance of the U.S.
dollar and Eurocurrency short-term sectors. It includes reinvested interest.
One cannot invest directly in an index, nor is an index representative of the
fund's portfolio.
[INSERT GRAPHIC OF PERCENTAGE SIGN] FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge (load) as a percentage of offering price 2.25%
Load imposed on purchases 2.25%
Maximum deferred sales charge (load) None 1
Exchange fee 2 $5.00
Please see "Sales Charges" on page 22 for an explanation of how and when
these sales charges apply.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
Management fees 0.65%
Distribution and service (12b-1) fees 3 0.26%
Other expenses 0.28%
Total annual fund operating expenses 1.19%
1. Except for investments of $1 million or more (see page 22) and purchases
by certain retirement plans without an initial sales charge.
2. This fee is only for market timers (see page 34).
3. Because of the distribution and service (12b-1) fees, over the long term
you may indirectly pay more than the equivalent of the maximum permitted
initial sales charge.
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
The example assumes you invest $10,000 for the periods shown and then sell
all of your shares at the end of those periods. The example also assumes your
investment has a 5% return each year and the fund's operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------
$344 1 $594 $865 $1,636
1. Assumes a contingent deferred sales charge (CDSC) will not apply.
[INSERT GRAPHIC OF BRIEFCASE] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the fund's investment manager. Together, Advisers and its
affiliates manage over $220 billion in assets.
Under an agreement with Advisers, Templeton Investment Counsel, Inc.
(Investment Counsel), 500 East Broward Blvd., Ft. Lauderdale, FL 33394,
through its Templeton Global Bond Managers division (Global Bond Managers),
is the fund's sub-advisor. A team from Global Bond Managers provides Advisers
with investment management advice and assistance, and is responsible for the
day-to-day management of the fund.
CHARLES E. JOHNSON, VICE PRESIDENT OF ADVISERS
Mr. Johnson supervises the implementation of the fund's investment policies.
He joined the Franklin Templeton Group in 1981.
The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended October 31, 1998, the fund
paid 0.65% of its average daily net assets to the manager.
[INSERT GRAPHIC OF DOLLAR BILL] FINANCIAL HIGHLIGHTS
This table presents the fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.
YEAR ENDED
YEAR ENDED OCTOBER 31, APRIL 30,
- ------------------------------------------------------------------------------
1998 1997 1996 1995 1994 3 1994
- ------------------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value,
beginning of year 12.10 12.80 13.67 14.14 13.85 13.96
---------------------------------------------
Net investment income .50 .49 .69 1.29 .25 .57
Net realized and
unrealized gains (losses) (.07) (.68) (.54) (.49) .32 (.11)
---------------------------------------------
Total from investment operations .43 (.19) .15 .80 .57 .46
-------------------------------------------
Distributions from
net investment income (.28) - (.71) (1.27) (.28) (.57)
Tax return of capital (.19) (.51) (.31) - - -
--------------------------------------------
Total distributions (.47) (.51) (1.02) (1.27) (.28) (.57)
---------------------------------------------
Net asset value, end of year 12.06 12.10 12.80 13.67 14.14 13.85
---------------------------------------------
Total return (%) 1 3.71 (1.46) 1.27 6.05 4.14 3.41
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
($ x 1,000) 33,703 41,795 50,773 59,942 56,098 51,539
Ratios to average net assets: (%)
Expenses 1.19 1.10 .99 .99 1.04 2 1.41
Expenses excluding waiver
and payments by affiliate 1.19 1.10 .99 .99 1.12 2 1.61
Net investment income 4.08 4.01 4.30 5.29 3.55 2 2.78
Portfolio turnover rate (%) .00 .00 .00 46.05 25.62 37.16
1. Total return does not include sales charges, and is not annualized.
2. Annualized.
3. Six months ended October 31, 1994. Before this period, the fund's fiscal
year end was April 30.
FRANKLIN TEMPLETON
HARD CURRENCY FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is to protect against depreciation of the
U.S. dollar relative to other currencies.
PRINCIPAL INVESTMENTS The fund normally invests in high-
quality, short-term money market instruments denominated in foreign major
currencies that historically have experienced low rates of inflation and, in
the manger's opinion, follow economic policies favorable to continued low
inflation rates and currency appreciation versus the U.S. dollar over the
long-term. The fund tries to expose 100% of its net assets to foreign
currencies. Under normal market conditions, the fund will not expose more
than 50% of its total assets to any one foreign currency.
[Begin callout]
MAJOR CURRENCIES include the Australian dollar, Belgian franc, British pound
sterling, Canadian dollar, Danish krone, Netherlands guilder, the Euro,
French franc, German mark, Greek drachma, Irish punt, Italian lira, Japanese
yen, New Zealand dollar, Norwegian krona, Spanish peseta, Swedish krona,
Swiss franc and U.S. dollar.
[End callout]
Money market instruments are issued by foreign and domestic governments,
financial institutions, corporations and other entities to borrow money. The
issuer pays a fixed or variable rate of interest, and must repay the amount
borrowed at maturity. To try to reduce credit and interest rate risk to the
portfolio, the fund maintains a weighted average portfolio maturity of 120
days or less and only buys money market instruments:
o with effective maturities of one year or less at the time of purchase, and
o that the manager considers comparable in quality to instruments rated in
the top two ratings by U.S. nationally recognized rating services or
issued by companies with an outstanding unsecured debt issue rated in the
top two ratings.
To hedge (protect) against currency exchange rate fluctuations, the fund may,
but is not required to, enter into forward currency contracts. A forward
currency contract is an agreement to buy or sell a specific currency at a
future date and at a price set at the time of the contract. Forward contracts
may reduce the risk of loss from a change in value of a currency, but they
also limit any potential gains and do not protect against fluctuations in the
value of the underlying position. The fund may invest in a combination of
forward contracts and money market instruments to try to obtain an investment
result that is substantially the same as a direct investment in a foreign
currency-denominated instrument.
TEMPORARY INVESTMENTS The manager may take a temporary defensive position to
preserve capital or when it believes the currency markets or the economies of
countries where the fund invests are experiencing excessive volatility or a
prolonged general decline, or other adverse conditions exist. Under these
circumstances, the fund may be unable to pursue its investment goal, because
it may not invest or may invest substantially less in foreign
currency-denominated instruments.
THE VALUE OF FUND SHARES WILL FLUCTUATE. THE FUND SHOULD NOT BE CONSIDERED
A SUBSTITUTE FOR A U.S. DOLLAR MONEY MARKET FUND.
[INSERT GRAPHIC OF CHART WITH LINE GOING UP AND DOWN] MAIN RISKS
CURRENCY Many of the fund's investments are denominated in foreign
currencies. Changes in foreign currency exchange rates will affect the value
of what the fund owns and the fund's share price. Generally, when the U.S.
dollar rises in value against a foreign currency, an investment in that
country loses value because that currency is worth fewer U.S. dollars.
Devaluation of a currency by a country's government or banking authority also
will have a significant impact on the value of any investments denominated in
that currency. Currency markets generally are not as regulated as securities
markets.
[Begin callout]
Because currency exchange rates fluctuate, the value of your investment in
the fund will go up and down. This means you could lose money over short or
even extended periods.
[End callout]
EURO. On January 1, 1999, the European Monetary Union (EMU) introduced a new
single currency, the euro, which will replace the national currency for
participating member countries. If the fund holds investments in countries
with currencies replaced by the euro, the investment process, including
trading, foreign exchange, payments, settlements, cash accounts, custody and
accounting will be impacted.
Because this change to a single currency is new and untested, the
establishment of the euro may result in market volatility. For the same
reason, it is not possible to predict the impact of the euro on the business
or financial condition of European issuers which the fund may hold in its
portfolio, and their impact on fund performance. To the extent the fund holds
non-U.S. dollar (euro or other) denominated securities, it will still be
exposed to currency risk due to fluctuations in those currencies versus the
U.S. dollar.
FOREIGN MONEY MARKET INSTRUMENTS Investing in money market instruments of
companies and governments located outside the U.S. may involve risks that can
increase the potential for losses in the fund.
COUNTRY. General money market movements in any country where the fund has
investments are likely to affect the value of the investments the fund owns
which trade in that country. These movements will affect the fund's share
price and fund performance.
The political, economic and social structures of some countries the fund
invests in may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of the
imposition of exchange controls, currency devaluations, foreign ownership
limitations, expropriation, restrictions on removal of currency or other
assets, nationalization of assets, punitive taxes and certain custody and
settlement risks.
The fund's investments in developing or emerging money markets are subject to
all of the risks of foreign investing generally, and have additional
heightened risks due to a lack of established legal, business and social
frameworks to support money markets. Foreign money markets, including
emerging markets, may have substantially lower trading volumes than U.S.
markets, resulting in less liquidity and more volatility than experienced in
the U.S.
COMPANY. Foreign companies are not subject to the same disclosure,
accounting, auditing and financial reporting standards and practices as U.S.
companies and their money market instruments may not be as liquid as money
market instruments of similar U.S. companies. Foreign trading systems,
brokers and companies generally have less government supervision and
regulation than in the U.S. The fund may have greater difficulty pursuing
legal remedies and obtaining judgments with respect to foreign investments in
foreign courts than with respect to U.S. companies in U.S. courts.
INCOME RISK is the possibility that the fund's income will decrease due to
falling interest rates. Since the fund can only distribute what it earns, the
fund's distributions to its shareholders may decline when interest rates fall.
CREDIT RISK is the possibility that an issuer will be unable to make
interest payments or repay principal. Changes in an issuer's financial
strength or in a money market instrument's credit rating may affect a money
market instruments value and, thus, impact the value of fund shares.
INTEREST RATE RISK is the risk that changes in interest rates can reduce the
value of a security. When interest rates go up, the price of money market
instruments may fall. The opposite is also true: the price of money market
instruments may go up when interest rates fall.
DERIVATIVE SECURITIES Forward currency contracts are considered derivative
investments, since their value depends on the value of the underlying asset
to be purchased or sold. The fund's investment in derivatives may involve a
small investment relative to the amount of risk assumed. To the extent the
fund enters into these transactions, their success will depend on the
manager's ability to predict market movements.
DIVERSIFICATION The fund is a non-diversified fund. It may invest a greater
portion of its assets in the money market instruments of one issuer than a
diversified fund. The fund may be more sensitive to economic, business,
political or other changes affecting similar issuers or money market
instruments, which may result in greater fluctuation in the value of the
fund's shares. The fund intends, however, to meet certain tax diversification
requirements.
YEAR 2000 When evaluating current and potential portfolio positions, Year
2000 is one of the factors the fund's manager considers.
The manager will rely upon public filings and other statements made by
issuers about their Year 2000 readiness. Issuers in countries outside the
U.S., particularly in emerging markets, may not be required to make the same
level of disclosure about Year 2000 readiness as is required in the U.S. The
manager, of course, cannot audit each issuer and its major suppliers to
verify their Year 2000 readiness.
If an issuer in which the fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its securities will also be
adversely affected. A decrease in the value of one or more of the fund's
portfolio holdings will have a similar impact on the fund's performance.
Please see page 21 for more information.
More detailed information about the fund, its policies (including temporary
investments), and risks can be found in the fund's Statement of Additional
Information (SAI).
[INSERT GRAPHIC OF BULL AND BEAR] PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns from year to year over the past 9 calendar
years. The table shows how the fund's average annual total returns compare to
those of a broad-based securities market index. Of course, past performance
cannot predict or guarantee future results.
CLASS A ANNUAL TOTAL RETURNS 1
[Begin callout]
BEST QUARTER:
Q1 '95
11.67%
WORST QUARTER:
Q4 '92
- -8.47%
[End callout]
[Insert bar graph]
90 91 92 93 94 95 96 97 98
20.19% 8.28% 2.24% 4.65% 15.10% 6.61% -7.02% -10.42% 9.85%
Year
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
SINCE INCEPTION
1 YEAR 5 YEARS (11/17/89)
- ------------------------------------------------------------------------------
Franklin Templeton Hard Currency Fund -
Class A 2 7.43% 1.89% 5.60%
Salomon Brothers World Money Market Index 3 9.11% 4.81% 6.92%
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Salomon Brothers World
Money Market Index provides an indication of the performance of the U.S.
dollar and Eurocurrency short-term sectors. It includes reinvested interest.
One cannot invest directly in an index, nor is an index representative of the
fund's portfolio.
[INSERT GRAPHIC OF PERCENTAGE SIGN] FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A 1
- ------------------------------------------------------------------------------
Maximum sales charge (load) as a percentage of offering price 2.25%
Load imposed on purchases 2.25%
Maximum deferred sales charge (load) None 2
Exchange fee 3 $5.00
Please see "Sales Charges" on page 22 for an explanation of how and when
these sales charges apply.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
CLASS A 1
- ------------------------------------------------------------------------------
Management fees 0.65%
Distribution and service (12b-1) fees4 0.34%
Other expenses 0.36%
Total annual fund operating expenses 1.35%
1. Before January 1, 1999, Class A shares were designated Class I.
2. Except for investments of $1 million or more (see page 22) and purchases
by certain retirement plans without an initial sales charge.
3. This fee is only for market timers (see page 34).
4. Because of the distribution and service (12b-1) fees, over the long term
you may indirectly pay more than the equivalent of the maximum permitted
initial sales charge.
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
The example assumes you invest $10,000 for the periods shown and then sell
all of your shares at the end of those periods. The example also assumes your
investment has a 5% return each year and the fund's operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------
CLASS A $359 1 $643 $948 $1,812
1. Assumes a contingent deferred sales charge (CDSC) will not apply.
[INSERT GRAPHIC OF BRIEFCASE] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the fund's investment manager. Together, Advisers and its
affiliates manage over $220 billion in assets.
Under an agreement with Advisers, Templeton Investment Counsel, Inc.
(Investment Counsel), 500 East Broward Blvd., Ft. Lauderdale, FL 33394,
through its Templeton Global Bond Managers division (Global Bond Managers),
is the fund's sub-advisor. A team from Global Bond Managers provides Advisers
with investment management advice and assistance, and is responsible for the
day-to-day management of the fund.
CHARLES E. JOHNSON, VICE PRESIDENT OF ADVISERS
Mr. Johnson supervises the implementation of the fund's investment policies.
He joined the Franklin Templeton Group in 1981.
The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended October 31, 1998, the fund
paid 0.65% of its average daily net assets to the manager.
[INSERT GRAPHIC OF DOLLAR BILL] FINANCIAL HIGHLIGHTS
This table presents the fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.
YEAR ENDED
CLASS A YEAR ENDED OCTOBER 31, APRIL 30,
- ------------------------------------------------------------------------------
1998 4 1997 1996 1995 1994 3 1994
- ------------------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value,
beginning of year 10.28 11.64 13.09 13.95 12.95 13.00
Net investment income .30 .37 .57 1.84 .26 .50
Net realized and
unrealized gains (losses) .12 (1.33) (1.34)(1.02) .99 (.05)
Total from investment operations .42 (.96) (.77) .82 1.25
.45
Distributions from
net investment income (.25) - (.06)(1.68) (.25) (.13)
Tax return of capital (.06) (.40) (.62) - - (.37)
Total distributions (.31) (.40) (.68)(1.68) (.25) (.50)
Net asset value, end of year 10.39 10.28 11.64 13.09 13.95 12.95
Total return (%) 1 4.33 (8.28) (5.99) 6.68 9.74 3.62
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
($ x 1,000) 68,902 91,976 124,666132,089 61,228 35,739
Ratios to average net assets: (%)
Expenses 1.35 1.13 1.10 1.15 1.05 2 1.47
Expenses excluding waiver
and payments by affiliate 1.35 1.13 1.10 1.15 1.28 2 1.71
Net investment income 3.07 3.53 4.50 4.68 3.80 2 3.83
Portfolio turnover rate (%) 96.41 2.68 .00 15.72 28.18 .00
1. Total return does not include sales charges, and is not annualized.
2. Annualized.
3. Six months ended October 31, 1994. Before this period, the fund's fiscal
year end was April 30.
4. Based on average weighted shares outstanding.
[INSERT GRAPHIC OF DOLLAR SIGNS AND STACKS OF COINS] DISTRIBUTIONS AND TAXES;
YEAR 2000 PROBLEM
The following information applies to both funds.
INCOME AND CAPITAL GAINS DISTRIBUTIONS Each fund intends to pay a dividend
at least quarterly in March, June, September and December, representing its
net investment income. Capital gains, if any, may be distributed annually.
The amount of these distributions will vary and there is no guarantee the
fund will pay dividends.
To receive a distribution, you must be a shareholder on the record date. The
record dates for each fund's distributions will vary. Please keep in mind
that if you invest in the fund shortly before the record date of a
distribution, any distribution will lower the value of the fund's shares by
the amount of the distribution and you will receive some of your investment
back in the form of a taxable distribution. If you would like information on
upcoming record dates for the fund's distributions, please call
1-800/DIAL BEN(R).
[Begin callout]
BACKUP WITHHOLDING
By law , the fund must withhold 31% of your taxable distributions and
proceeds if you do not provide your correct taxpayer identification number
(TIN) or certify that your TIN is correct, or if the IRS instructs the fund
to do so.
[End callout]
TAX CONSIDERATIONS In general, fund distributions are taxable to you as
either ordinary income or capital gains. This is true whether you reinvest
your distributions in additional shares of the fund or receive them in cash.
Any capital gains the fund distributes are taxable to you as long-term
capital gains no matter how long you have owned your shares.
Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
When you sell your shares of the fund, you may have a capital gain or loss.
For tax purposes, an exchange of your fund shares for shares of a different
Franklin Templeton Fund is the same as a sale. The individual tax rate on any
gain from the sale or exchange of your shares depends on how long you have
held your shares.
Fund distributions and gains from the sale or exchange of your shares will
generally be subject to state and local income tax. Non-U.S. investors may be
subject to U.S. withholding and estate tax. You should consult your tax
advisor about the federal, state, local or foreign tax consequences of your
investment in the fund.
YEAR 2000 PROBLEM The fund's business operations depend on a worldwide
network of computer systems that contain date fields, including securities
trading systems, securities transfer agent operations and stock market links.
Many of the systems currently use a two digit date field to represent the
date, and unless these systems are changed or modified, they may not be able
to distinguish the Year 1900 from the Year 2000 (commonly referred to as the
Year 2000 problem). In addition, the fact that the Year 2000 is a leap year
may create difficulties for some systems.
When the Year 2000 arrives, the fund's operations could be adversely affected
if the computer systems used by the manager, its service providers and other
third parties it does business with are not Year 2000 ready. For example, the
fund's portfolio and operational areas could be impacted, including
securities trade processing, interest and dividend payments, securities
pricing, shareholder account services, reporting, custody functions and
others. The fund could experience difficulties in effecting transactions if
any of its foreign subcustodians, or if foreign broker-dealers or foreign
markets are not ready for Year 2000.
The fund's manager and its affiliated service providers are making a
concerted effort to take steps they believe are reasonably designed to
address their Year 2000 problems. Of course, the fund's ability to reduce the
effects of the Year 2000 problem is also very much dependent upon the efforts
of third parties over which the fund and its manager may have no control.
YOUR ACCOUNT
[Insert graphic of percentage sign] SALES CHARGES
THE SALES CHARGE WHICH EQUALS
MAKES UP THIS % OF THIS % OF YOUR
WHEN YOU INVEST THIS AMOUNT THE OFFERING PRICE NET INVESTMENT
- ------------------------------------------------------------------------------
Under $100,000 2.25 2.30
$100,000 but under $250,000 1.75 1.78
$250,000 but under $500,000 1.25 1.26
$500,000 but under $1 million 1.00 1.01
INVESTMENTS OF $1 MILLION OR MORE If you invest $1 million or more, either
as a lump sum or through our cumulative quantity discount or letter of intent
programs (see page 23), you can buy shares without an initial sales charge.
However, there is a 1% contingent deferred sales charge (CDSC) on any shares
you sell within 12 months of purchase.
The CDSC is based on the current value of the shares being sold or their net
asset value when purchased, whichever is less. There is no CDSC on shares you
acquire by reinvesting your dividends.
To keep your CDSC as low as possible, each time you place a request to sell
shares we will first sell any shares in your account that are not subject to
a CDSC. If there are not enough of these to meet your request, we will sell
the shares in the order they were purchased. We will use this same method if
you exchange your shares into another Franklin Templeton Fund (please see
page 29 for exchange information).
[Begin callout]
The HOLDING PERIOD FOR THE CDSC begins on the day you buy your shares. Your
shares will age one month on that same date the next month and each following
month.
For Example, if you buy shares on the 18th of the month, they will age one
month on the 18th day of the next month and each following month.
[End callout]
DISTRIBUTION AND SERVICE (12B-1) FEES The Global Currency Fund and Class A
of the Hard Currency Fund have a distribution plan, sometimes known as a Rule
12b-1 plan, that allows each fund to pay distribution fees of up to 0.45% per
year to those who sell and distribute the fund's shares and provide other
services to shareholders. Because these fees are paid out of the fund's
assets on an on-going basis, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales
charges.
SALES CHARGE REDUCTIONS AND WAIVERS
If you qualify for any of the sales charge reductions or waivers below,
please let us know at the time you make your investment to help ensure you
receive the lower sales charge.
QUANTITY DISCOUNTS We offer several ways for you to combine your purchases
in the Franklin Templeton Funds to take advantage of the lower sales charges
for large purchases of fund shares.
[Begin callout]
The FRANKLIN TEMPLETON FUNDS include all of the Franklin Templeton U.S.
registered mutual funds, except Franklin Valuemark Funds, Templeton Capital
Accumulator Fund, Inc., and Templeton Variable Products Series Fund.
[End callout]
o CUMULATIVE QUANTITY DISCOUNT - lets you combine all of your shares in the
Franklin Templeton Funds for purposes of calculating the sales charge. You
may also combine the shares of your spouse, and your children or
grandchildren, if they are under the age of 21. Certain company and
retirement plan accounts may also be included.
o LETTER OF INTENT (LOI) - expresses your intent to buy a stated dollar
amount of shares over a 13-month period and lets you receive the same
sales charge as if all shares had been purchased at one time. We will
reserve a portion of your shares to cover any additional sales charge that
may apply if you do not buy the amount stated in your LOI.
TO SIGN UP FOR THESE PROGRAMS, COMPLETE THE APPROPRIATE SECTION OF YOUR
ACCOUNT APPLICATION.
REINSTATEMENT PRIVILEGE If you sell shares of a Franklin Templeton Fund, you
may reinvest some or all of the proceeds within 365 days without an initial
sales charge. The proceeds must be reinvested within the same share class,
except proceeds from the sale of Class B shares will be reinvested in Class A
shares.
Certain Franklin Templeton Funds offer multiple share classes not offered by
the Global Currency Fund. For purposes of this privilege, the Global Currency
Fund's shares are considered Class A shares.
If you paid a CDSC when you sold your Class A shares, we will credit your
account with the amount of the CDSC paid but a new CDSC will apply. For Class
B shares reinvested in Class A, a new CDSC will not apply, although your
account will not be credited with the amount of any CDSC paid when you sold
your Class B shares.
Proceeds immediately placed in a Franklin Bank Certificate of Deposit (CD)
also may be reinvested without an initial sales charge if you reinvest them
within 365 days from the date the CD matures, including any rollover.
This privilege does not apply to shares you buy and sell under our exchange
program. Shares purchased with the proceeds from a money fund may be subject
to a sales charge.
WAIVERS FOR INVESTMENTS FROM CERTAIN PAYMENTS Shares of the fund may be
purchased without an initial sales charge or CDSC by investors who reinvest
within 365 days:
o certain payments received under an annuity contract that offers a Franklin
Templeton insurance fund option
o distributions from an existing retirement plan invested in the Franklin
Templeton Funds
o dividend or capital gain distributions from a real estate investment trust
sponsored or advised by Franklin Properties, Inc.
o redemption proceeds from a repurchase of Franklin Floating Rate Trust
shares held continuously for at least 12 months
o redemption proceeds from Class A of any Templeton Global Strategy Fund, if
you are a qualified investor. If you paid a CDSC when you sold your
shares, we will credit your account with the amount of the CDSC paid but a
new CDSC will apply.
WAIVERS FOR CERTAIN INVESTORS Shares of the fund also may be purchased
without an initial sales charge or CDSC by various individuals and
institutions, including:
o certain trust companies and bank trust departments investing $1 million or
more in assets over which they have full or shared investment discretion
o government entities that are prohibited from paying mutual fund sales
charges
o certain unit investment trusts and their holders reinvesting trust
distributions
o group annuity separate accounts offered to retirement plans
o employees and other associated persons or entities of Franklin Templeton or
of certain dealers
o any investor who is currently a Class Z shareholder of Franklin Mutual
Series Fund Inc. (Mutual Series), or who is a former Mutual Series Class Z
shareholder who had an account in any Mutual Series fund on October 31,
1996, or who sold his or her shares of Mutual Series Class Z within the
past 365 days
o Chilean retirement plans that meet the requirements for retirement plans
described below
IF YOU THINK YOU MAY BE ELIGIBLE FOR A SALES CHARGE WAIVER,
CALL YOUR INVESTMENT REPRESENTATIVE OR CALL SHAREHOLDER SERVICES
AT 1-800/632-2301 FOR MORE INFORMATION.
CDSC WAIVERS The CDSC generally will be waived:
o to pay account fees
o to make payments through systematic withdrawal plans, up to 1% monthly, 3%
quarterly, 6% semiannually or 12% annually depending on the frequency of
your plan
o for redemptions by investors who purchased $1 million or more without an
initial sales charge if Franklin Templeton Distributors, Inc. did not make
any payment to the securities dealer of record in connection with the
purchase
o for redemptions by Franklin Templeton Trust Company employee benefit plans
or employee benefit plans serviced by ValuSelect(R)
o for IRA distributions due to death or disability or upon periodic
distributions based on life expectancy
o to return excess contributions (and earnings, if applicable) from
retirement plan accounts
o for redemptions following the death of the shareholder or beneficial owner
o for participant initiated distributions from employee benefit plans or
participant initiated exchanges among investment choices in employee
benefit plans
RETIREMENT PLANS Certain retirement plans may buy shares of the fund without
an initial sales charge. To qualify, the plan must be sponsored by an
employer:
o with at least 100 employees, or
o with retirement plan assets of $1 million or more, or
o that agrees to invest at least $500,000 in the Franklin Templeton Funds
over a 13-month period
A CDSC may apply. Retirement plans other than SIMPLEs, SEPs, or plans that
qualify under section 401 of the Internal Revenue Code also must qualify
under our group investment program to buy shares without an initial sales
charge.
FOR MORE INFORMATION, CALL YOUR INVESTMENT REPRESENTATIVE OR
RETIREMENT PLAN SERVICES AT 1-800/527-2020.
GROUP INVESTMENT PROGRAM Allows established groups of 11 or more investors
to invest as a group. For sales charge purposes, the group's investments are
added together. There are certain other requirements and the group must have
a purpose other than buying fund shares at a discount.
[Insert graphic of paper with lines and someone writing] BUYING SHARES
MINIMUM INVESTMENTS
- ------------------------------------------------------------------------------
INITIAL ADDITIONAL
- ------------------------------------------------------------------------------
Regular accounts $1,000 $50
- ------------------------------------------------------------------------------
UGMA/UTMA accounts $100 $50
Retirement accounts
(other than IRAs, IRA rollovers, Education IRAs or Roth IRAs) no minimum
no minimum
- ------------------------------------------------------------------------------
IRAs, IRA rollovers, Education IRAs or Roth IRAs $250 $50
- ------------------------------------------------------------------------------
Broker-dealer sponsored wrap account programs $250 $50
Full-time employees, officers, trustees and directors of
Franklin Templeton entities, and their immediate family members $100$50
- ------------------------------------------------------------------------------
Certain Franklin Templeton Funds offer multiple share classes not offered by
the Global Currency Fund. Please note that for selling or exchanging your
shares, or for other purposes, the Global Currency Fund's shares are
considered Class A shares. Before January 1, 1999, the Global Currency Fund's
shares were considered Class I shares.
ACCOUNT APPLICATION If you are opening a new account, please complete and
sign the enclosed account application. To save time, you can sign up now for
services you may want on your account by completing the appropriate sections
of the application (see the next page).
BUYING SHARES
- -----------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -----------------------------------------------------------------------------
[Insert graphic of
hands shaking]
THROUGH YOUR INVESTMENT Contact your investment Contact your investment
REPRESENTATIVE representative representative
- ------------------------------------------------------------------------------
[Insert graphic of envelope]
BY MAIL Make your check payable Make your check payable to
to the fund. the fund. Include your
account number on the
Mail the check and your check.
signed application to
Investor Services. Fill out the deposit slip
from your account
statement. If you do
not have a slip,
include a note with
your name, the
fund name, and your
account number.
Mail the check and deposit
slip or note to Investor
Services.
- ------------------------------------------------------------------------------
[Insert graphic of three lightning bolts]
BY WIRE Call to receive a wire Call to receive a wire
1-800/632-2301 control number and wire control number and
(or 1-650/312-2000 instructions. wire instructions.
collect)
Wire the funds and mail To make a same day wire
your signed application investment, please call
to Investor Services. us by 1:00 p.m. pacific
Please include the wire time and make sure your
control number or your wire arrives by 3:00 p.m.
new account number on
the application.
To make a same day wire
investment, please call
us by 1:00 p.m. pacific
time and make sure your
wire arrives by 3:00 p.m.
- ------------------------------------------------------------------------------
[Insert graphic of two arrows
pointing in opposite directions]
BY EXCHANGE Call Shareholder Services Call Shareholder Services
at the number below, or at the number below or
TeleFACTS(R) send signed written our automated TeleFACTS
1-800/247-1753 instructions. The system,or send signed
(around-the-clock access) TeleFACTS system cannot written instructions.
be used to open a new
account.
(Please see page 29 for (Please see page 29 for
information on exchanges.) information on exchanges.)
- ------------------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES
777 MARINERS ISLAND BLVD., P.O. BOX 7777,
SAN MATEO, CA 94403-7777
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of person with handset] INVESTOR SERVICES
AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to
invest in the fund by automatically transferring money from your checking or
savings account each month to buy shares. The minimum investment to open an
account with an automatic investment plan is $50 ($25 for an Education IRA).
To sign up, complete the appropriate section of your account application.
AUTOMATIC PAYROLL DEDUCTION You may be able to invest automatically in
shares of the fund by transferring money from your paycheck to the fund by
electronic funds transfer. If you are interested, indicate on your
application that you would like to receive an Automatic Payroll Deduction
Program kit.
DISTRIBUTION OPTIONS You may reinvest distributions you receive from the
fund in an existing account in the same share class of the fund or another
Franklin Templeton Fund. Initial sales charges and CDSCs will not apply if
you reinvest your distributions within 365 days. You can also have your
distributions deposited in a bank account, or mailed by check. Deposits to a
bank account may be made by electronic funds transfer.
Please indicate on your application the distribution option you have chosen,
otherwise we will reinvest your distributions in the same share class of the
fund.
[Begin callout]
For Franklin Templeton Trust Company retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.
[End callout]
RETIREMENT PLANS Franklin Templeton offers a variety of retirement plans for
individuals and businesses. These plans require separate applications and
their policies and procedures may be different than those described in this
prospectus. For more information, including a free retirement plan brochure
or application, please call Retirement Plan Services at
1-800/527-2020.
TELEFACTS(R) Our TeleFACTS system offers around-the-clock access to
information about your account or any Franklin Templeton Fund. This service
is available from touch-tone phones at 1-800/247-1753. For a free TeleFACTS
brochure, call 1-800/DIAL BEN.
TELEPHONE PRIVILEGES You will automatically receive telephone privileges
when you open your account, allowing you and your investment representative
to sell or exchange your shares and make certain other changes to your
account by phone.
For accounts with more than one registered owner, telephone privileges also
allow the fund to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For
all other transactions and changes, all registered owners must sign the
instructions.
As long as we take certain measures to verify telephone requests, we will not
be responsible for any losses that may occur from unauthorized requests. Of
course, you can decline telephone exchange or redemption privileges on your
account application.
[Begin callout]
An EXCHANGE is really two transactions: a sale of one fund and the purchase
of another. In general, the same policies that apply to purchases and sales
apply to exchanges, including mimimum investment amounts. Exchanges also have
the same tax consequences as ordinary sales and purchases.
[End callout]
EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton
Funds within the same class*, generally without paying any additional sales
charges. If you exchange shares held for less than six months, however, you
may be charged the difference between the initial sales charge of the two
funds if the difference is more than 0.25%. If you exchange shares from a
money fund, a sales charge may apply no matter how long you have held the
shares.
Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee. Any CDSC
will continue to be calculated from the date of your initial investment and
will not be charged at the time of the exchange. The purchase price for
determining a CDSC on exchanged shares will be the price you paid for the
original shares. If you exchange shares subject to a CDSC into a Class A
money fund, the time your shares are held in the money fund will not count
towards the CDSC holding period.
*Certain Class Z shareholders of Franklin Mutual Series Fund Inc. may
exchange into the fund without any sales charge. Advisor Class shareholders
of another Franklin Templeton Fund also may exchange into the Global Currency
Fund without any sales charge. Advisor Class shareholders who exchange their
shares for shares of the Global Currency Fund and later decide they would
like to exchange into another fund that offers Advisor Class may do so.
Frequent exchanges can interfere with fund management or operations and drive
up costs for all shareholders. To protect shareholders, there are limits on
the number and amount of exchanges you may make (please see "Market Timers"
on page 34).
SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. A CDSC may apply to
withdrawals that exceed certain amounts. Certain terms and minimums apply. To
sign up, complete the appropriate section of your application.
[INSERT GRAPHIC OF CERTIFICATE] SELLING SHARES
You can sell your shares at any time.
SELLING SHARES IN WRITING Requests to sell $100,000 or less can generally be
made over the phone or with a simple letter. Sometimes, however, to protect
you and the fund we will need written instructions signed by all registered
owners, with a signature guarantee for each owner, if:
[Begin callout]
A SIGNATURE GUARANTEE helps protect your account against fraud. You can
obtain a signature guarantee at most banks and securities dealers.
A notary public CANNOT provide a signature guarantee.
[End callout]
o you are selling more than $100,000 worth of shares
o you want your proceeds paid to someone who is not a registered owner
o you want to send your proceeds somewhere other than the address of record,
or preauthorized bank or brokerage firm account
We may also require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the
fund against potential claims based on the instructions received.
SELLING RECENTLY PURCHASED SHARES If you sell shares recently purchased with
a check or draft, we may delay sending you the proceeds until your check or
draft has cleared, which may take seven business days or more. A certified or
cashier's check may clear in less time.
REDEMPTION PROCEEDS Your redemption check will be sent within seven days
after we receive your request in proper form. We are not able to receive or
pay out cash in the form of currency. Redemption proceeds may be delayed if
we have not yet received your signed account application.
RETIREMENT PLANS You may need to complete additional forms to sell shares in
a Franklin Templeton Trust Company retirement plan. For participants under
age 591/2, tax penalties may apply. Call Retirement Plan Services at
1-800/527-2020 for details.
SELLING SHARES
- -----------------------------------------------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES
- -----------------------------------------------------------------------------
[Insert graphic of hands shaking]
THROUGH YOUR Contact your investment representative
INVESTMENT
REPRESENTATIVE
- ------------------------------------------------------------------------------
[Insert graphic of envelope]
BY MAIL Send written instructions and endorsed share
certificates (if you hold share certificates) to
Investor Services. Corporate, partnership or trust
accounts may need to send additional documents.
Specify the fund, the account number and the dollar
value or number of shares you wish to sell. Be sure
to include all necessary signatures and any
additional documents, as well as signature guarantees
if required.
A check will be mailed to the name(s) and address on
the account, or otherwise according to your written
instructions.
- ------------------------------------------------------------------------------
[Insert graphic of phone]
BY PHONE As long as your transaction is for $100,000 or less,
you do not hold share certificates and you have not
changed your address by phone within the last 15
1-800/632-2301 days, you can sell your shares by phone.
A check will be mailed to the name(s) and address on
the account. Written instructions, with a signature
guarantee, are required to send the check to another
address or to make it payable to another person.
- ------------------------------------------------------------------------------
[Insert graphic of three lightning bolts]
BY WIRE You can call or write to have redemption proceeds of
$1,000 or more wired to a bank or escrow account. See
the policies above for selling shares by mail or
phone.
Before requesting a bank wire, please make sure we
have your bank account information on file. If we do
not have this information, you will need to send
written instructions with your bank's name and
address, your bank account number, the ABA routing
number, and a signature guarantee.
Requests received in proper form by 1:00 p.m. pacific
time
will be wired the next business day.
- ------------------------------------------------------------------------------
[Insert graphic of two arrows pointing in opposite directions
BY EXCHANGE Obtain a current prospectus for the fund you are
considering.
TeleFACTS(R)
1-800/247-1753 Call Shareholder Services at the number below or our
(around-the-clock automated TeleFACTS system, or send signed written
access) instructions. See the policies above for selling
shares by mail or phone.
If you hold share certificates, you will need to
return them
to the fund before your exchange can be processed.
- ------------------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES
777 MARINERS ISLAND BLVD., P.O. BOX 7777,
SAN MATEO, CA 94403-7777
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of paper and pen] ACCOUNT POLICIES
CALCULATING SHARE PRICE The fund calculates the net asset value per share
(NAV) each business day at the close of trading on the New York Stock
Exchange (normally 1:00 p.m. pacific time). The fund's NAV is calculated by
dividing its net assets by the number of its shares outstanding.
[Begin callout]
When you buy shares, you pay the offering price. The offering price is the
NAV plus any applicable sales charge.
When you sell shares, you receive the NAV minus any applicable contingent
deferred sales charges (CDSC).
[End callout]
The fund's assets are generally valued at their market value. If market
prices are unavailable, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued at their fair
value. If the fund holds securities listed primarily on a foreign exchange
that trades on days when the fund is not open for business, the value of your
shares may change on days that you cannot buy or sell shares.
Requests to buy and sell shares are processed at the NAV next calculated
after we receive your request in proper form.
ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250
($50 for employee and UGMA/UTMA accounts) because you sell some of your
shares, we may mail you a notice asking you to bring the account back up to
its applicable minimum investment amount. If you choose not to do so within
30 days, we may close your account and mail the proceeds to the address of
record. You will not be charged a CDSC if your account is closed for this
reason.
STATEMENTS AND REPORTS You will receive confirmations and account statements
that show your account transactions. You will also receive the fund's
financial reports every six months. To reduce fund expenses, we try to
identify related shareholders in a household and send only one copy of the
financial reports. If you need additional copies, please call 1-800/DIAL BEN.
If there is a dealer or other investment representative of record on your
account, he or she will also receive confirmations, account statements and
other information about your account directly from the fund.
STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have
an agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.
JOINT ACCOUNTS Unless you specify a different registration, accounts with
two or more owners are registered as "joint tenants with rights of
survivorship" (shown as "Jt Ten" on your account statement). To make any
ownership changes to a joint account, all owners must agree in writing,
regardless of the law in your state.
MARKET TIMERS The fund may restrict or refuse exchanges by market timers. If
accepted, each exchange by a market timer will be charged $5. You will be
considered a market timer if you have (i) requested an exchange out of the
fund within two weeks of an earlier exchange request, or (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, or (iv) otherwise seem to follow a timing pattern. Shares under
common ownership or control are combined for these limits.
ADDITIONAL POLICIES Please note that the fund maintains additional policies
and reserves certain rights, including:
o The fund may refuse any order to buy shares, including any purchase under
the exchange privilege.
o At any time, the fund may change its investment minimums or waive or lower
its minimums for certain purchases.
o The fund may modify or discontinue the exchange privilege on 60 days'
notice.
o You may only buy shares of a fund eligible for sale in your state or
jurisdiction.
o In unusual circumstances, we may temporarily suspend redemptions, or
postpone the payment of proceeds, as allowed by federal securities laws.
o For redemptions over a certain amount, the fund reserves the right to make
payments in securities or other assets of the fund, in the case of an
emergency or if the payment by check or wire would be harmful to existing
shareholders.
o To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the fund promptly.
DEALER COMPENSATION Qualifying dealers who sell fund shares may receive
sales commissions and other payments. These are paid by Franklin Templeton
Distributors, Inc. (Distributors) from sales charges, distribution and
service (12b-1) fees and its other resources.
CLASS A
- ------------------------------------------------------------------------------
COMMISSION (%) --
Investment under $100,000 2.00
$100,000 but under $250,000 1.50
$250,000 but under $500,000 1.00
$500,000 but under $1 million 0.85
$1 million or more up to 0.75 1
12B-1 FEE TO DEALER 0.45 2
A dealer commission of up to 1% may be paid on NAV purchases by certain
retirement plans1 and up to 0.25% on NAV purchases by certain trust companies
and bank trust departments, eligible governmental authorities, and
broker-dealers or others on behalf of clients participating in comprehensive
fee programs.
1. During the first year after purchase, dealers may not be eligible to
receive the 12b-1 fee.
2. Of this amount, the fund may pay up to 0.45% to Distributors or others,
out of which 0.20% will generally be retained by Distributors for its
distribution expenses.
[Insert graphic of question mark] QUESTIONS
If you have any questions about the fund or your account, you can write to us
at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, CA 94403-7777. You
can also call us at one of the following numbers. For your protection and to
help ensure we provide you with quality service, all calls may be monitored
or recorded.
HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
- ------------------------------------------------------------------------------
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
6:30 a.m. to 2:30 p.m. (Saturday)
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.
Dealer Services 1-800/524-4040 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.
FOR MORE INFORMATION
You can learn more about the fund in the following documents:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes a discussion of recent market conditions and fund strategies,
financial statements, detailed performance information, portfolio holdings,
and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more information about the fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).
For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.
FRANKLIN(R)TEMPLETON(R)
1-800/DIAL BEN(R) (1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
www.franklin-templeton.com
You can also obtain information about the fund by visiting the SEC's Public
Reference Room in Washington D.C. (phone 1-800/SEC-0330) or by sending your
request and a duplicating fee to the SEC's Public Reference Section,
Washington, DC 20549-6009. You can also visit the SEC's Internet site at
http://www.sec.gov.
Investment Company Act file #811-4450 FTGT P 03/99
FRANKLIN
TEMPLETON HARD CURRENCY FUND - ADVISOR CLASS
INVESTMENT STRATEGY
GLOBAL INCOME
MARCH 1, 1999
[INSERT FRANKLIN TEMPLETON BEN HEAD]
LIKE ALL MUTUAL FUND SHARES, THE SEC HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Contents
THE FUND
2 Goal and Strategies
4 Main Risks
7 Performance
8 Fees and Expenses
9 Management
11 Distributions and Taxes
12 Financial Highlights
YOUR ACCOUNT
13 Qualified Investors
15 Buying Shares
16 Investor Services
19 Selling Shares
21 Account Policies
23 Questions
FOR MORE INFORMATION
Back Cover
INFORMATION ABOUT THE FUND YOU SHOULD KNOW BEFORE INVESTING
INFORMATION ABOUT QUALIFIED INVESTORS, ACCOUNT TRANSACTIONS AND SERVICES
WHERE TO LEARN MORE ABOUT THE FUND
THE FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is to protect against depreciation of the
U.S. dollar relative to other currencies.
PRINCIPAL INVESTMENTS The fund normally invests in high-quality, short-term
money market instruments denominated in foreign major currencies that
historically have experienced low rates of inflation and, in the manger's
opinion, follow economic policies favorable to continued low inflation rates
and currency appreciation versus the U.S. dollar over the long-term. The fund
tries to expose 100% of its net assets to foreign currencies. Under normal
market conditions, the fund will not expose more than 50% of its total assets
to any one foreign currency.
[Begin callout]
MAJOR CURRENCIES include the Australian dollar, Belgian franc, British pound
sterling, Canadian dollar, Danish krone, Netherlands guilder, the Euro,
French franc, German mark, Greek drachma, Irish punt,
Italian lira, Japanese yen, New Zealand dollar, Norwegian krona, Spanish
peseta, Swedish krona, Swiss franc and U.S. dollar.
[End callout]
Money market instruments are issued by foreign and domestic governments,
financial institutions, corporations and other entities to borrow money. The
issuer pays a fixed or variable rate of interest, and must repay the amount
borrowed at maturity. To try to reduce credit and interest rate risk to the
portfolio, the fund maintains a weighted average portfolio maturity of 120
days or less and only buys money market instruments:
o with effective maturities of one year or less at the time of purchase, and
o that the manager considers comparable in quality to instruments rated in
the top two ratings by U.S. nationally recognized rating services or
issued by companies with an outstanding unsecured debt issue rated in the
top two ratings.
To hedge (protect) against currency exchange rate fluctuations, the fund may,
but is not required to, enter into forward currency contracts. A forward
currency contract is an agreement to buy or sell a specific currency at a
future date and at a price set at the time of the contract. Forward contracts
may reduce the risk of loss from a change in value of a currency, but they
also limit any potential gains and do not protect against fluctuations in the
value of the underlying position. The fund may invest in a combination of
forward contracts and money market instruments to try to obtain an investment
result that is substantially the same as a direct investment in a foreign
currency-denominated instrument.
TEMPORARY INVESTMENTS The manager may take a temporary defensive position to
preserve capital or when it believes the currency markets or the economies of
countries where the fund invests are experiencing excessive volatility or a
prolonged general decline, or other adverse conditions exist. Under these
circumstances, the fund may be unable to pursue its investment goal, because
it may not invest or may invest substantially less in foreign
currency-denominated instruments.
THE VALUE OF FUND SHARES WILL FLUCTUATE. THE FUND SHOULD NOT BE CONSIDERED A
SUBSTITUTE FOR A U.S. DOLLAR MONEY MARKET FUND.
[Insert graphic of chart with line going up and down] MAIN RISKS
CURRENCY Many of the fund's investments are denominated in foreign
currencies. Changes in foreign currency exchange rates will affect the value
of what the fund owns and the fund's share price. Generally, when the U.S.
dollar rises in value against a foreign currency, an investment in that
country loses value because that currency is worth fewer U.S. dollars.
Devaluation of a currency by a country's government or banking authority also
will have a significant impact on the value of any investments denominated in
that currency. Currency markets generally are not as regulated as securities
markets.
[Begin callout]
Because currency exchange rates fluctuate, the value of your investment in
the fund will go up and down. This means you could lose money over short or
even extended periods.
[End callout]
EURO. On January 1, 1999, the European Monetary Union (EMU) introduced a new
single currency, the euro, which will replace the national currency for
participating member countries. If the fund holds investments in countries
with currencies replaced by the euro, the investment process, including
trading, foreign exchange, payments, settlements, cash accounts, custody and
accounting will be impacted.
Because this change to a single currency is new and untested, the
establishment of the euro may result in market volatility. For the same
reason, it is not possible to predict the impact of the euro on the business
or financial condition of European issuers which the fund may hold in its
portfolio, and their impact fund performance. To the extent the fund holds
non-U.S. dollar (euro or other) denominated securities, it will still be
exposed to currency risk due to fluctuations in those currencies versus the
U.S. dollar.
FOREIGN MONEY MARKET INSTRUMENTS Investing in money market instruments of
companies and governments located outside the U.S. may involve risks that can
increase the potential for losses in the fund.
COUNTRY. General money market movements in any country where the fund has
investments are likely to affect the value of the investments the fund owns
which trade in that country. These movements will affect the fund's share
price and fund performance.
The political, economic and social structures of some countries the fund
invests in may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of the
imposition of exchange controls, currency devaluations, foreign ownership
limitations, expropriation, restrictions on removal of currency or other
assets, nationalization of assets, punitive taxes and certain custody and
settlement risks.
The fund's investments in developing or emerging money markets are subject to
all of the risks of foreign investing generally, and have additional
heightened risks due to a lack of established legal, business and social
frameworks to support money markets. Foreign money markets, including
emerging markets, may have substantially lower trading volumes than U.S.
markets, resulting in less liquidity and more volatility than experienced in
the U.S.
COMPANY. Foreign companies are not subject to the same disclosure,
accounting, auditing and financial reporting standards and practices as U.S.
companies and their money market instruments may not be as liquid as money
market instruments of similar U.S. companies. Foreign trading systems,
brokers and companies generally have less government supervision and
regulation than in the U.S. The fund may have greater difficulty pursuing
legal remedies and obtaining judgments with respect to foreign investments in
foreign courts than with respect to U.S. companies in U.S. courts.
INCOME RISK is the possibility that the fund's income will decrease due to
falling interest rates. Since the fund can only distribute what it earns, the
fund's distributions to its shareholders may decline when interest rates fall.
CREDIT RISK is the possibility that an issuer will be unable to make
interest payments or repay principal. Changes in an issuer's financial
strength or in a money market instruments credit rating may affect a money
market instruments value and, thus, impact the value of fund shares.
INTEREST RATE RISK is the risk that changes in interest rates can reduce the
value of a security. When interest rates go up, the price of money market
instruments may fall. The opposite is also true: the price of money market
instruments may go up when interest rates fall.
DERIVATIVE SECURITIES Forward currency contracts are considered derivative
investments, since their value depends on the value of the underlying asset
to be purchased or sold. The fund's investment in derivatives may involve a
small investment relative to the amount of risk assumed. To the extent the
fund enters into these transactions, their success will depend on the
manager's ability to predict market movements.
DIVERSIFICATION The fund is a non-diversified fund. It may invest a greater
portion of its assets in the money market instruments of one issuer than a
diversified fund. The fund may be more sensitive to economic, business,
political or other changes affecting similar issuers or money market
instruments, which may result in greater fluctuation in the value of the
fund's shares. The fund intends, however, to meet certain tax diversification
requirements.
YEAR 2000 When evaluating current and potential portfolio positions, Year
2000 is one of the factors the fund's manager considers.
The manager will rely upon public filings and other statements made by
issuers about their Year 2000 readiness. Issuers in countries outside the
U.S., particularly in emerging markets, may not be required to make the same
level of disclosure about Year 2000 readiness as is required in the U.S. The
manager, of course, cannot audit each issuer and its major suppliers to
verify their Year 2000 readiness.
If an issuer in which the fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its securities will also be
adversely affected. A decrease in the value of one or more of the fund's
portfolio holdings will have a similar impact on the fund's performance.
Please see page 9 for more information.
More detailed information about the fund, its policies (including temporary
investments) and risks can be found in the fund's Statement of Additional
Information (SAI).
[Begin callout]
Mutual fund shares 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. Mutual fund shares involve investment risks, including the
possible loss of principal.
[End callout]
[INSERT GRAPHIC OF BULL AND BEAR] PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns from year to year over the past 9 calendar
years. The table shows how the fund's average annual total returns compare to
those of a broad-based securities market index. Of course, past performance
cannot predict or guarantee future results.
Advisor Class Annual Total Returns 1
[Begin callout]
Best
Quarter:
Q1 '95
11.67%
Worst
Quarter:
Q4 '92
- -8.47%
[End callout]
[Insert bar graph]
90 91 92 93 94 95 96 97 98
20.19% 8.28% 2.24% 4.65% 15.10% 6.61% -7.02% -10.23% 10.48%
Year
Average Annual Total Returns
For the periods ended December 31, 1998
SINCE
INCEPTION
1 YEAR 5 YEARS (11/17/89)
- ------------------------------------------------------------------------------
Franklin Templeton Hard Currency Fund -
Advisor Class 1 10.48% 2.50% 5.96%
Salomon Brothers World Money Market Index 2 9.11% 4.81% 6.92%
1. Performance figures reflect a "blended" figure combining the following
methods of calculation: (a) For periods before January 1, 1997, a restated
figure is used based on the fund's Class A performance, excluding the effect
of Class A's maximum initial sales charge and including the effect of the
Class A distribution and service (12b-1) fees; and (b) for periods after
January 1, 1997, an actual Advisor Class figure is used reflecting a
deduction of all applicable charges and fees for that class. This blended
figure assumes reinvestment of dividends and capital gains.
2. Source: Standard & Poor's(R) Micropal. The unmanaged Salomon Brothers World
Money Market Index provides an indication of the performance of the U.S.
dollar and Eurocurrency short-term sectors. It includes reinvested interest.
One cannot invest directly in an index, nor is an index representative of the
fund's portfolio.
[Insert graphic of percentage sign] FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
ADVISOR CLASS
- ------------------------------------------------------------------------------
Maximum sales charge (load)
imposed on purchases None
Exchange fee1 $5.00
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
ADVISOR CLASS
- ------------------------------------------------------------------------------
Management fees 0.65%
Distribution and service (12b-1) fees None
Other expenses 0.36%
Total annual fund operating expenses 1.01%
1. This fee is only for market timers (see page 22).
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
The example assumes you invest $10,000 for the periods shown and then sell
all of your shares at the end of those periods. The example also assumes your
investment has a 5% return each year and the fund's operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------
$103 $322 $558 $1,236
[INSERT GRAPHIC OF BRIEFCASE] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the fund's investment manager. Together, Advisers and its
affiliates manage over $220 billion in assets.
Under an agreement with Advisers, Templeton Investment Counsel Inc.
(Investment Counsel), 500 East Broward Blvd., Ft. Lauderdale, FL 33394,
through its Templeton Global Bond Managers division (Global Bond Managers),
is fund's the sub-advisor. A team from Global Bond Managers provides Advisers
with investment management advice and assistance and is responsible for the
day-to-day management of the fund.
CHARLES E. JOHNSON, VICE PRESIDENT OF ADVISERS
Mr. Johnson supervises the implementation of the fund's investment policies.
He joined the Franklin Templeton Group in 1981.
The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended October 31, 1998, the fund
paid 0.65% of its average daily net assets to the manager.
YEAR 2000 PROBLEM The fund's business operations depend on a worldwide
network of computer systems that contain date fields, including securities
trading systems, securities transfer agent operations and stock market links.
Many of the systems currently use a two digit date field to represent the
date, and unless these systems are changed or modified, they may not be able
to distinguish the Year 1900 from the Year 2000 (commonly referred to as the
Year 2000 problem). In addition, the fact that the Year 2000 is a leap year
may create difficulties for some systems.
When the Year 2000 arrives, the fund's operations could be adversely affected
if the computer systems used by the manager, its service providers and other
third parties it does business with are not Year 2000 ready. For example, the
fund's portfolio and operational areas could be impacted, including
securities trade processing, interest and dividend payments, securities
pricing, shareholder account services, reporting, custody functions and
others. The fund could experience difficulties in effecting transactions if
any of its foreign subcustodians, or if foreign broker-dealers or foreign
markets are not ready for Year 2000.
The fund's manager and its affiliated service providers are making a
concerted effort to take steps they believe are reasonably designed to
address their Year 2000 problems. Of course, the fund's ability to reduce the
effects of the Year 2000 problem is also very much dependent upon the efforts
of third parties over which the fund and its manager may have no control.
[Insert graphic of dollar signs and stacks of coins] DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAINS DISTRIBUTIONS The fund intends to pay a dividend at
least quarterly in March, June, September and December, representing its net
investment income. Capital gains, if any, may be distributed annually. The
amount of these distributions will vary and there is no guarantee the fund
will pay dividends.
To receive a distribution, you must be a shareholder on the record date. The
record dates for the fund's distributions will vary. Please keep in mind that
if you invest in the fund shortly before the record date of a distribution,
any distribution will lower the value of the fund's shares by the amount of
the distribution and you will receive some of your investment back in the
form of a taxable distribution. If you would like information on upcoming
record dates for the fund's distributions, please call 1-800/DIAL BEN(R).
TAX CONSIDERATIONS In general, fund distributions are taxable to you as
either ordinary income or capital gains. This is true whether you reinvest
your distributions in additional shares of the fund or receive them in cash.
Any capital gains the fund distributes are taxable to you as long-term
capital gains no matter how long you have owned your shares.
[Begin callout]
BACKUP WITHHOLDING
By law, the fund must withhold 31% of your taxable distributions and proceeds
if you do not provide your correct taxpayer identification number (TIN) or
certify that your TIN is correct, or if the IRS instructs the fund to do so.
[End callout]
Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
When you sell your shares of the fund, you may have a capital gain or loss.
For tax purposes, an exchange of your fund shares for shares of a different
Franklin Templeton Fund is the same as a sale. The individual tax rate on any
gain from the sale or exchange of your shares depends on how long you have
held your shares.
Fund distributions and gains from the sale or exchange of your shares will
generally be subject to state and local income tax. Non-U.S. investors may be
subject to U.S. withholding and estate tax. You should consult your tax
advisor about the federal, state, local or foreign tax consequences of your
investment in the fund.
[Insert graphic of dollar bill] FINANCIAL HIGHLIGHTS
This table presents the financial performance for Advisor Class since its
inception. This information has been audited by PricewaterhouseCoopers LLP.
Year ended
Advisor Class October 31,
- ------------------------------------------------------------------------------
1998 1997 1
- ------------------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of year 10.28 11.28
-------------
Net investment income .33 .34
Net realized and unrealized gains (losses) .14 (1.00)
--------------
Total from investment operations .47 (.66)
-------------
Distributions from net investment income (.28) -
Tax return of capital (.06) (.34)
-------------
Total distributions (.34) (.34)
-------------
Net asset value, end of year 10.41 10.28
-------------
Total return (%)2 4.89 (5.84)
Ratios/supplemental data
Net assets, end of year ($ x 1,000) 3,343 249
RATIOS TO AVERAGE NET ASSETS: (%)
Expenses 1.01 .94 3
Net investment income 3.29 3.67 3
Portfolio turnover rate (%) 96.41 2.68
1. For the period January 2, 1997 (effective date) through October 31, 1997.
2. Total return is not annualized.
3. Annualized.
YOUR ACCOUNT
[Insert graphic of pencil marking an X] QUALIFIED INVESTORS
The following investors may qualify to buy Advisor Class shares of the fund.
o Qualified registered investment advisors or certified financial planners
with clients invested in any series of Franklin Mutual Series Fund Inc. on
October 31, 1996, or who buy through a broker-dealer or service agent who
has an agreement with Franklin Templeton Distributors, Inc.
(Distributors). Minimum investments: $1,000 initial and $50 additional.
o Broker-dealers, registered investment advisors or certified financial
planners who have an agreement with Distributors for clients participating
in comprehensive fee programs. Minimum investments: $250,000 initial
($100,000 initial for an individual client) and $50 additional.
o Officers, trustees, directors and full-time employees of Franklin Templeton
and their immediate family members. Minimum investments: $100 initial ($50
for accounts with an automatic investment plan) and $50 additional.
o Each series of the Franklin Templeton Fund Allocator Series. Minimum
investments: $1,000 initial and $1,000 additional.
[Begin callout]
The FRANKLIN TEMPLETON FUNDS include all of the Franklin Templeton U.S.
registered mutual funds, except Franklin Valuemark Funds, Templeton Capital
Accumulator Fund, Inc., and Templeton Variable Products Series Fund.
[End callout]
o Governments, municipalities, and tax-exempt entities that meet the
requirements for qualification under section 501 of the Internal Revenue
Code. Minimum investments: $1 million initial investment in Advisor Class
or Class Z shares of any of the Franklin Templeton Funds and $50
additional.
o Accounts managed by the Franklin Templeton Group. Minimum investments: No
initial minimum and $50 additional.
o The Franklin Templeton Profit Sharing 401(k) Plan. Minimum investments: No
initial or additional minimums.
o Defined contribution plans such as employer stock, bonus, pension or profit
sharing plans that meet the requirements for qualification under section
401 of the Internal Revenue Code, including salary reduction plans
qualified under section 401(k) of the Internal Revenue Code, and that are
sponsored by an employer (i) with at least 10,000 employees, or (ii) with
retirement plan assets of $100 million or more. Minimum investments: No
initial or additional minimums.
o 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. Minimum investments: No initial or
additional minimums.
o Individual investors. Minimum investments: $5 million initial and $50
additional. You may combine all of your shares in the Franklin Templeton
Funds for purposes of determining whether you meet the $5 million minimum,
as long as $1 million is in Advisor Class or Class Z shares of any of the
Franklin Templeton Funds.
o Any other investor, including a private investment vehicle such as a family
trust or foundation, who is a member of an established group of 11 or more
investors. Minimum investments: $5 million initial and $50 additional. For
minimum investment purposes, the group's investments are added together.
The group may combine all of its shares in the Franklin Templeton Funds
for purposes of determining whether it meets the $5 million minimum, as
long as $1 million is in Advisor Class or Class Z shares of any of the
Franklin Templeton Funds. There are certain other requirements and the
group must have a purpose other than buying fund shares without a sales
charge.
Please note that Advisor Class shares of the fund are no longer available to
retirement plans through Franklin Templeton's ValuSelect(R) program. Retirement
plans in the ValuSelect program before January 1, 1998, however, may continue
to invest in the fund's Advisor Class shares.
[INSERT GRAPHIC OF PAPER WITH LINES AND SOMEONE WRITING] BUYING SHARES
ACCOUNT APPLICATION If you are opening a new account, please complete and
sign the enclosed account application. To save time, you can sign up now for
services you may want on your account by completing the appropriate sections
of the application (see the next page).
BUYING SHARES
- ------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ------------------------------------------------------------------------------
[Insert graphic
of hands shaking]
THROUGH YOUR INVESTMENT Contact your investment Contact your investment
REPRESENTATIVE representative representative
- ------------------------------------------------------------------------------
[Insert graphic of envelope]
BY MAIL Make your check payable Make your check payable to
to Franklin Templeton Franklin Templeton Hard
Hard Currency Fund. Currency Fund. Include
your account number on
the check.
Mail the check and your
signed application to Fill out the deposit
Investor Services. slip from your account
statement. If you do not
have a slip, include a
note with your name,
the fund name, and your
account number.
Mail the check and
deposit slip or note to
Investor Services.
- ------------------------------------------------------------------------------
[Insert graphic of three lightning
bolts]
BY WIRE Call to receive a wire Call to receive a wire
control number and wire control number and
1-800/632-2301 instructions. wire instructions.
(or 1-650/312-2000 collect)
Wire the funds and mail To make a same day wire
your signed application investment, please call
to Investor Services. us by 1:00 p.m. pacific
Please include the wire time and make sure your
control number or your wire arrives by 3:00 p.m.
new account number on
the application.
To make a same day wire
investment, please call
us by 1:00 p.m. pacific
time and make sure your
wire arrives by
3:00 p.m.
- ------------------------------------------------------------------------------
[Insert graphic of two
arrows pointing in opposite
directions]
BY EXCHANGE Call Shareholder Services Call Shareholder Services
at the number below, or at the number below, or
send signed written send signed written
instructions. instructions.
(Please see page 17 (Please see page 17
for information on for information on
exchanges.) exchanges.)
- ------------------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES
777 MARINERS ISLAND BLVD., P.O. BOX 7777,
SAN MATEO, CA 94403-7777
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of person with handset] INVESTOR SERVICES
AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to
invest in the fund by automatically transferring money from your checking or
savings account each month to buy shares. To sign up, complete the
appropriate section of your account application.
DISTRIBUTION OPTIONS You may reinvest distributions you receive from the
fund in an existing account in the same share class of the fund or in Advisor
Class or Class A shares of another Franklin Templeton Fund. To reinvest your
distributions in Advisor Class shares of another Franklin Templeton Fund, you
must qualify to buy that fund's Advisor Class shares. For distributions
reinvested in Class A shares of another Franklin Templeton Fund, initial
sales charges and contingent deferred sales charges (CDSCs) will not apply if
you reinvest your distributions within 365 days. You can also have your
distributions deposited in a bank account, or mailed by check. Deposits to a
bank account may be made by electronic funds transfer.
[Begin callout]
For Franklin Templeton Trust Company retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.
[End callout]
Please indicate on your application the distribution option you have chosen,
otherwise we will reinvest your distributions in the same share class of the
fund.
RETIREMENT PLANS Franklin Templeton offers a variety of retirement plans for
individuals and businesses. These plans require separate applications and
their policies and procedures may be different than those described in this
prospectus. For more information, including a free retirement plan brochure
or application, please call Retirement Plan Services at
1-800/527-2020.
TELEFACTS(R) Our TeleFACTS system offers around-the-clock access to
information about your account or any Franklin Templeton Fund. This service
is available from touch-tone phones at 1-800/247-1753. For a free TeleFACTS
brochure, call 1-800/DIAL BEN.
TELEPHONE PRIVILEGES You will automatically receive telephone privileges
when you open your account, allowing you and your investment representative
to sell or exchange your shares and make certain other changes to your
account by phone.
For accounts with more than one registered owner, telephone privileges also
allow the fund to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For
all other transactions and changes, all registered owners must sign the
instructions.
As long as we take certain measures to verify telephone requests, we will not
be responsible for any losses that may occur from unauthorized requests. Of
course, you can decline telephone exchange or redemption privileges on your
account application.
EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton
Funds within the same class. You also may exchange your Advisor Class shares
for Class A shares of a fund that does not currently offer an Advisor Class
(without any sales charge)* or for Class Z shares of Franklin Mutual Series
Fund Inc.
[Begin callout]
An EXCHANGE is really two transactions: a sale of one fund and the purchase
of another. In general, the same policies that apply to purchases and sales
apply to exchanges, including minimum investment amounts. Exchanges also have
the same tax consequences as ordinary sales and purchases.
[End callout]
If you do not qualify to buy Advisor Class shares of Templeton Developing
Markets Trust, Templeton Foreign Fund or Templeton Growth Fund, you also may
exchange your shares for Class A shares of those funds (without any sales
charge)* or for shares of Templeton Institutional Funds, Inc.
*If you exchange into Class A shares and you later decide you would like to
exchange into a fund that offers an Advisor Class, you may exchange your
Class A shares for Advisor Class shares if you otherwise qualify to buy the
fund's Advisor Class shares.
Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee.
Frequent exchanges can interfere with fund management or operations and drive
up costs for all shareholders. To protect shareholders, there are limits on
the number and amount of exchanges you may make (please see "Market Timers"
on page 22).
SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. Certain terms and
minimums apply. To sign up, complete the appropriate section of your
application.
[Insert graphic of certificate] SELLING SHARES
You can sell your shares at any time.
SELLING SHARES IN WRITING Requests to sell $100,000 or less can generally be
made over the phone or with a simple letter. Sometimes, however, to protect
you and the fund we will need written instructions signed by all registered
owners, with a signature guarantee for each owner, if:
[Begin callout]
A signature guarantee helps protect your account against fraud. You can
obtain a signature
guarantee at most banks and securities dealers.
A notary public CANNOT provide a signature
guarantee.
[End callout]
o you are selling more than $100,000 worth of shares
o you want your proceeds paid to someone who is not a registered owner
o you want to send your proceeds somewhere other than the address of
record, or preauthorized bank or brokerage firm account
We may also require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the
fund against potential claims based on the instructions received.
SELLING RECENTLY PURCHASED SHARES If you sell shares recently purchased with
a check or draft, we may delay sending you the proceeds until your check or
draft has cleared, which may take seven business days or more. A certified or
cashier's check may clear in less time.
REDEMPTION PROCEEDS Your redemption check will be sent within seven days
after we receive your request in proper form. We are not able to receive or
pay out cash in the form of currency. Redemption proceeds may be delayed if
we have not yet received your signed account application.
RETIREMENT PLANS You may need to complete additional forms to sell shares in
a Franklin Templeton Trust Company retirement plan. For participants under
age 591/2, tax penalties may apply. Call Retirement Plan Services at
1-800/527-2020 for details.
SELLING SHARES
- ------------------------------------------------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES
- ------------------------------------------------------------------------------
[Insert graphic of hands shaking]
Through your Contact your investment representative
investment
representative
- ------------------------------------------------------------------------------
[Insert graphic of envelope]
By Mail Send written instructions and endorsed share
certificates (if you hold share certificates) to
Investor Services. Corporate, partnership or trust
accounts may need to send additional documents.
Specify the fund, the account number and the dollar
value or number of shares you wish to sell. Be sure
to include all necessary signatures and any
additional documents, as well as signature
guarantees if required.
A check will be mailed to the name(s) and address on
the account, or otherwise according to your written
instructions.
- ------------------------------------------------------------------------------
[Insert graphic of phone]
By Phone As long as your transaction is for $100,000 or less,
you do not hold share certificates and you have not
1-800/632-2301 changed your address by phone within the last 15
days, you can sell your shares by phone.
A check will be mailed to the name(s) and address on
the account. Written instructions, with a signature
guarantee, are required to send the check to another
address or to make it payable to another person.
- ------------------------------------------------------------------------------
[Insert graphic of three lightning bolts]
By Wire You can call or write to have redemption proceeds of
$1,000 or more wired to a bank or escrow account. See
the policies above for selling shares by mail or
phone.
Before requesting a bank wire, please make sure we
have your bank account information on file. If we do
not have this information, you will need to send
written instructions with your bank's name and
address, your bank account number, the ABA routing
number, and a signature guarantee.
Requests received in proper form by 1:00 p.m.
pacific
time will be wired the next business day.
- ------------------------------------------------------------------------------
[Insert graphic of two arrows pointing in opposite directions]
By Exchange Obtain a current prospectus for the fund you are
considering.
Call Shareholder Services at the number below, or
send signed written instructions. See the policies
above for selling shares by mail or phone.
If you hold share certificates, you will need to
return them to the fund before your exchange can be
processed.
- ------------------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES
777 MARINERS ISLAND BLVD., P.O. BOX 7777,
SAN MATEO, CA 94403-7777
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[INSERT GRAPHIC OF PAPER AND PEN] ACCOUNT POLICIES
CALCULATING SHARE PRICE The fund calculates the net asset value per share
(NAV) each business day at the close of trading on the New York Stock
Exchange (normally 1:00 p.m. pacific time). The NAV for Advisor Class is
calculated by dividing its net assets by the number of its shares outstanding.
The fund's assets are generally valued at their market value. If market
prices are unavailable, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued at their fair
value. If the fund holds securities listed primarily on a foreign exchange
that trades on days when the fund is not open for business, the value of your
shares may change on days that you cannot buy or sell shares.
Requests to buy and sell shares are processed at the NAV next calculated
after we receive your request in proper form.
ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250
($50 for employee accounts) because you sell some of your shares, we may mail
you a notice asking you to bring the account back up to its applicable
minimum investment amount. If you choose not to do so within 30 days, we may
close your account and mail the proceeds to the address of record.
STATEMENTS AND REPORTS You will receive confirmations and account statements
that show your account transactions. You will also receive the fund's
financial reports every six months. To reduce fund expenses, we try to
identify related shareholders in a household and send only one copy of the
financial reports. If you need additional copies, please call 1-800/DIAL BEN.
If there is a dealer or other investment representative of record on your
account, he or she will also receive confirmations, account statements and
other information about your account directly from the fund.
STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have
an agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.
JOINT ACCOUNTS Unless you specify a different registration, accounts with
two or more owners are registered as "joint tenants with rights of
survivorship" (shown as "Jt Ten" on your account statement). To make any
ownership changes to a joint account, all owners must agree in writing,
regardless of the law in your state.
MARKET TIMERS The fund may restrict or refuse exchanges by market timers. If
accepted, each exchange by a market timer will be charged $5. You will be
considered a market timer if you have (i) requested an exchange out of the
fund within two weeks of an earlier exchange request, or (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, or (iv) otherwise seem to follow a timing pattern. Shares under
common ownership or control are combined for these limits.
ADDITIONAL POLICIES Please note that the fund maintains additional policies
and reserves certain rights, including:
o The fund may refuse any order to buy shares, including any purchase under
the exchange privilege.
o At any time, the fund may change its investment minimums or waive or lower
its minimums for certain purchases.
o The fund may modify or discontinue the exchange privilege on
60 days' notice.
o You may only buy shares of a fund eligible for sale in your state or
jurisdiction.
o In unusual circumstances, we may temporarily suspend redemptions, or
postpone the payment of proceeds, as allowed by federal securities laws.
o For redemptions over a certain amount, the fund reserves the right to make
payments in securities or other assets of the fund, in the case of an
emergency or if the payment by check or wire would be harmful to existing
shareholders.
o To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the fund promptly.
DEALER COMPENSATION Qualifying dealers who sell Advisor Class shares may
receive up to 0.25% of the amount invested. This amount is paid by Franklin
Templeton Distributors, Inc. from its own resources.
[Insert graphic of question mark] QUESTIONS
If you have any questions about the fund or your account, you can write to us
at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, CA 94403-7777. You
can also call us at one of the following numbers. For your protection and to
help ensure we provide you with quality service, all calls may be monitored
or recorded.
HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
- ------------------------------------------------------------------------------
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
6:30 a.m. to 2:30 p.m. (Saturday)
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.
Dealer Services 1-800/524-4040 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.
FOR MORE INFORMATION
You can learn more about the fund in the following documents:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes a discussion of recent market conditions and fund strategies,
financial statements, detailed performance information, portfolio holdings,
and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more information about the fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).
For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.
FRANKLIN(R)TEMPLETON(R)
1-800/DIAL BEN(R) (1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
www.franklin-templeton.com
You can also obtain information about the fund by visiting the SEC's Public
Reference Room in Washington D.C. (phone 1-800/SEC-0330) or by sending your
request and a duplicating fee to the SEC's Public Reference Section,
Washington, DC 20549-6009. You can also visit the SEC's Internet site at
http://www.sec.gov.
Investment Company Act file #811-4450412 PA 03/99
FRANKLIN TEMPLETON
GLOBAL TRUST
FRANKLIN TEMPLETON GLOBAL CURRENCY FUND
FRANKLIN TEMPLETON HARD CURRENCY FUND
CLASS A
STATEMENT OF
ADDITIONAL INFORMATION
MARCH 1, 1999
[INSERT FRANKLIN TEMPLETON BEN HEAD]
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN(R)
- ------------------------------------------------------------------------------
This Statement of Additional Information (SAI) is not a prospectus. It
contains information in addition to the information in the fund's prospectus.
The funds' prospectus, dated March 1, 1999, which we may amend from time to
time, contains the basic information you should know before investing in the
funds. You should read this SAI together with the funds' prospectus.
The audited financial statements and auditor's report in the trust's Annual
Report to Shareholders, for the fiscal year ended October 31, 1998, are
incorporated by reference (are legally a part of this SAI).
For a free copy of the current prospectus or annual report, contact your
investment representative or call 1-800/DIAL BEN (1-800/342-5236).
CONTENTS
Goals and Strategies ........................... 2
Risks .......................................... 7
Officers and Trustees .......................... 10
Management and Other Services .................. 14
Portfolio Transactions ......................... 16
Distributions and Taxes......................... 16
Organization, Voting Rights
and Principal Holders ......................... 18
Buying and Selling Shares ...................... 19
Pricing Shares ................................. 25
The Underwriter ................................ 26
Performance .................................... 28
Miscellaneous Information ...................... 31
Description of Ratings ......................... 31
[Begin callout]
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.
[End callout]
FTGT SAI 03/99
GOALS AND STRATEGIES
- ------------------------------------------------------------------------------
The Global Currency Fund's investment goal is to maximize 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 Hard Currency Fund's investment goal is to protect against depreciation
of the U.S. dollar relative to other currencies.
These goals are fundamental, which means they may not be changed without
shareholder approval.
Below is more detailed information about some of the various types of
securities each fund may buy and each fund's investment policies.
MONEY MARKET INSTRUMENTS Money market instruments include short-term U.S.
government securities, 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.
Each fund may invest in money market instruments issued by foreign and
domestic governments, as well as financial institutions, corporations or
other entities located in or organized under the laws of any country. Each
fund may also invest in money market instruments 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).
Each fund invests only in instruments that the manager considers comparable
in quality to instruments rated in the top two ratings of U.S. nationally
recognized rating services, such as Standard & Poor's(R) Corporation (S&P) or
Moody's Investors Service, Inc. (Moody's), or issued by companies with an
outstanding unsecured debt issue rated in the top two ratings. Each fund's
investments will be reviewed by the board of trustees at least quarterly.
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 buy 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 foreign countries. These obligations may have fixed,
floating or variable rates of interest.
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. The effective maturity of each
floating or variable rate obligation in the fund's portfolio will be based
upon these periodic adjustments.
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs.
REPURCHASE AGREEMENTS. In a repurchase agreement, a 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
fund's custodian bank holds the securities subject to resale on behalf of the
fund. 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 funds, however, intend to enter into repurchase agreements only
with banks or broker-dealers that the manager considers
creditworthy.
FINANCIAL SERVICES OBLIGATIONS. Under normal market conditions, each 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) - 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 of both the bank and 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 (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.
banks and non-U.S. branches of U.S. banks, such as CDs 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 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 of over $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: (i) 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 (ii) 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 funds' currency exchange transactions
are conducted on a spot (i.e., cash) basis at the spot rate prevailing in the
currency exchange market for buying or selling currency. Each fund, however,
may enter into forward currency contracts as a hedge against possible
variations in the exchange rates between the currencies in which its
investments are denominated and other currencies, including the U.S. dollar,
or in conjunction with money market instruments to try to obtain an
investment result that is substantially equivalent to a direct investment in
a foreign currency denominated instrument.
A forward currency contract is 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 using forward contracts for hedging purposes, each 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 that currency.
The Global Currency Fund may hedge up to 100% of its portfolio positions and
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 Hard Currency Fund tries to
expose 100% of its net assets to foreign currencies at all times and,
therefore, any portfolio position hedging activities of the fund are expected
to be consistent with this policy. Neither fund will speculate in forward
contracts, although each fund may enter into forward contracts in conjunction
with money market instruments in a manner that is unrelated to the fund's
normal hedging activities as described above (i.e., to try to obtain an
investment result that is substantially equivalent to a direct investment in
a foreign currency denominated instrument). Neither fund may 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, neither fund currently intends 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.
If a fund enters into a position hedging transaction, its custodian bank will
place cash or readily marketable liquid securities in a segregated account of
the fund in an amount equal to the value of its total assets committed to the
consummation of the forward contract. If the value of the securities placed
in the segregated account declines, additional cash or securities will be
placed in the account so that the value of the account will equal the amount
of the fund's commitment with respect to such contracts.
It may not be possible for a 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, a fund may have to limit currency
transactions to qualify as a regulated investment company under the Internal
Revenue Code.
At or before the maturity of a forward contract, each 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 buying an
"offsetting" contract obligating it to buy, on the same maturity date, the
same amount of the currency.
If a 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 a 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
date the fund enters 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 buy. If forward prices increase, the fund will suffer a loss to the
extent the price of the currency it has agreed to buy 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, neither fund is required to enter into forward
contracts, and will not do so unless deemed appropriate by the manager. 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 funds can achieve at some future
point in time. Additionally, although forward contracts tend to reduce 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 that may result from the
change in the value of the hedged currency.
Because each fund invests in money market instruments denominated in foreign
currencies, it may hold foreign currencies pending its investment in the
instruments or their conversion into U.S. dollars. Although the funds value
their assets daily in terms of U.S. dollars, they do not convert their
holdings of foreign currencies into U.S. dollars on a daily basis. The funds
will convert their 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 between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to a fund at
one rate, while offering a lesser rate of exchange should the fund desire to
resell the currency to the dealer.
CURRENCY FUTURES Each fund may enter into futures contracts and buy 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.
Each fund may sell currency futures contracts 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. Each fund may buy currency futures contracts to
fix a favorable currency exchange rate for securities denominated in the
currency that the fund intends to buy.
Each 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.
Each fund may enter into closing purchase or sale transactions in order to
terminate a futures contract. Each fund may close out an option that it has
purchased by selling an offsetting option of the same series. There is no
guarantee that closing transactions can be effected. Each 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 Each fund may, for hedging purposes, buy put and call
options on any currency in which the fund's investments are denominated. Each
fund also may enter into closing sale transactions in order to realize gains
or reduce losses on currency options purchased by the fund.
Each fund may 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 a 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 the transaction cost, otherwise
the fund would realize a loss on the purchase of the call option.
Each fund may 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
a 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 a 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 may be bought only when the manager believes 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, OTC 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 New York Stock Exchange). The fund may buy
OTC options only from dealers and institutions that the manager believes
present a minimal credit risk.
NON-DIVERSIFICATION Although each fund is non-diversified under the
Investment Company Act of 1940, as amended, as a non-fundamental policy, each
fund will not invest more than 5% of its total assets in the securities of a
single foreign bank. This limitation does not apply to other issuers.
ILLIQUID INVESTMENTS Each 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. The
board of trustees has authorized each fund to invest in restricted securities
where the investment is consistent with the fund's investment goal and has
authorized these securities to be considered liquid to the extent the fund's
manager determines 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 manager to treat a
restricted security as liquid on a quarterly basis, including the manager's
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 manager 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 buyers; (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 a
fund invests in restricted securities that are deemed liquid, the general
level of liquidity in the applicable fund may be reduced if qualified
institutional buyers become uninterested in buying the securities or the
market for the securities contracts.
SECURITIES LENDING Each fund may lend to broker-dealers portfolio securities
with an aggregate market value up to 30% of its total assets. Such loans must
be secured by collateral (consisting of any combination of cash, U.S.
government securities or irrevocable letters of credit) in an amount at least
equal (on a daily marked-to-market basis) to the current market value of the
securities loaned. A fund may terminate a loan at any time and obtain the
return of the securities. A fund will continue to receive any interest or
dividends paid on the loaned securities. However, as with other extensions of
credit, there are risks of delay or even loss of rights in the collateral
should the borrower fail.
TEMPORARY INVESTMENTS When the manager believes that the securities trading
markets or the economy are experiencing excessive volatility or a prolonged
general decline, or other adverse conditions exist, it may invest each fund's
portfolio in a temporary defensive manner. Under such circumstances,
including periods of actual or anticipated appreciation of the U.S. dollar
relative to other currencies, the Global Currency Fund may invest up to 100%
of its assets in U.S. dollar-denominated instruments.
INVESTMENT RESTRICTIONS Each fund has adopted the following restrictions as
fundamental policies. This means they may only be changed if the change is
approved by (i) more than 50% of the fund's outstanding shares or (ii) 67% or
more of the fund's shares present at a shareholder meeting if more than 50%
of the fund's outstanding shares are represented at the meeting in person or
by proxy, whichever is less.
Each fund may not:
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 Internal Revenue 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.
7. 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.
8. 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.
9. Underwrite the securities of other issuers.
10. 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 U.S. Securities and Exchange Commission and the
board of trustees, including maintenance of collateral of the borrower equal
at all times to at least the current market value of the securities loaned.
11. Invest in companies for the purpose of exercising control.
12. Purchase the securities of any issuer having less than three years'
continuous operations (or any predecessors) if such purchase would cause the
value of the fund's investments in all such issuers to exceed 5% of the value
of its total assets.
Securities issued by a foreign government, its agencies and
instrumentalities, as well as supra-national organizations are considered one
industry for concentration purposes.
If a bankruptcy or other extraordinary event occurs concerning a particular
security a fund owns, the fund may receive stock, real estate, or other
investments that the fund would not, or could not, buy. If this happens, the
funds intend to sell such investments 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.
RISKS
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CURRENCY RISK 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.
INFLATION. The most fundamental reason exchange rates change is to reflect
changes in currencies' buying 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.
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.
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.
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 also can
indirectly contribute to currency depreciation if a government chooses to
cope with its deficits and debt by means of inflation.
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.
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.
The value of each fund's investments is calculated in U.S. dollars each day
that the New York Stock Exchange is open for business. As a result, to the
extent that a fund's assets are invested in instruments denominated in
foreign currencies 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 each fund will be based
on changes in the value of portfolio securities attributable to currency
fluctuations only in relation to the original purchase price of such
securities as stated in U.S. dollars. Your gains or losses on shares of 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.
Currency exchange costs may be incurred when the funds sell instruments
denominated in one currency and buy instruments denominated in another.
EURO RISK. On January 1, 1999, the European Monetary Union (EMU) introduced a
new single currency, the euro, which will replace the national currency for
participating member countries. The transition and the elimination of
currency risk among EMU countries may change the economic environment and
behavior of investors, particularly in European markets.
Franklin Resources, Inc. has created an interdepartmental team to handle all
euro-related changes to enable the Franklin Templeton Funds to process
transactions accurately and completely with minimal disruption to business
activities. While the implementation of the euro could have a negative effect
on the funds, the funds' manager and its affiliated services providers are
taking steps they believe are reasonably designed to address the euro issue.
FOREIGN RISK While foreign money market instruments may offer significant
opportunities for gain, they also involve additional risks that can increase
the potential for losses in the funds. These risks can be significantly
greater for investments in emerging markets.
There is the possibility of cessation of trading on national exchanges,
expropriation, nationalization of assets, confiscatory or punitive taxation,
withholding and other foreign taxes on income or other amounts, foreign
exchange controls (which may include suspension of the ability to transfer
currency from a given country), restrictions on removal of assets, political
or social instability, or diplomatic developments that could affect
investments in money market instruments of foreign issuers.
There may be less publicly available information about foreign issuers
comparable to the reports and ratings published about issuers in the U.S.
Foreign issuers are not generally subject to uniform accounting or financial
reporting standards, and auditing practices and requirements may not be
comparable to those applicable to U.S. issuers. A fund, therefore, may
encounter difficulty in obtaining market quotations for purposes of valuing
its portfolio and calculating its net asset value.
Certain countries' financial markets and services are less developed than
those in the U.S. or other major economies. In many foreign countries there
is less government supervision and regulation of stock exchanges, brokers,
and listed companies than in the U.S. Foreign markets have substantially less
volume than the New York Stock Exchange and money market instruments of some
foreign issuers are less liquid and more volatile than money market
instruments of comparable U.S. issuers. Commission rates in foreign
countries, which are generally fixed rather than subject to negotiation as in
the U.S., are likely to be higher. Settlement practices may be cumbersome and
result in delays that may affect portfolio liquidity. The funds may have
greater difficulty voting proxies, exercising shareholder rights, pursuing
legal remedies, and obtaining judgments with respect to foreign investments
in foreign courts than with respect to domestic issuers in U.S. courts.
A fund's investments in foreign money market instruments may increase the
risks with respect to the liquidity of the fund's portfolio. This could
inhibit the fund's ability to meet a large number of shareholder redemption
requests in the event of economic or political turmoil in a country in which
the fund has a substantial portion of its assets invested or deterioration in
relations between the U.S. and the foreign country.
Investments in companies domiciled in developing countries may be subject to
potentially higher risks than investments in developed countries. These risks
include (i) less economic stability; (ii) political and social uncertainty
(for example, regional conflicts and risk of war); (iii) pervasiveness of
corruption and crime; (iv) the small current size of the markets for such
investments and the currently low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (v) delays in
settling portfolio transactions; (vi) risk of loss arising out of the system
of share registration and custody; (vii) certain national policies that may
restrict the funds' investment opportunities, including restrictions on
investment in issuers or industries deemed sensitive to national interests;
(viii) foreign taxation; (ix) the absence of developed legal structures
governing private or foreign investment or allowing for judicial redress for
injury to private property; (x) the absence of a capital market structure or
market-oriented economy; and (xi) the possibility that recent favorable
economic developments may be slowed or reversed by unanticipated political or
social events.
In addition, some countries in which the funds may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and money markets of
certain countries. Moreover, the economies of some developing countries may
differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross domestic product, rate of inflation, currency depreciation,
capital reinvestment, resource self-sufficiency, and balance of payments
position.
Foreign investments 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 investments at the time of sale. Transaction costs and custodial expenses
for a portfolio of foreign investments generally are higher than for a
portfolio of U.S. securities. Interest payments from certain foreign money
market instruments may be subject to foreign withholding taxes on interest
income payable on the money market instruments.
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 funds to temporarily invest all or
substantially all of their assets in U.S. money market instruments, or it may
become necessary to liquidate the funds.
CURRENCY FUTURES AND OPTIONS RISK Although currency futures and options
transactions are intended to enable the funds to manage currency exchange
risks, unanticipated changes in currency exchange rates could result in
poorer performance than if they had not entered into these transactions. Even
if the manager correctly predicts 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 manager may try to reduce 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.
Neither fund will use futures transactions for speculation. Neither fund may
buy 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 buy
securities, require the fund to segregate assets to cover such contracts.
These transactions also involve risks to a 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 Internal Revenue 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.
The purchase of currency options is a highly specialized activity that
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."
INTEREST RATE RISK 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 that invests strictly in U.S. dollar-denominated instruments.
OFFICERS AND TRUSTEES
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The trust has a board of trustees. The board is responsible for the overall
management of the trust, including general supervision and review of each
fund's investment activities. The board, in turn, elects the officers of the
trust who are responsible for administering the trust's day-to-day
operations. The board also monitors the Hard Currency Fund to ensure no
material conflicts exist among share classes. While none is expected, the
board will act appropriately to resolve any material conflict that may arise.
The affiliations of the officers and board members and their principal
occupations for the past five years are shown below.
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME, AGE AND ADDRESS WITH THE TRUST DURING THE PAST FIVE YEARS
- ------------------------------------------------------------------------------
Frank H. Abbott, III (77)
1045 Sansome Street
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment company); director
or trustee, as the case may be, of 27 of the investment companies in the
Franklin Templeton Group of Funds; and FORMERLY, Director, MotherLode Gold
Mines Consolidated (gold mining) and Vacu-Dry Co. (food processing).
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Harris J. Ashton (66)
191 Clapboard Ridge Road
Greenwich, CT 06830
Trustee
Director, RBC Holdings, Inc. (bank holding company) and Bar-S Foods (meat
packing company); director or trustee, as the case may be, of 49 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).
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David K. Eiteman (69)
15340 Albright Street #301
Pacific Palasades, CA 90272
Trustee
Professor of Finance, John E. Anderson Graduate School of Management,
University of California, Los Angeles (1959-1991) and Professor Emeritus
(1991-present).
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S. Joseph Fortunato (66)
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 51 of the investment companies in the Franklin
Templeton Group of Funds.
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Donald P. Gould (40)
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; and FORMERLY, officer and trustee
Huntington Funds, President and Director, Huntington Advisers, Inc. (a mutual
fund investment adviser), and President, Huntington Investments, Inc. (a
mutual fund underwriter).
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Gerald R. Healy (57)
23100 Avenue San Luis,
Apt. 277
Woodland Hills , CA 91364
Trustee
Private consultant; Executive Vice President, Capital Health Services Corp.;
and FORMERLY, Director, Corporate Management Resources of Alliance Imaging,
Inc.
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*Charles B. Johnson (66)
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 50
of the investment companies in the Franklin Templeton Group of Funds.
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*Rupert H. Johnson, Jr. (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
and Trustee
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.
and Franklin Investment Advisory Services, Inc.; Senior Vice President and
Director, Franklin 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
53 of the investment companies in the Franklin Templeton Group of Funds.
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David P. Kraus (41) Trustee
Bet Tzedek Legal Services
145 South Fairfax Ave., Suite 200
Los Angeles, CA 90036-2172
Attorney with various private law firms in Los Angeles (1981-present); and
Attorney with Bet Tzedek Legal Services (1995-present).
- ------------------------------------------------------------------------------
Frank W.T. LaHaye (69)
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
Trustee
General Partner, Miller & LaHaye, which is the General Partner of Peregrine
Ventures II (venture capital firm); Director, Quarterdeck Corporation
(software firm) and Digital Transmission Systems, Inc. (wireless
communications); director or trustee, as the case may be, of 27 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
Director, Fischer Imaging Corporation (medical imaging systems) and General
Partner, Peregrine Associates, which was the General Partner of Peregrine
Ventures (venture capital firm).
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Gordon S. Macklin (70)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Director, Fund American Enterprises Holdings, Inc. (holding company), Martek
Biosciences Corporation, MCI WorldCom (information services), MedImmune, Inc.
(biotechnology), Spacehab, Inc. (aerospace services) and Real 3D (software);
director or trustee, as the case may be, of 49 of the investment companies in
the Franklin Templeton Group of Funds; and FORMERLY, Chairman, White River
Corporation (financial services) and Hambrecht and Quist Group (investment
banking), and President, National Association of Securities Dealers, Inc.
- ------------------------------------------------------------------------------
Harmon E. Burns (54)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President and Director, Franklin Resources, Inc., Franklin
Templeton Distributors, Inc. and Franklin Templeton Services, Inc.; Executive
Vice President, Franklin Advisers, Inc.; Director, Franklin Investment
Advisory Services, Inc. and 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 53 of the investment
companies in the Franklin Templeton Group of Funds.
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Martin L. Flanagan (38)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
and Chief
Financial Officer
Senior Vice President and Chief Financial Officer, Franklin Resources, Inc.,
Franklin/Templeton Investor Services, Inc. and Franklin Mutual Advisers,
Inc.; Executive Vice President and Director, Templeton Worldwide, Inc.;
Executive Vice President, Chief Operating Officer and Director, Templeton
Investment Counsel, Inc.; Executive Vice President and Chief Financial
Officer, Franklin Advisers, Inc.; Chief Financial Officer, Franklin Advisory
Services, Inc. and Franklin Investment Advisory Services, Inc.; President and
Director, Franklin Templeton Services, Inc.; officer and/or director of some
of the other subsidiaries of Franklin Resources, Inc.; and officer and/or
director or trustee, as the case may be, of 53 of the investment companies in
the Franklin Templeton Group of Funds.
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Deborah R. Gatzek (50)
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.; Executive Vice President, Franklin Advisers, Inc.; Vice
President, Franklin Advisory Services, Inc. and Franklin Mutual Advisers,
Inc.; Vice President, Chief Legal Officer and Chief Operating Officer,
Franklin Investment Advisory Services, Inc.; and officer of 54 of the
investment companies in the Franklin Templeton Group of Funds.
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Charles E. Johnson (42) 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.; Chairman and Director, Templeton Investment
Counsel, Inc.; Vice President, Franklin Advisers, Inc.; officer and/or
director of some of the other subsidiaries of Franklin Resources, Inc.; and
officer and/or director or trustee, as the case may be, of 34 of the
investment companies in the Franklin Templeton Group of Funds.
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Diomedes Loo-Tam (60)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer
and Principal
Accounting Officer
Senior Vice President, Franklin Templeton Services, Inc.; and officer of 32
of the investment companies in the Franklin Templeton Group of Funds.
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Edward V. McVey (61)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President and National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 28 of the investment companies in the
Franklin Templeton Group of Funds.
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*This board member is considered an "interested person" under federal
securities laws.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Charles E. Johnson.
The trust pays noninterested board members $800 per year plus $800 per
meeting attended. Board members who serve on the audit committee of the trust
and other funds in the Franklin Templeton Group of Funds receive a flat fee
of $2,000 per committee meeting attended, a portion of which is allocated to
the trust. Members of a committee are not compensated for any committee
meeting held on the day of a board meeting. Noninterested board members may
also serve as directors or trustees of other funds in the Franklin Templeton
Group of Funds and may receive fees from these funds for their services. The
fees payable to certain noninterested board members by the trust are subject
to reductions resulting from fee caps limiting the amount of fees payable to
board members who serve on other boards within the Franklin Templeton Group
of Funds. The following table provides the total fees paid to noninterested
board members by the trust and by the Franklin Templeton Group of Funds.
NUMBER OF BOARDS
TOTAL FEES RECEIVED IN THE FRANKLIN
TOTAL FEES FROM THE FRANKLIN TEMPLETON GROUP
RECEIVED TEMPLETON GROUP OF FUNDS ON WHICH
NAME FROM THE TRUST 1 OF FUNDS 2 EACH SERVES 3
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Frank H. Abbott, III..... $3,758 $159,051 27
Harris J. Ashton......... $3,586 $361,157 49
David K. Eiteman......... $3,200 $ 3,200 1
S. Joseph Fortunato...... $3,478 $367,835 51
Gerald R. Healy.......... $3,200 $ 3,200 1
David P. Kraus........... $4,000 $ 4,000 1
Frank W.T. LaHaye........ $4,325 $163,753 27
Gordon S. Macklin........ $3,586 $361,157 49
1. For the fiscal year ended October 31, 1998.
2. For the calendar year ended December 31, 1998.
3. 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 54 registered investment companies, with
approximately 164 U.S. based funds or series.
Noninterested board members 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
funds or other funds in the Franklin Templeton Group of Funds. Certain
officers or board members who are shareholders of Franklin Resources, Inc.
may be deemed to receive indirect remuneration by virtue of their
participation, if any, in the fees paid to its subsidiaries.
Messrs. Abbott, Ashton, Fortunato, LaHaye and Macklin serve on multiple
boards within the Franklin Templeton Group of Funds and historically have
followed a policy of having substantial investments in one or more of the
funds in the Franklin Templeton Group of Funds, as is consistent with their
individual financial goals. In February 1998, this policy was formalized
through adoption of a requirement that each such board member invest
one-third of fees received for serving as a director or trustee of a
Templeton fund in shares of one or more Templeton funds and one-third of fees
received for serving as a director or trustee of a Franklin fund in shares of
one or more Franklin funds until the value of such investments equals or
exceeds five times the annual fees paid such board member. Investments in the
name of family members or entities controlled by a board member constitute
fund holdings of such board member for purposes of this policy, and a three
year phase-in period applies to such investment requirements for newly
elected board members. In implementing such policy, a board member's fund
holdings existing on February 27, 1998, are valued as of such date with
subsequent investments valued at cost.
MANAGEMENT AND OTHER SERVICES
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MANAGER AND SERVICES PROVIDED Each fund's manager is Franklin Advisers, Inc.
The manager is wholly owned by Franklin Resources, Inc. (Resources), a
publicly owned company engaged in the financial services industry through its
subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr. are the principal
shareholders of Resources.
The manager provides investment research and portfolio management services,
and selects the securities for each fund to buy, hold or sell. The manager
also selects the brokers who execute each fund's portfolio transactions. The
manager provides periodic reports to the board, which reviews and supervises
the manager's investment activities. To protect the funds, the manager and
its officers, directors and employees are covered by fidelity insurance.
The manager and its affiliates manage numerous other investment companies and
accounts. The manager may give advice and take action with respect to any of
the other funds it manages, or for its own account, that may differ from
action taken by the manager on behalf of the funds. Similarly, with respect
to the funds, the manager is not obligated to recommend, buy or sell, or to
refrain from recommending, buying or selling any security that the manager
and access persons, as defined by applicable federal securities laws, may buy
or sell for its or their own account or for the accounts of any other fund.
The manager is not obligated to refrain from investing in securities held by
the funds or other funds it manages. Of course, any transactions for the
accounts of the manager and other access persons will be made in compliance
with the fund's code of ethics.
Under the funds' code of ethics, employees of the Franklin Templeton Group
who are access persons may 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.
Each fund's sub-advisor is Templeton Investment Counsel, Inc., through its
Global Bond Managers division. The sub-advisor has an agreement with the
manager and provides the manager with investment management advice and
assistance. The sub-advisor provides 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. The
sub-advisor's activities are subject to the board's review and control, as
well as the manager's instruction and supervision.
MANAGEMENT FEES Each fund pays the manager a fee equal to an annual rate of
0.65% of the value of the average daily net assets of the fund.
The fee is computed at the close of business on the last business day of each
month according to the terms of the management agreement. Each class of the
Hard Currency Fund's shares pays its proportionate share of the fee.
For the last three fiscal years ended October 31, the funds paid the
following management fees:
MANAGEMENT FEES PAID ($)
1998 1997 1996
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Global Currency Fund.......... 235,045 296,670 351,768
Hard Currency Fund............ 479,459 682,152 811,115
The manager pays the sub-advisor a fee equal to an annual rate of 0.25% of
the value of the average daily net assets of the fund. The manager pays this
fee from the management fees it receives from the fund. For the last three
fiscal years ended October 31, the manager paid the following sub-advisory
fees:
SUB-ADVISORY FEES PAID ($)
1998 1997 1996
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Global Currency Fund.......... 91,715 112,800 146,285
Hard Currency Fund............ 184,382 262,370 339,115
ADMINISTRATOR AND SERVICES PROVIDED Franklin Templeton Services, Inc. (FT
Services) has an agreement with the manager to provide certain administrative
services and facilities for each fund. FT Services is wholly owned by
Resources and is an affiliate of the funds' manager and principal underwriter.
The administrative services FT Services provides include preparing and
maintaining books, records, and tax and financial reports, and monitoring
compliance with regulatory requirements.
ADMINISTRATION FEES The manager pays FT Services a monthly fee equal to an
annual rate of:
o 0.15% of the fund's average daily net assets up to $200 million;
o 0.135% of average daily net assets over $200 million up to $700 million;
o 0.10% of average daily net assets over $700 million up to $1.2 billion; and
o 0.075% of average daily net assets over $1.2 billion.
During the last two fiscal years ended October 31, the manager paid FT
Services the following administration fees:
ADMINISTRATION
FEES PAID ($)
1998 1997
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Global Currency Fund...................... 54,262 74,831
Hard Currency Fund........................ 110,658 172,706
SHAREHOLDER SERVICING AND TRANSFER AGENT Franklin/Templeton Investor
Services, Inc. (Investor Services) is the funds' shareholder servicing agent
and acts as the fund's transfer agent and dividend-paying agent. Investor
Services is located at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo,
CA 94403-7777.
For its services, Investor Services receives a fixed fee per account. The
funds 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
funds. 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, NY 11245, and at the offices of its branches and agencies
throughout the world, acts as custodian of each fund's assets. As foreign
custody manager, the bank selects and monitors foreign sub-custodian banks,
selects and evaluates non-compulsory foreign depositories, and furnishes
information relevant to the selection of compulsory depositories.
AUDITOR PricewaterhouseCoopers LLP, 200 East Las Olas Blvd., Ft. Lauderdale,
FL33301, is each fund's independent auditor. The auditor gives an opinion on
the financial statements included in the trust's Annual Report to
Shareholders and reviews the trust's registration statement filed with the
U.S. Securities and Exchange Commission (SEC).
PORTFOLIO TRANSACTIONS
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Since most purchases by the funds are principal transactions at net prices,
the funds incur little or no brokerage costs. The funds deal directly with
the selling or buying principal or market maker without incurring charges for
the services of a broker on its behalf, unless it is determined that a better
price or execution may be obtained by using the services of a broker.
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 prices. The funds seek
to obtain prompt execution of orders at the most favorable net price.
Transactions may be directed to dealers in return for research and
statistical information, as well as for special services provided by the
dealers in the execution of orders.
It is not possible to place a dollar value on the special executions or on
the research services the manager receives from dealers effecting
transactions in portfolio securities. The allocation of transactions in order
to obtain additional research services allows the manager to supplement its
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 manager and its affiliates may use
this research and data in their investment advisory capacities with other
clients. If a 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 Franklin Templeton Distributors, Inc. (Distributors) is a member of
the National Association of Securities Dealers, Inc., it may sometimes
receive certain fees when a fund tenders portfolio securities pursuant to a
tender-offer solicitation. To recapture 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 the manager 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 a fund and one or more other
investment companies or clients supervised by the manager 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 manager, 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 may improve execution and
reduce transaction costs to the fund.
During the fiscal years ended October 31, 1998, 1997 and 1996, the funds did
not pay any brokerage commissions.
As of October 31, 1998, the funds did not own securities of their regular
broker-dealers.
DISTRIBUTIONS AND TAXES
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The Hard Currency Fund calculates dividends and capital gains the same way
for each class. The amount of any income dividends per share will differ,
however, generally due to the difference in any distribution and service
(Rule 12b-1) fees of each class. The funds do not pay "interest" or guarantee
any fixed rate of return on an investment in their shares.
DISTRIBUTIONS OF NET INVESTMENT INCOME The funds receive income generally in
the form of interest and other income on their investments. This income, less
expenses incurred in the operation of a fund, constitutes a fund's net
investment income from which dividends may be paid to you. Any distributions
by a 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 funds may derive capital gains and losses
in connection with sales or other dispositions of their portfolio securities.
Distributions from net short-term capital gains will be taxable to you as
ordinary income. Distributions from net long-term capital gains will be
taxable to you as long-term capital gain, regardless of how long you have
held your shares in a fund. Any net capital gains realized by a fund
generally will be distributed once each year, and may be distributed more
frequently, if necessary, in order to reduce or eliminate excise or income
taxes on the fund.
EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS Most foreign exchange gains
realized on the sale of money market instruments are treated as ordinary
income by a fund. Similarly, foreign exchange losses realized by a fund on
the sale of money market 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 a fund's ordinary income otherwise
available for distribution to you. This treatment could increase or reduce a
fund's ordinary income distributions to you, and may cause some or all of a
fund's previously distributed income to be classified as a return of capital.
A fund may be subject to foreign withholding taxes on income from certain of
its foreign investments. If more than 50% of a fund's total assets at the end
of the fiscal year are invested in securities of foreign corporations, a fund
may elect to pass-through to you your pro rata share of foreign taxes paid by
the fund. If this election is made, the year-end statement you receive from a
fund will show more taxable income than was actually distributed to you.
However, you will be entitled to either deduct your share of such taxes in
computing your taxable income or (subject to limitations) claim a foreign tax
credit for such taxes against your U.S. federal income tax. A fund will
provide you with the information necessary to complete your individual income
tax return if it makes this election.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS The funds will inform you
of the amount of your ordinary income dividends and capital gains
distributions at the time they are paid, and will advise you of their tax
status for federal income tax purposes shortly after the close of each
calendar year. If you have not held fund shares for a full year, the fund may
designate and distribute 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 a fund.
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY Each fund has elected
to be treated as a regulated investment company under Subchapter M of the
Internal Revenue Code, has qualified as such for its most recent fiscal year,
and intends to so qualify during the current fiscal year. As regulated
investment companies, the funds generally pay no federal income tax on the
income and gains they distribute to you. The board reserves the right not to
maintain the qualification of a fund as a regulated investment company if it
determines such course of action to be beneficial to shareholders. In such
case, a fund will be subject to federal, and possibly state, corporate taxes
on its taxable income and gains, and distributions to you will be taxed as
ordinary dividend income to the extent of the fund's earnings and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the
Internal Revenue Code requires a fund to distribute to you by December 31 of
each year, at a minimum, the following amounts: 98% of its taxable ordinary
income earned during the calendar year; 98% of its capital gain net income
earned during the twelve month period ending October 31; and 100% of any
undistributed amounts from the prior year. Each fund intends to declare and
pay these amounts in December (or in January that are treated by you as
received in December) to avoid these excise taxes, but can give no assurances
that its distributions will be sufficient to eliminate all taxes.
REDEMPTION OF FUND SHARES Redemptions and exchanges of fund shares are
taxable transactions for federal and state income tax purposes. If you redeem
your fund shares, or exchange your fund shares for shares of a different
Franklin Templeton Fund, the IRS will require that you report a gain or loss
on your redemption or exchange. 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 or short-term, generally depending on how long you hold your
shares. 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.
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 buy 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 buy.
DEFERRAL OF BASIS If you redeem some or all of your shares in a fund, and
then reinvest the sales proceeds in the fund or in another Franklin Templeton
Fund within 90 days of buying the original shares, the sales charge that
would otherwise apply to your reinvestment may be reduced or eliminated. The
IRS will require you to report gain or loss on the redemption of your
original shares in a fund. In doing so, all or a portion of the sales charge
that you paid for your original shares in a fund will be excluded from your
tax basis in the shares sold (for the purpose of determining gain or loss
upon the sale of such shares). The portion of the sales charge excluded 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.
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 Government National Mortgage
Association or Federal National Mortgage Association securities, bankers'
acceptances, commercial paper and repurchase agreements collateralized by
U.S. government securities do not generally qualify for tax-free treatment.
The rules on exclusion of this income are different for corporations.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS Because each fund's income is
derived primarily from investments in foreign rather than 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 funds 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 funds may invest in complex securities.
These investments may be subject to numerous special and complex tax rules.
These rules could affect whether gains and losses recognized by a fund are
treated as ordinary income or capital gain, accelerate the recognition of
income to a fund and/or defer a fund's ability to recognize losses, and, in
limited cases, subject a fund to U.S. federal income tax on income from
certain of its foreign securities. In turn, these rules may affect the
amount, timing or character of the income distributed to you by a fund.
ORGANIZATION, VOTING RIGHTS
AND PRINCIPAL HOLDERS
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The funds are series' of Franklin Templeton Global 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 October 1, 1996, and is registered with the
SEC.
Certain funds in the Franklin Templeton Funds offer multiple classes of
shares. The different classes have proportionate interests in the same
portfolio of investment securities. They differ, however, primarily in their
sales charge structures and Rule 12b-1 plans. Because the Global Currency
Fund's sales charge structure and Rule 12b-1 plan are similar to those of
Class A shares, shares of the fund are considered Class A shares for
redemption, exchange and other purposes. Before January 1, 1999, the fund's
shares were considered Class I shares.
The Hard Currency Fund currently offers two classes of shares, Class A and
Advisor Class. Before January 1, 1999, Class A shares were designated Class
I. The fund may offer additional classes of shares in the future. The full
title of each class is:
Franklin Templeton Hard Currency Fund - Class A
Franklin Templeton Hard Currency Fund - Advisor Class
Shares of each class of the Hard Currency Fund represent proportionate
interests in the fund's assets. On matters that affect the fund as a whole,
each class has the same voting and other rights and preferences as any other
class. On matters that affect only one class, only shareholders of that class
may vote. Each class votes 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. Additional series may be offered in the future.
The trust has noncumulative voting rights. For board member elections, 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 be called by the board to consider the
removal of a board member if requested in writing 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. A special meeting may also be called by the board in its
discretion.
As of December 7, 1998, the principal shareholders of the funds, beneficial
or of record, were:
SHARE PERCENTAGE
NAME AND ADDRESS CLASS (%)
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HARD CURRENCY FUND
Dreyfus Investment Advisor Class 7.72%
Services Corporation
2 Mellon Bank Center
Room 177
Pittsburgh, PA 15259
FT Fund Allocator Advisor Class 79.61%
Moderate Target Fund
C/O Fund Accounting Dept.
Kimberley Monasterio
1810 Gateway 3rd Flr.
San Mateo, CA 94404-2470
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.
As of December 7, 1998, the officers and board members, as a group, owned of
record and beneficially 3.31% of Hard Currency Fund - Advisor Class and less
than 1% of the outstanding shares of the other fund and class. The board
members may own shares in other funds in the Franklin Templeton Group of
Funds.
BUYING AND SELLING SHARES
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The fund continuously offers its shares through securities dealers who have
an agreement with Franklin Templeton Distributors, Inc. (Distributors). A
securities dealer includes any 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. Banks and financial
institutions that sell shares of the fund may be required by state law to
register as securities dealers.
For investors outside the U.S., the offering of fund shares may be limited in
many jurisdictions. An investor who wishes to buy shares of a fund should
determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to
obtain information on the rules applicable to these transactions.
All checks, drafts, wires and other payment mediums used to buy or sell
shares of a 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.
When you buy shares, if you submit a check or a draft that is returned unpaid
to a fund we may impose a $10 charge against your account for each returned
item.
If you buy shares through the reinvestment of dividends, the shares 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.
INITIAL SALES CHARGES The maximum initial sales charge is 2.25%. The initial
sales charge may be reduced for certain large purchases, as described in the
prospectus. We offer several ways for you to combine your purchases in the
Franklin Templeton Funds to take advantage of the lower sales charges for
large purchases. The Franklin Templeton Funds include 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.,
and Templeton Variable Products Series Fund.
CUMULATIVE QUANTITY DISCOUNT. For purposes of calculating the sales charge,
you may combine the amount of your current purchase with the cost or current
value, whichever is higher, of your existing shares in the Franklin Templeton
Funds. You may also combine the shares of your spouse, children under the age
of 21 or 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 (LOI). You may buy shares at a reduced sales charge by
completing the letter of intent section of your account 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 application, you
acknowledge and agree to the following:
o You authorize Distributors to reserve 5% of your total intended purchase in
shares registered in your name until you fulfill your LOI. Your periodic
statements will include the reserved shares in the total shares you own,
and we will pay or reinvest dividend and capital gain distributions on the
reserved shares according to the distribution option you have chosen.
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 LOI.
o Although you may exchange your shares, you may not sell reserved shares
until you complete the LOI or pay the higher sales charge.
After you file your LOI with the fund, you may buy shares at the sales charge
applicable to the amount specified in your LOI. 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. Any purchases you made within 90 days before you filed your LOI may
also qualify for a retroactive reduction in the sales charge. If you file
your LOI with the fund before a change in the fund's sales charge, you may
complete the LOI at the lower of the new sales charge or the sales charge in
effect when the LOI was filed.
Your holdings in the Franklin Templeton Funds acquired more than 90 days
before you filed your LOI will be counted towards the completion of the LOI,
but they will not be entitled to a retroactive reduction 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 LOI have been completed.
If the terms of your LOI are met, the reserved shares will be deposited to an
account in your name or delivered to you or as you direct. If the amount of
your total purchases, less redemptions, is more than the amount specified in
your LOI and is an amount that would qualify for a further sales charge
reduction, a retroactive price adjustment will be made by Distributors and
the securities dealer through whom purchases were made. The price adjustment
will be made on purchases made within 90 days before and on those made after
you filed your LOI and will be applied towards the purchase of additional
shares at the offering price applicable to a single purchase or the dollar
amount of the total purchases.
If the amount of your total purchases, less redemptions, is less than the
amount specified in your LOI, the sales charge will be adjusted upward,
depending on the actual amount purchased (less redemptions) during the
period. You will need to send Distributors an amount equal to the difference
in the actual dollar amount of sales charge paid and the amount of sales
charge that would have applied to the total purchases if the total of the
purchases had been made at one time. Upon payment of this amount, 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, we will redeem an
appropriate number of reserved shares to realize the difference. If you
redeem the total amount in your account before you fulfill your LOI, we will
deduct the additional sales charge due from the sale proceeds and forward the
balance to you.
For LOIs filed 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 LOI. These plans are not subject to the requirement to reserve 5%
of the total intended purchase or to the policy on upward adjustments in
sales charges described above, 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 LOI.
GROUP PURCHASES. If you are a member of a qualified group, you may buy 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, although any such plan that purchased the fund's
shares at a reduced sales charge under the group purchase privilege before
February 1, 1998, may continue to do so.
WAIVERS FOR INVESTMENTS FROM CERTAIN PAYMENTS. Fund shares may be purchased
without an initial sales charge or contingent deferred sales charge (CDSC) by
investors who reinvest within 365 days:
o Dividend and capital gain distributions from any Franklin Templeton Fund.
The distributions generally must be reinvested in the same share class.
Certain exceptions apply, however, to Class C shareholders of another
Franklin Templeton Fund who chose to reinvest their distributions in
shares of 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.
o Dividend or capital gain distributions from a real estate investment trust
(REIT) sponsored or advised by Franklin Properties, Inc.
o Annuity payments received under either an annuity option or from death
benefit proceeds, if the annuity contract offers as an investment option
the Franklin Valuemark Funds or the Templeton Variable Products Series
Fund. You should contact your tax advisor for information on any tax
consequences that may apply.
o Redemption proceeds from a repurchase of shares of Franklin Floating Rate
Trust, if the shares were continuously held for at least 12 months.
If you immediately placed your redemption proceeds in a Franklin Bank CD or
a Franklin Templeton money fund, you may reinvest them as described above.
The proceeds must be reinvested within 365 days from the date the CD matures,
including any rollover, or the date you redeem your money fund shares.
o Redemption proceeds from the sale of Class A shares of any of the Templeton
Global Strategy Funds if you are a qualified investor.
If you paid a CDSC when you redeemed your Class A shares from a Templeton
Global Strategy Fund, a new CDSC will apply to your purchase of fund shares
and the CDSC holding period will begin again. We will, however, credit your
fund account with additional shares based on the CDSC you previously paid and
the amount of the redemption proceeds that you reinvest.
If you immediately placed your redemption proceeds in a Franklin Templeton
money fund, you may reinvest them as described above. The proceeds must be
reinvested within 365 days from the date they are redeemed from the money
fund.
o Distributions from an existing retirement plan invested in the Franklin
Templeton Funds
WAIVERS FOR CERTAIN INVESTORS. Fund shares may also be purchased without an
initial sales charge or CDSC by various individuals and institutions due to
anticipated economies in sales efforts and expenses, including:
o 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.
o 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 fund shares without paying sales charges.
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.
o Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for clients
participating in comprehensive fee programs
o Qualified registered investment advisors who buy through a broker-dealer or
service agent who has entered into an agreement with Distributors
o Registered securities dealers and their affiliates, for their investment
accounts only
o Current employees of securities dealers and their affiliates and their
family members, as allowed by the internal policies of their employer
o 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
o Any investor who is currently a Class Z shareholder of Franklin Mutual
Series Fund Inc. (Mutual Series), or who is a former Mutual Series Class Z
shareholder who had an account in any Mutual Series fund on October 31,
1996, or who sold his or her shares of Mutual Series Class Z within the
past 365 days
o Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer
o Accounts managed by the Franklin Templeton Group
o Certain unit investment trusts and their holders reinvesting distributions
from the trusts
o Group annuity separate accounts offered to retirement plans
o Chilean retirement plans that meet the requirements described under
"Retirement plans" below
RETIREMENT PLANS. Retirement plans sponsored by an employer (i) with at least
100 employees, or
(ii) with retirement plan assets of $1 million or more, or (iii) that agrees
to invest at least $500,000 in the Franklin Templeton Funds over a 13 month
period may buy shares without an initial sales charge. Retirement plans that
are not qualified retirement plans (employer sponsored pension or
profit-sharing plans that qualify under section 401 of the Internal Revenue
Code, including 401(k), money purchase pension, profit sharing and defined
benefit plans), SIMPLEs (savings incentive match plans for employees) or SEPs
(employer sponsored simplified employee pension plans established under
section 408(k) of the Internal Revenue Code) must also meet the group
purchase requirements described above to be able to buy shares without an
initial 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 CDSC 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.
SALES IN TAIWAN. Under agreements with certain banks in Taiwan, Republic of
China, the funds' 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.
The funds' shares may be offered to investors in Taiwan through securities
advisory firms known locally as Securities Investment Consulting Enterprises.
In conformity with local business practices in Taiwan, shares may be offered
with the following schedule of sales charges:
SALES CHARGE
SIZE OF PURCHASE - U.S. DOLLARS (%)
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Under $30,000 .................................. 3.0
$30,000 but less than $100,000 ................. 2.0
$100,000 but less than $400,000 ................ 1.0
$400,000 or more ............................... 0
DEALER COMPENSATION 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.
Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages indicated in the dealer compensation table
in the funds' prospectus.
Distributors may pay the following commissions, out of its own resources, to
securities dealers who initiate and are responsible for purchases of
$1 million or more: 0.75% on sales of $1 million to $2 million, plus 0.60% on
sales over $2 million
to $3 million, plus 0.50% on sales over $3 million to $50 million, plus 0.25%
on sales over $50 million to $100 million, plus 0.15% on sales over $100
million.
Either Distributors or one of its affiliates may pay the following amounts,
out of its own resources, to securities dealers who initiate and are
responsible for purchases by certain retirement plans
without an initial sales charge: 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 rules of the
National Association of Securities Dealers, Inc.
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.
Those who have shown an interest in the Franklin Templeton Funds, however,
are more likely to be considered. To the extent permitted by their firm's
policies and procedures, registered representatives' expenses in attending
these meetings may be covered by Distributors.
CONTINGENT DEFERRED SALES CHARGE (CDSC) If you invest $1 million or more,
either as a lump sum or through our cumulative quantity discount or letter of
intent programs, a CDSC may apply on any shares you sell within 12 months of
purchase. The CDSC 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 an initial sales charge may also be subject to
a CDSC 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.
CDSC WAIVERS. The CDSC will generally be waived for:
o Account fees
o Sales of shares purchased without an initial 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 investors who purchased $1 million or more without an
initial sales charge if Distributors did not make any payment to the
securities dealer of record in connection with the purchase
o Redemptions by the fund when an account falls below the minimum required
account size
o Redemptions following the death of the shareholder or beneficial owner
o Redemptions through a systematic withdrawal plan set up before February 1,
1995
o Redemptions through a systematic withdrawal plan set up on or after
February 1, 1995, up to 1% monthly, 3% quarterly, 6% semiannually or 12%
annually of your account's net asset value depending on the frequency of
your plan
o Redemptions by Franklin Templeton Trust Company employee benefit plans or
employee benefit plans serviced by ValuSelect(R)
o Distributions from individual retirement accounts (IRAs) due to death or
disability or upon periodic distributions based on life expectancy
o Returns of excess contributions (and earnings, if applicable) from
retirement plan accounts
o Participant initiated distributions from employee benefit plans or
participant initiated exchanges among investment choices in employee
benefit plans
EXCHANGE PRIVILEGE If you request the exchange of the total value of your
account, declared but unpaid income dividends and capital gain distributions
will be reinvested in the fund and exchanged into the new fund at net asset
value when paid. Backup withholding and information reporting may apply.
If a substantial number of shareholders should, within a short period, sell
their fund shares 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 each 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 goal exist immediately. This money will then be withdrawn from the
short-term, interest-bearing 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 seventh day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange
until that seventh 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.
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. There are no service charges
for establishing or maintaining a systematic withdrawal plan. Once your plan
is established, any distributions paid by the fund will be automatically
reinvested in your account.
Payments under the plan will be made from the redemption of an equivalent
amount of shares in your account, generally on the 25th day of the month in
which a payment is scheduled. If the 25th falls on a weekend or holiday, we
will process the redemption on the next business day. 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 CDSC.
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.
You may discontinue a systematic withdrawal plan, change the amount and
schedule of withdrawal payments, or suspend one payment by notifying us by
mail or by phone at least seven business days before the end of the month
preceding a scheduled payment. 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.
REDEMPTIONS IN KIND Each fund has committed itself to pay in cash (by check)
all requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the
value of the fund's net assets at the beginning of the 90-day period. This
commitment is irrevocable without the prior approval of the U.S. Securities
and Exchange Commission (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.
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.
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 funds
nor their 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.
The wiring of redemption proceeds is a special service that we make available
whenever possible. By offering this service to you, the funds are not bound
to meet any redemption request in less than the seven day period prescribed
by law. Neither the funds nor their 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 the prospectus.
Franklin Templeton Investor Services, Inc. (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, each 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.
If you buy or sell shares through your securities dealer, we use the net
asset value next calculated after your securities dealer receives your
request, which is promptly transmitted to the fund. 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. 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. Any loss to you resulting
from your dealer's failure to transmit your redemption order to the fund in a
timely fashion must be settled between you and your securities dealer.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
For institutional accounts, there may be additional methods of buying or
selling fund shares than those described in this SAI or in the prospectus.
In the event of disputes involving multiple claims of ownership or authority
to control your account, each fund has the right (but has no obligation) to:
(a) freeze the account and require the written agreement of all persons
deemed by the fund to have a potential property interest in the account,
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.
PRICING SHARES
- ------------------------------------------------------------------------------
When you buy shares, you pay the offering price. The offering price is the
net asset value (NAV) per share plus any applicable sales charge, calculated
to two decimal places using standard rounding criteria. When you sell shares,
you receive the NAV minus any applicable CDSC.
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.
The fund calculates the NAV per share of each class each business day at the
close of trading on the New York Stock Exchange (normally 1:00 p.m. pacific
time). The fund does not calculate the NAV on days the New York Stock
Exchange (NYSE) is closed for trading, which include New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
When determining its NAV, the fund values cash and receivables at their
realizable amounts, and records interest as accrued and dividends on the
ex-dividend date. If market quotations are readily available for portfolio
securities listed on a securities exchange or on the NASDAQ National Market
System, the fund values those securities at the last quoted sale price of the
day or, if there is no reported sale, within the range of the most recent
quoted bid and ask prices. The fund values over-the-counter portfolio
securities within the range of the most recent quoted bid and ask prices. If
portfolio securities trade both in the over-the-counter market and on a stock
exchange, the fund values them according to the broadest and most
representative market as determined by the manager.
The fund values portfolio securities underlying actively traded call options
at their market price as determined above. The current market value of any
option the fund holds is its last sale price on the relevant exchange before
the fund values its assets. If there are no sales that day or if the last
sale price is outside the bid and ask prices, the fund values options within
the range of the current closing bid and ask prices if the fund believes the
valuation fairly reflects the contract's market value.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of
business of the NYSE on each day that the NYSE is open. Trading in European
or Far Eastern securities generally, or in a particular country or countries,
may not take place on every NYSE business day. Furthermore, trading takes
place in various foreign markets on days that are not business days for the
NYSE and on which the fund's NAV is not calculated. Thus, the calculation of
the fund's NAV does not take place contemporaneously with the determination
of the prices of many of the portfolio securities used in the calculation
and, if events materially affecting the values of these foreign securities
occur, the securities will be valued at fair value as determined by
management and approved in good faith by the board.
Generally, trading in 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 NAV 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 NAV.
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 use a pricing service, bank or securities dealer to
perform any of the above described functions.
THE UNDERWRITER
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Franklin Templeton Distributors, Inc. (Distributors) acts as the principal
underwriter in the continuous public offering of the fund's shares.
Distributors is located at 777 Mariners Island Blvd., San Mateo, CA 94404.
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 Distributors
received in connection with the offering of each fund's shares, and the
net underwriting discounts and commissions Distributors retained after
allowances to dealers, and the amounts Distributors received in connection
with redemptions or repurchases of shares for the last three fiscal years
ended October 31:
AMOUNT RECEIVED
IN CONNECTION
TOTAL COMMISSIONS AMOUNT RETAINED WITH REDEMPTIONS
RECEIVED ($) BY DISTRIBUTORS ($) AND REPURCHASES ($)
- ------------------------------------------------------------------------------
1998
Global Currency Fund.... 16,137 2,242 0
Hard Currency Fund...... 110,110 12,854 0
1997
Global Currency Fund.... 39,015 4,434 0
Hard Currency Fund...... 337,549 36,786 0
1996
Global Currency Fund.... 63,202 7,349 0
Hard Currency Fund...... 858,684 96,666 0
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 funds for acting as
underwriter.
DISTRIBUTION AND SERVICE (12B-1) FEES The Global Currency Fund and Class A of
the Hard Currency Fund have a distribution or "Rule 12b-1" plan. Under the
plan, the fund shall pay or may reimburse Distributors or others for the
expenses of activities that are primarily intended to sell shares of the
fund. 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 each fund under the plan may not exceed 0.45% per year of average
daily net assets, payable quarterly. Of this amount, each fund may reimburse
up to 0.45% to Distributors or others, out of which 0.20% will generally be
retained by Distributors for distribution expenses. All distribution expenses
over this amount will be borne by those who have incurred them.
The plan does not permit unreimbursed expenses incurred in a particular year
to be carried over to or reimbursed in later years.
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, the manager or
Distributors or other parties on behalf of the fund, the manager or
Distributors make payments that are deemed to be for the financing of any
activity primarily intended to result in the sale of fund shares within the
context of Rule 12b-1 under the Investment Company Act of 1940, as amended,
then such payments shall be deemed to have been made pursuant to the plan.
The terms and provisions of the plan relating to required reports, term, and
approval are consistent with Rule 12b-1.
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 National Association of Securities Dealers, Inc.
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
noninterested members of the fund's board. The plan and any related agreement
may be terminated at any time, without penalty, by vote of a majority of the
noninterested 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 the manager or by
vote of a majority of the outstanding shares of the class. 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 the class, and all material amendments
to the plan or any related agreements shall be approved by a vote of the
noninterested board members, 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, 1998, Distributors' eligible
expenditures for advertising, printing, and payments to underwriters and
broker-dealers pursuant to the plan and the amounts the funds paid
Distributors under the plan were:
DISTRIBUTORS' AMOUNT PAID
ELIGIBLE EXPENSES ($) BY THE FUND ($)
- ------------------------------------------------------------------------------
Global Currency Fund ................ 166,241 95,416
Hard Currency Fund .................. 366,517 247,406
PERFORMANCE
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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 a fund be accompanied by
certain standardized performance information computed as required by the SEC.
Average annual total return and current yield quotations used by a 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 funds 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.
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 initial 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 initial sales charge currently in effect.
When considering the average annual total return quotations, you should keep
in mind that the maximum initial 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 average annual total returns for the indicated periods ended October 31,
1998, were:
INCEPTION SINCE
DATE 1 YEAR 5 YEARS 10 YEARS INCEPTION
- ------------------------------------------------------------------------------
Global Currency Fund ...... 6/27/86 1.37% 2.93% 5.39% 6.43%
Hard Currency Fund ........ 11/17/89 1.95% 1.90% - 5.65%
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 initial 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 cumulative total returns for the
indicated periods ended October 31, 1998, were:
INCEPTION SINCE
DATE 1 YEAR 5 YEARS 10 YEARS INCEPTION
- ------------------------------------------------------------------------------
Global Currency Fund ...... 6/27/86 1.37% 15.54% 66.39% 115.94%
Hard Currency Fund ........ 11/17/89 1.95% 10.02% - 63.86%
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 applicable 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 yields for the 30-day period ended October 31, 1998, were:
Global Currency Fund 3.42%
Hard Currency Fund 2.25%
These figures were obtained using the following SEC formula:
6
Yield = 2 [(A-B + 1) - 1]
cd
where:
a = interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the 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 current distribution rates for the 30-day period ended October 31, 1998,
were:
Global Currency Fund 3.79%
Hard Currency Fund 2.60%
VOLATILITY Occasionally statistics may be used to show a fund's volatility or
risk. Measures of volatility or risk are generally used to compare a 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 Each fund may also quote the performance of
shares without a sales charge. Sales literature and advertising may quote a
cumulative total return, average annual total return and other measures of
performance with the substitution of net asset value for the public offering
price.
Sales literature referring to the use of a fund as a potential investment for
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.
Each fund may include in its advertising or sales material information
relating to investment goals and performance results of funds belonging to
the Franklin Templeton Group of Funds. Franklin Resources, Inc. 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 a fund may
satisfy your investment goal, 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:
o Salomon Brothers Broad Bond Index or its component indices - measures
yield, price and total return for Treasury, agency, corporate and mortgage
bonds.
o Lehman Brothers Aggregate Bond Index or its component indices - measures
yield, price and total return for Treasury, agency, corporate, mortgage
and Yankee bonds.
o Lehman Brothers Municipal Bond Index or its component indices - measures
yield, price and total return for the municipal bond market.
o Bond Buyer 20 Index - an index of municipal bond yields based upon yields
of 20 general obligation bonds maturing in 20 years.
o Bond Buyer 40 Index - an index composed of the yield to maturity of 40
bonds. The index attempts to track the new-issue market as closely as
possible, so it changes bonds twice a month, adding all new bonds that
meet certain requirements and deleting an equivalent number according to
their secondary market trading activity. As a result, the average par call
date, average maturity date, and average coupon rate can and have changed
over time. The average maturity generally has been about 29-30 years.
o Financial publications: The WALL STREET JOURNAL, and BUSINESS WEEK,
FINANCIAL WORLD, FORBES, FORTUNE, and MONEY magazines - provide
performance statistics over specified time periods.
o Salomon Brothers Composite High Yield Index or its component indices -
measures yield, price and total return for the Long-Term High-Yield Index,
Intermediate-Term High-Yield Index, and Long-Term Utility High-Yield Index.
o 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.
o 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.
o 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.
From time to time, advertisements or information for a 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 a fund's performance to the
return on certificates of deposit (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 a fund is not
insured by any federal, state or private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to 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 funds to calculate their figures. In
addition, there can be no assurance that the funds will continue their
performance as compared to these other averages.
MISCELLANEOUS INFORMATION
- ------------------------------------------------------------------------------
The funds 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 funds cannot guarantee that these goals will be met.
The funds are members of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin is one of
the oldest mutual fund organizations and now services more than 3 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 $220 billion in assets under management for
more than 7 million U.S. based mutual fund shareholder and other accounts.
The Franklin Templeton Group of Funds offers 115 U.S. based open-end
investment companies to the public. The funds may indentify themselves by
their NASDAQ symbol or CUSIP number.
Currently, there are more mutual funds than there are stocks listed on the
New York Stock Exchange. While many of them have similar investment goals, no
two are exactly alike. Shares of the funds are generally sold through
securities dealers, whose investment representatives are experienced
professionals who can offer advice on the type of investments suitable to
your unique goals and needs, as well as the risks associated with such
investments.
The Information Services & Technology division of Franklin Resources, Inc.
(Resources) established a Year 2000 Project Team in 1996. This team has
already begun making necessary software changes to help the computer systems
that service the funds and their shareholders to be Year 2000 compliant.
After completing these modifications, comprehensive tests are conducted in
one of Resources' U.S. test labs to verify their effectiveness. Resources
continues to seek reasonable assurances from all major hardware, software or
data-services suppliers that they will be Year 2000 compliant on a timely
basis. Resources is also beginning to develop a contingency plan, including
identification of those mission critical systems for which it is practical to
develop a contingency plan. However, in an operation as complex and
geographically distributed as Resources' business, the alternatives to use of
normal systems, especially mission critical systems, or supplies of
electricity or long distance voice and data lines are limited.
DESCRIPTION OF RATINGS
- ------------------------------------------------------------------------------
SHORT-TERM DEBT & COMMERCIAL PAPER RATINGS
MOODY'S
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted. Moody's commercial
paper ratings are opinions of the ability of issuers to repay punctually
their promissory obligations not having an original maturity in excess of
nine months.
Moody's employs the following designations, judged to be investment grade,
used for both short-term debt and commercial paper to indicate the relative
repayment ability of rated issuers:
P-1 (PRIME-1): Superior capacity for repayment.
P-2 (PRIME-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days - including
commercial paper. Ratings are graded into four categories, ranging from "A"
for the highest quality obligations to "D" for the lowest. Issues within the
"A" category are delineated with the numbers 1, 2 and 3 to indicate the
relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment
is very strong. A "plus" (+) designation indicates an even stronger
likelihood of timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
The relative degree of safety, however, is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.
FRANKLIN TEMPLETON
HARD CURRENCY FUND
FRANKLIN TEMPLETON GLOBAL TRUST
ADVISOR CLASS
STATEMENT OF
ADDITIONAL INFORMATION
MARCH 1, 1999
[INSERT FRANKLIN TEMPLETON BEN HEAD]
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN(R)
This Statement of Additional Information (SAI) is not a prospectus. It
contains information in addition to the information in the fund's prospectus.
The fund's prospectus, dated March 1, 1999, which we may amend from time to
time, contains the basic information you should know before investing in the
fund. You should read this SAI together with the fund's prospectus.
The audited financial statements and auditor's report in the trust's Annual
Report to Shareholders, for the fiscal year ended October 31, 1998, are
incorporated by reference (are legally a part of this SAI).
For a free copy of the current prospectus or annual report, contact your
investment representative or call 1-800/DIAL BEN (1-800/342-5236).
CONTENTS
Goal and Strategies .................... 2
Risks................................... 7
Officers and Trustees................... 10
Management and Other Services .......... 14
Portfolio Transactions ................. 15
Distributions and Taxes ................ 16
Organization, Voting Rights
and Principal Holders ................. 18
Buying and Selling Shares .............. 18
Pricing Shares ......................... 21
The Underwriter ........................ 22
Performance ............................ 22
Miscellaneous Information .............. 24
Description of Ratings ................. 25
[Begin callout]
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.
[End callout]
GOAL AND STRATEGIES
- ------------------------------------------------------------------------------
The fund's investment goal is to protect against depreciation of the U.S.
dollar relative to other currencies. This goal is fundamental, which means it
may not be changed without shareholder approval.
Below is more detailed information about some of the various types of
securities the fund may buy and its investment policies.
MONEY MARKET INSTRUMENTS Money market instruments include short-term U.S.
government securities, 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.
The fund may invest in money market instruments issued by foreign and
domestic governments, as well as financial institutions, corporations or
other entities located in or organized under the laws of any country. The
fund may also invest in money market instruments 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 that the manager considers comparable in
quality to instruments rated in the top two ratings of U.S. nationally
recognized rating services, such as Standard & Poor's(R) Corporation (S&P) or
Moody's Investors Service, Inc. (Moody's), or issued by companies with an
outstanding unsecured debt issue rated in the top two ratings. The fund's
investments will be reviewed by the board of trustees at least quarterly.
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 buy 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 foreign countries. These obligations may have fixed,
floating or variable rates of interest.
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. The effective maturity of each
floating or variable rate obligation in the fund's portfolio will be based
upon these periodic adjustments.
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs.
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 fund's custodian bank holds the securities subject to resale on
behalf of the fund. 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 the manager
considers creditworthy.
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) - 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 of both the bank and 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 (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.
banks and non-U.S. branches of U.S. banks, such as CDs 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 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 of over $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: (i) 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 (ii) 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 fund's currency exchange transactions
are conducted on a spot (i.e., cash) basis at the spot rate prevailing in the
currency exchange market for buying or selling currency. The fund, however,
may enter into forward currency contracts as a hedge against possible
variations in the exchange rates between the currencies in which its
investments are denominated and other currencies, including the U.S. dollar,
or in conjunction with money market instruments to try to obtain an
investment result that is substantially equivalent to a direct investment in
a foreign currency denominated instrument.
A forward currency contract is 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 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 that currency.
The fund tries to expose 100% of its net assets to foreign currencies at all
times and, therefore, any portfolio position hedging activities of the fund
are expected to be consistent with this policy. The fund will not speculate
in forward contracts, although the fund may enter into forward contracts in
conjunction with money market instruments in a manner that is unrelated to
the fund's normal hedging activities as described above (i.e., to try to
obtain an investment result that is substantially equivalent to a direct
investment in a foreign currency denominated instrument). 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 currently does not 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.
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.
It may not be possible for the fund to hedge against a devaluation that is so
generally anticipated that the fund is not able to contract to sell the
currency at a price above the devaluation level it anticipates. It is
possible that, under certain circumstances, the fund may have to limit
currency transactions to qualify as a regulated investment company under the
Internal Revenue Code.
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 buying an
"offsetting" contract obligating it to buy, 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
date the fund enters 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 buy. If forward prices increase, the fund will suffer a loss to the
extent the price of the currency it has agreed to buy 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 manager. You
should realize that the use of forward contracts does not eliminate
fluctuations in the underlying prices of the securities. Forward contracts
simply establish a rate of exchange that the fund can achieve at some future
point in time. Additionally, although forward contracts tend to reduce 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 that may result from the
change in the value of the hedged currency.
Because the fund invests in money market instruments denominated in foreign
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, its 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
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the fund at one rate,
while offering a lesser rate of exchange should the fund desire to resell the
currency to the dealer.
CURRENCY FUTURES The fund may enter into futures contracts and buy 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 may sell currency futures contracts 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 may buy currency futures contracts 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 that 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 The fund may, for hedging purposes, buy put and call options
on any currency in which the fund's investments are denominated. The fund
also may enter into closing sale transactions in order to realize gains or
reduce losses on currency options purchased by the fund.
The fund may 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 a 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 the transaction cost, otherwise
the fund would realize a loss on the purchase of the call option.
The fund may 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 a
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 may be bought only when the manager believes 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, OTC 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 New York Stock Exchange). The fund may buy
OTC options only from dealers and institutions that the manager believes
present a minimal credit risk.
NON-DIVERSIFICATION Although the fund is non-diversified under the Investment
Company Act of 1940, as amended, 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. The
board of trustees has authorized the fund to invest in restricted securities
where the investment is consistent with the fund's investment goal and has
authorized these securities to be considered liquid to the extent the fund's
manager determines 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 manager to treat a
restricted security as liquid on a quarterly basis, including the manager's
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 manager 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 buyers; (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 liquidity in the fund may be reduced if qualified institutional
buyers become uninterested in buying the securities or the market for the
securities contracts.
SECURITIES LENDING The fund may lend to broker-dealers portfolio securities
with an aggregate market value up to 30% of its total assets. Such loans must
be secured by collateral (consisting of any combination of cash, U.S.
government securities or irrevocable letters of credit) in an amount at least
equal (on a daily marked-to-market basis) to the current market value of the
securities loaned. The fund may terminate a loan at any time and obtain the
return of the securities. The fund will continue to receive any interest or
dividends paid on the loaned securities. However, as with other extensions of
credit, there are risks of delay or even loss of rights in the collateral
should the borrower fail.
INVESTMENT RESTRICTIONS The fund has adopted the following restrictions as
fundamental policies. This means they may only be changed if the change is
approved by (i) more than 50% of the fund's outstanding shares or (ii) 67% or
more of the fund's shares present at a shareholder meeting if more than 50%
of the fund's outstanding shares are represented at the meeting in person or
by proxy, whichever is less.
The fund may not:
1. Purchase common stocks, preferred stocks, warrants or other equity
securities, or purchase municipal bonds or industrial revenue bonds.
2. 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 Internal Revenue 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.
7. 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.
8. 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.
9. Underwrite the securities of other issuers.
10. 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 U.S. Securities and Exchange Commission and the
board of trustees, including maintenance of collateral of the borrower equal
at all times to at least the current market value of the securities loaned.
11. Invest in companies for the purpose of exercising control.
12. Purchase the securities of any issuer having less than three years'
continuous operations (or any predecessors) if such purchase would cause the
value of the fund's investments in all such issuers to exceed 5% of the value
of its total assets.
Securities issued by a foreign government, its agencies and
instrumentalities, as well as supra-national organizations are considered one
industry for concentration purposes.
If a bankruptcy or other extraordinary event occurs concerning a particular
security the fund owns, the fund may receive stock, real estate, or other
investments that the fund would not, or could not, buy. If this happens, the
fund intends to sell such investments 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.
RISKS
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CURRENCY RISK 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.
INFLATION. The most fundamental reason exchange rates change is to reflect
changes in currencies' buying 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.
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.
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.
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 also can
indirectly contribute to currency depreciation if a government chooses to
cope with its deficits and debt by means of inflation.
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.
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.
The value of the fund's investments is calculated in U.S. dollars each day
that the New York Stock Exchange is open for business. As a result, to the
extent that the fund's assets are invested in instruments denominated in
foreign currencies 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.
Currency exchange costs may be incurred when the fund sells instruments
denominated in one currency and buys instruments denominated in another.
EURO RISK. On January 1, 1999, the European Monetary Union (EMU) introduced a
new single currency, the euro, which will replace the national currency for
participating member countries. The transition and the elimination of
currency risk among EMU countries may change the economic environment and
behavior of investors, particularly in European markets.
Franklin Resources, Inc. has created an interdepartmental team to handle all
euro-related changes to enable the Franklin Templeton Funds to process
transactions accurately and completely with minimal disruption to business
activities. While the implementation of the euro could have a negative effect
on the fund, the fund's manager and its affiliated services providers are
taking steps they believe are reasonably designed to address the euro issue.
FOREIGN RISK While foreign money market instruments may offer significant
opportunities for gain, they also involve additional risks that can increase
the potential for losses in the fund. These risks can be significantly
greater for investments in emerging markets.
There is the possibility of cessation of trading on national exchanges,
expropriation, nationalization of assets, confiscatory or punitive taxation,
withholding and other foreign taxes on income or other amounts, foreign
exchange controls (which may include suspension of the ability to transfer
currency from a given country), restrictions on removal of assets, political
or social instability, or diplomatic developments that could affect
investments in money market instruments of foreign issuers.
There may be less publicly available information about foreign issuers
comparable to the reports and ratings published about issuers in the U.S.
Foreign issuers are not generally subject to uniform accounting or financial
reporting standards, and auditing practices and requirements may not be
comparable to those applicable to U.S. issuers. The fund, therefore, may
encounter difficulty in obtaining market quotations for purposes of valuing
its portfolio and calculating its net asset value.
Certain countries' financial markets and services are less developed than
those in the U.S. or other major economies. In many foreign countries there
is less government supervision and regulation of stock exchanges, brokers,
and listed companies than in the U.S. Foreign markets have substantially less
volume than the New York Stock Exchange and money market instruments of some
foreign issuers are less liquid and more volatile than securities of
comparable U.S. issuers. Commission rates in foreign countries, which are
generally fixed rather than subject to negotiation as in the U.S., are likely
to be higher. Settlement practices may be cumbersome and result in delays
that may affect portfolio liquidity. The fund may have greater difficulty
voting proxies, exercising shareholder rights, pursuing legal remedies, and
obtaining judgments with respect to foreign investments in foreign courts
than with respect to domestic issuers in U.S. courts.
The fund's investments in foreign money market instruments may increase the
risks with respect to the liquidity of the fund's portfolio. This could
inhibit the fund's ability to meet a large number of shareholder redemption
requests in the event of economic or political turmoil in a country in which
the fund has a substantial portion of its assets invested or deterioration in
relations between the U.S. and the foreign country.
Investments in companies domiciled in developing countries may be subject to
potentially higher risks than investments in developed countries. These risks
include (i) less economic stability; (ii) political and social uncertainty
(for example, regional conflicts and risk of war); (iii) pervasiveness of
corruption and crime; (iv) the small current size of the markets for such
investments and the currently low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (v) delays in
settling portfolio transactions; (vi) risk of loss arising out of the system
of share registration and custody; (vii) certain national policies that may
restrict the fund's investment opportunities, including restrictions on
investment in issuers or industries deemed sensitive to national interests;
(viii) foreign taxation; (ix) the absence of developed legal structures
governing private or foreign investment or allowing for judicial redress for
injury to private property; (x) the absence of a capital market structure or
market-oriented economy; and (xi) the possibility that recent favorable
economic developments may be slowed or reversed by unanticipated political or
social events.
In addition, some countries in which the fund may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and money markets of
certain countries. Moreover, the economies of some developing countries may
differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross domestic product, rate of inflation, currency depreciation,
capital reinvestment, resource self-sufficiency, and balance of payments
position.
Foreign investments 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 investments at the time of sale. Transaction costs and custodial expenses
for a portfolio of foreign investments generally are higher than for a
portfolio of U.S. securities. Interest payments from certain foreign money
market instruments may be subject to foreign withholding taxes on interest
income payable on the money market instruments.
U.S. government policies have, in the past, through taxation and other
restrictions, discouraged certain investments abroad by U.S. investors. While
no such restrictions are currently in effect, they could be reinstituted. In
that event, it may be necessary for the fund to temporarily invest all or
substantially all of its assets in U.S. money market instruments, or it may
become necessary to liquidate the fund.
CURRENCY FUTURES AND OPTIONS RISK 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 the fund had not entered into these transactions.
Even if the manager correctly predicts 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 manager may try to reduce 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
buy 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 buy
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 Internal Revenue 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.
The purchase of currency options is a highly specialized activity that
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."
INTEREST RATE RISK 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 that invests strictly in U.S. dollar-denominated instruments.
OFFICERS AND TRUSTEES
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The trust has a board of trustees. The board is responsible for the overall
management of the trust, including general supervision and review of the
fund's investment activities. The board, in turn, elects the officers of the
trust who are responsible for administering the trust's day-to-day
operations. The board also monitors the fund to ensure no material conflicts
exist among share classes. While none is expected, the board will act
appropriately to resolve any material conflict that may arise.
The affiliations of the officers and board members and their principal
occupations for the past five years are shown below.
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME, AGE AND ADDRESS WITH THE TRUST DURING THE PAST FIVE YEARS
- ------------------------------------------------------------------------------
Frank H. Abbott, III (77)
1045 Sansome Street
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment company); director
or trustee, as the case may be, of 27 of the investment companies in the
Franklin Templeton Group of Funds; and FORMERLY, Director, MotherLode Gold
Mines Consolidated (gold mining) and Vacu-Dry Co. (food processing).
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Harris J. Ashton (66)
191 Clapboard Ridge Road
Greenwich, CT 06830
Trustee
Director, RBC Holdings, Inc. (bank holding company) and Bar-S Foods (meat
packing company); director or trustee, as the case may be, of 49 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).
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David K. Eiteman (69)
15340 Albright Street #301
Pacific Palasades, CA 90272
Trustee
Professor of Finance, John E. Anderson Graduate School of Management,
University of California, Los Angeles (1959-1991) and Professor Emeritus
(1991-present).
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S. Joseph Fortunato (66)
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 51 of the investment companies in the Franklin
Templeton Group of Funds.
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Donald P. Gould (40)
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; and FORMERLY, officer and trustee,
Huntington Funds, President and Director, Huntington Advisers, Inc. (a mutual
fund investment adviser), and President, Huntington Investments, Inc. (a
mutual fund underwriter).
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Gerald R. Healy (57)
23100 Avenue San Luis, Apt. 277
Woodland Hills , CA 91364
Trustee
Private consultant; Executive Vice President, Capital Health Services Corp.;
and FORMERLY, Director, Corporate Management Resources of Alliance Imaging,
Inc.
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*Charles B. Johnson (66)
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 50 of the investment companies in the Franklin
Templeton Group of Funds.
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*Rupert H. Johnson, Jr. (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
and Trustee
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.
and Franklin Investment Advisory Services, Inc.; Senior Vice President and
Director, Franklin 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
53 of the investment companies in the Franklin Templeton Group of Funds.
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David P. Kraus (41)
Bet Tzedek Legal Services
145 South Fairfax Ave., Suite 200
Los Angeles, CA 90036-2172
Trustee
Attorney with various private law firms in Los Angeles (1981-present); and
Attorney with Bet Tzedek Legal Services (1995-present).
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Frank W.T. LaHaye (69)
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
Trustee
General Partner, Miller & LaHaye, which is the General Partner of Peregrine
Ventures II (venture capital firm); Director, Quarterdeck Corporation
(software firm) and Digital Transmission Systems, Inc. (wireless
communications); director or trustee, as the case may be, of 27 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
Director, Fischer Imaging Corporation (medical imaging systems) and General
Partner, Peregrine Associates, which was the General Partner of Peregrine
Ventures (venture capital firm).
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Gordon S. Macklin (70)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Director, Fund American Enterprises Holdings, Inc. (holding company), Martek
Biosciences Corporation, MCI WorldCom (information services), MedImmune, Inc.
(biotechnology), Spacehab, Inc. (aerospace services) and Real 3D (software);
director or trustee, as the case may be, of 49 of the investment companies in
the Franklin Templeton Group of Funds; and FORMERLY, Chairman, White River
Corporation (financial services) and Hambrecht and Quist Group (investment
banking), and President, National Association of Securities Dealers, Inc.
- ------------------------------------------------------------------------------
Harmon E. Burns (54)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President and Director, Franklin Resources, Inc., Franklin
Templeton Distributors, Inc. and Franklin Templeton Services, Inc.; Executive
Vice President, Franklin Advisers, Inc.; Director, Franklin Investment
Advisory Services, Inc. and 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 53 of the investment
companies in the Franklin Templeton Group of Funds.
- ------------------------------------------------------------------------------
Martin L. Flanagan (38)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
and Chief
Financial Officer
Senior Vice President and Chief Financial Officer, Franklin Resources, Inc.,
Franklin/Templeton Investor Services, Inc. and Franklin Mutual Advisers,
Inc.; Executive Vice President and Director, Templeton Worldwide, Inc.;
Executive Vice President, Chief Operating Officer and Director, Templeton
Investment Counsel, Inc.; Executive Vice President and Chief Financial
Officer, Franklin Advisers, Inc.; Chief Financial Officer, Franklin Advisory
Services, Inc. and Franklin Investment Advisory Services, Inc.; President and
Director, Franklin Templeton Services, Inc.; officer and/or director of some
of the other subsidiaries of Franklin Resources, Inc.; and officer and/or
director or trustee, as the case may be, of 53 of the investment companies in
the Franklin Templeton Group of Funds.
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Deborah R. Gatzek (50)
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.; Executive Vice President, Franklin Advisers, Inc.; Vice
President, Franklin Advisory Services, Inc. and Franklin Mutual Advisers,
Inc.; Vice President, Chief Legal Officer and Chief Operating Officer,
Franklin Investment Advisory Services, Inc.; and officer of 54 of the
investment companies in the Franklin Templeton Group of Funds.
- ------------------------------------------------------------------------------
Charles E. Johnson (42) 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 Direc-tor,
Templeton Worldwide, Inc.; Chairman and Director, Templeton Investment
Counsel, Inc.; Vice President, Franklin Advisers, Inc.; officer and/or
director of some of the other subsidiaries of Franklin Resources, Inc.; and
officer and/or director or trustee, as the case may be, of 34 of the
investment companies in the Franklin Templeton Group of Funds.
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Diomedes Loo-Tam (60)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and
Principal
Accounting
Officer
Senior Vice President, Franklin Templeton Services, Inc.; and officer of 32
of the investment companies in the Franklin Templeton Group of Funds.
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Edward V. McVey (61)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President and National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 28 of the investment companies in the
Franklin Templeton Group of Funds.
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*This board member is considered an "interested person" under federal
securities laws.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Charles E. Johnson.
The trust pays noninterested board members $800 per year plus $800 per
meeting attended. Board members who serve on the audit committee of the trust
and other funds in the Franklin Templeton Group of Funds receive a flat fee
of $2,000 per committee meeting attended, a portion of which is allocated to
the trust. Members of a committee are not compensated for any committee
meeting held on the day of a board meeting. Noninterested board members may
also serve as directors or trustees of other funds in the Franklin Templeton
Group of Funds and may receive fees from these funds for their services. The
fees payable to certain noninterested board members by the trust are subject
to reductions resulting from fee caps limiting the amount of fees payable to
board members who serve on other boards within the Franklin Templeton Group
of Funds. The following table provides the total fees paid to noninterested
board members by the trust and by 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 1 OF FUNDS 2 WHICH EACH SERVES 3
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Frank H. Abbott, III $3,758 $159,051 27
Harris J. Ashton $3,586 $361,157 49
David K. Eiteman $3,200 $ 3,200 1
S. Joseph Fortunato $3,478 $367,835 51
Gerald R. Healy $3,200 $ 3,200 1
David P. Kraus $4,000 $ 4,000 1
Frank W.T. LaHaye $4,325 $163,753 27
Gordon S. Macklin $3,586 $361,157 49
1. For the fiscal year ended October 31, 1998.
2. For the calendar year ended December 31, 1998.
3. 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 54 registered investment companies, with
approximately 164 U.S. based funds or series.
Noninterested board members 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 Franklin Resources, Inc.
may be deemed to receive indirect remuneration by virtue of their
participation, if any, in the fees paid to its subsidiaries.
Messrs. Abbott, Ashton, Fortunato, LaHaye and Macklin serve on multiple
boards within the Franklin Templeton Group of Funds and historically have
followed a policy of having substantial investments in one or more of the
funds in the Franklin Templeton Group of Funds, as is consistent with their
individual financial goals. In February 1998, this policy was formalized
through adoption of a requirement that each such board member invest
one-third of fees received for serving as a director or trustee of a
Templeton fund in shares of one or more Templeton funds and one-third of fees
received for serving as a director or trustee of a Franklin fund in shares of
one or more Franklin funds until the value of such investments equals or
exceeds five times the annual fees paid such board member. Investments in the
name of family members or entities controlled by a board member constitute
fund holdings of such board member for purposes of this policy, and a three
year phase-in period applies to such investment requirements for newly
elected board members. In implementing such policy, a board member's fund
holdings existing on February 27, 1998, are valued as of such date with
subsequent investments valued at cost.
MANAGEMENT AND OTHER SERVICES
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MANAGER AND SERVICES PROVIDED The fund's manager is Franklin Advisers, Inc.
The manager is wholly owned by Franklin Resources, Inc. (Resources), a
publicly owned company engaged in the financial services industry through its
subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr. are the principal
shareholders of Resources.
The manager provides investment research and portfolio management services,
and selects the securities for the fund to buy, hold or sell. The manager
also selects the brokers who execute the fund's portfolio transactions. The
manager provides periodic reports to the board, which reviews and supervises
the manager's investment activities. To protect the fund, the manager and its
officers, directors and employees are covered by fidelity insurance.
The manager and its affiliates manage numerous other investment companies and
accounts. The manager may give advice and take action with respect to any of
the other funds it manages, or for its own account, that may differ from
action taken by the manager on behalf of the fund. Similarly, with respect to
the fund, the manager is not obligated to recommend, buy or sell, or to
refrain from recommending, buying or selling any security that the manager
and access persons, as defined by applicable federal securities laws, may buy
or sell for its or their own account or for the accounts of any other fund.
The manager is not obligated to refrain from investing in securities held by
the fund or other funds it manages. Of course, any transactions for the
accounts of the manager and other access persons will be made in compliance
with the fund's code of ethics.
Under the fund's code of ethics, employees of the Franklin Templeton Group
who are access persons may 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.
The fund's sub-advisor is Templeton Investment Counsel, Inc., through its
Global Bond Managers division. The sub-advisor has an agreement with the
manager and provides the manager with investment management advice and
assistance. The sub-advisor 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. The
sub-advisor's activities are subject to the board's review and control, as
well as the manager's instruction and supervision.
MANAGEMENT FEES The fund pays the manager a fee equal to an annual rate of
0.65% of the value of the average daily net assets of the fund.
The fee is computed at the close of business on the last business day of each
month according to the terms of the management agreement. Each class of the
fund's shares pays its proportionate share of the fee.
For the last three fiscal years ended October 31, the fund paid the following
management fees:
MANAGEMENT
FEES PAID ($)
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1998 ..................... 479,459
1997 ..................... 682,152
1996 ..................... 811,115
The manager pays the sub-advisor a fee equal to an annual rate of 0.25% of
the value of the average daily net assets of the fund. The manager pays this
fee from the management fees it receives from the fund. For the last three
fiscal years ended October 31, the manager paid the following sub-advisory
fees:
SUB-ADVISORY
FEES PAID ($)
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1998 ..................... 184,382
1997 ..................... 262,370
1996 ..................... 339,115
ADMINISTRATOR AND SERVICES PROVIDED Franklin Templeton Services, Inc. (FT
Services) has an agreement with the manager to provide certain administrative
services and facilities for the fund. FT Services is wholly owned by
Resources and is an affiliate of the fund's manager and principal underwriter.
The administrative services FT Services provides include preparing and
maintaining books, records, and tax and financial reports, and monitoring
compliance with regulatory requirements.
ADMINISTRATION FEES The manager pays FT Services a monthly fee equal to an
annual rate of:
o 0.15% of the fund's average daily net assets up to $200 million;
o 0.135% of average daily net assets over $200 million up to $700 million;
o 0.10% of average daily net assets over $700 million up to $1.2 billion; and
o 0.075% of average daily net assets over $1.2 billion.
During the last two fiscal years ended October 31, the manager paid FT
Services the following administration fees:
ADMINISTRATION
FEES PAID ($)
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1998 ..................... 110,658
1997 ..................... 172,706
SHAREHOLDER SERVICING AND TRANSFER AGENT Franklin/Templeton Investor
Services, Inc. (Investor Services) is the fund's shareholder servicing agent
and acts as the fund's transfer agent and dividend-paying agent. Investor
Services is located at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo,
CA 94403-7777.
For its services, Investor Services receives 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, NY 11245, and at the offices of its branches and agencies
throughout the world, acts as custodian of the fund's assets. As foreign
custody manager, the bank selects and monitors foreign sub-custodian banks,
selects and evaluates non-compulsory foreign depositories, and furnishes
information relevant to the selection of compulsory depositories.
AUDITOR PricewaterhouseCoopers LLP, 200 East Las Olas Blvd., Ft. Lauderdale,
FL 33301, is the fund's independent auditor. The auditor gives an opinion on
the financial statements included in the trust's Annual Report to
Shareholders and reviews the trust's registration statement filed with the
U.S. Securities and Exchange Commission (SEC).
PORTFOLIO TRANSACTIONS
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Since most purchases by the fund are principal transactions at net prices,
the fund incurs little or no brokerage costs. The fund deals directly with
the selling or buying principal or market maker without incurring charges for
the services of a broker on its behalf, unless it is determined that a better
price or execution may be obtained by using the services of a broker.
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 prices. The fund seeks
to obtain prompt execution of orders at the most favorable net price.
Transactions may be directed to dealers in return for research and
statistical information, as well as for special services provided by the
dealers in the execution of orders.
It is not possible to place a dollar value on the special executions or on
the research services the manager receives from dealers effecting
transactions in portfolio securities. The allocation of transactions in order
to obtain additional research services allows the manager to supplement its
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 manager and its 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 Franklin Templeton Distributors, Inc. (Distributors) is a member of
the National Association of Securities Dealers, Inc., it may sometimes
receive certain fees when the fund tenders portfolio securities pursuant to a
tender-offer solicitation. To recapture 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 the manager 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 manager 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 manager, 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 may improve execution and
reduce transaction costs to the fund.
During the fiscal years ended October 31, 1998, 1997 and 1996, the fund did
not pay any brokerage commissions.
As of October 31, 1998, the fund did not own securities of its regular
broker-dealers.
DISTRIBUTIONS AND TAXES
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The fund calculates dividends and capital gains the same way for each class.
The amount of any income dividends per share will differ, however, generally
due to the difference in any distribution and service (Rule 12b-1) fees of
each class. The fund does not pay "interest" or guarantee any fixed rate of
return on an investment in its shares.
DISTRIBUTIONS OF NET INVESTMENT INCOME The fund receives income generally in
the form of interest and other income on its investments. This income, less
expenses incurred in the operation of the fund, constitutes the fund's 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 from net short-term capital gains will be taxable to you as
ordinary income. Distributions from net long-term capital gains will be
taxable to you as long-term capital gain, regardless of how long you have
held your shares in the fund. Any net capital gains realized by the fund
generally will be distributed once each year, and may be distributed more
frequently, if necessary, in order to reduce or eliminate excise or income
taxes on the fund.
EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS Most foreign exchange gains
realized on the sale of money market instruments are treated as ordinary
income by the fund. Similarly, foreign exchange losses realized by the fund
on the sale of money market 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.
A fund may be subject to foreign withholding taxes on income from certain of
its foreign investments. If more than 50% of a fund's total assets at the end
of the fiscal year are invested in securities of foreign corporations, a fund
may elect to pass-through to you your pro rata share of foreign taxes paid by
the fund. If this election is made, the year-end statement you receive from a
fund will show more taxable income than was actually distributed to you.
However, you will be entitled to either deduct your share of such taxes in
computing your taxable income or (subject to limitations) claim a foreign tax
credit for such taxes against your U.S. federal income tax. A fund will
provide you with the information necessary to complete your individual income
tax return if it makes this election.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS The fund will inform you of
the amount of your ordinary income dividends and capital gains distributions
at the time they are paid, and will advise you of their tax status for
federal income tax purposes shortly after the close of each calendar year. If
you have not held fund shares for a full year, the fund may designate and
distribute 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.
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
Internal Revenue Code, has qualified as such for its most recent fiscal year,
and intends to so qualify during the current fiscal year. As a regulated
investment company, the fund generally pays no federal income tax on the
income and gains it distributes to you. 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 shareholders. In such
case, the fund will be subject to federal, and possibly state, corporate
taxes on its taxable income and gains, and distributions to you will be taxed
as ordinary dividend income to the extent of the fund's earnings and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the
Internal Revenue Code requires the fund to distribute to you by December 31
of each year, at a minimum, the following amounts: 98% of its taxable
ordinary income earned during the calendar year; 98% of its capital gain net
income earned during the twelve month period ending October 31; and 100% of
any undistributed amounts from the prior year. The fund intends to declare
and pay these amounts in December (or in January that are treated by you as
received in December) to avoid these excise taxes, but can give no assurances
that its distributions will be sufficient to eliminate all taxes.
REDEMPTION OF FUND SHARES Redemptions and exchanges of fund shares are
taxable transactions for federal and state income tax purposes. If you redeem
your fund shares, or exchange your fund shares for shares of a different
Franklin Templeton Fund, the IRS will require that you report a gain or loss
on your redemption or exchange. 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 or short-term, generally depending on how long you hold your
shares. 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.
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 buy 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 buy.
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 Government National Mortgage
Association or Federal National Mortgage Association securities, bankers'
acceptances, commercial paper and repurchase agreements collateralized by
U.S. government securities do not generally qualify for tax-free treatment.
The rules on exclusion of this income are different for corporations.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS Because the fund's income is
derived primarily from investments in foreign rather than 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 may invest in complex securities.
These investments may be subject to numerous special and complex tax rules.
These rules could affect whether gains and losses recognized by the fund are
treated as ordinary income or capital gain, accelerate the recognition of
income to the fund and/or defer the fund's ability to recognize losses, and,
in limited cases, subject the fund to U.S. federal income tax on income from
certain of its foreign securities. In turn, these rules may affect the
amount, timing or character of the income distributed to you by the fund.
ORGANIZATION, VOTING RIGHTS
AND PRINCIPAL HOLDERS
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The fund is a series of Franklin Templeton Global 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 October 1, 1996, and is registered with the
SEC.
The fund currently offers two classes of shares, Class A and Advisor Class.
Before January 1, 1999, Class A shares were designated Class I. The fund may
offer additional classes of shares in the future. The full title of each
class is:
o Franklin Templeton Hard Currency Fund -
Class A
o Franklin Templeton Hard Currency Fund -
Advisor Class
Shares of each class represent proportionate interests in the fund's assets.
On matters that affect the fund as a whole, each class has the same voting
and other rights and preferences as any other class. On matters that affect
only one class, only shareholders of that class may vote. Each class votes
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.
Additional series may be offered in the future.
The trust has noncumulative voting rights. For board member elections, 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 be called by the board to consider the
removal of a board member if requested in writing 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. A special meeting may also be called by the board in its
discretion.
As of December 7, 1998, the principal shareholders of the fund, beneficial or
of record, were:
PERCENT-
NAME AND ADDRESS SHARE CLASS AGE (%)
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Dreyfus Investment
Services Corporation
2 Mellon Bank Center
Room 177
Pittsburgh, PA 15259 ......... Advisor Class 7.72%
FT Fund Allocator
Moderate Target Fund
C/O Fund Accounting Dept.
Kimberley Monasterio
1810 Gateway 3rd Flr.
San Mateo, CA 94404-2470...... Advisor Class 79.61%
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.
As of December 7, 1998, the officers and board members, as a group, owned of
record and beneficially 3.31% of the fund's Advisor Class shares and less
than 1% of the outstanding shares of the other class. The board members may
own shares in other funds in the Franklin Templeton Group of Funds.
BUYING AND SELLING SHARES
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The fund continuously offers its shares through securities dealers who have
an agreement with Franklin Templeton Distributors, Inc. (Distributors). A
securities dealer includes any 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. Banks and financial
institutions that sell shares of the fund may be required by state law to
register as securities dealers.
For investors outside the U.S., the offering of fund shares may be limited in
many jurisdictions. An investor who wishes to buy shares of the fund should
determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to
obtain information on the rules applicable to these transactions.
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.
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.
If you buy shares through the reinvestment of dividends, the shares 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.
GROUP PURCHASES As described in the prospectus, members of a qualified group
may add the group's investments together for minimum investment purposes.
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.
DEALER COMPENSATION 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 rules of the
National Association of Securities Dealers, Inc.
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. Those who have shown an interest in the Franklin
Templeton Funds, however, are more likely to be considered. To the extent
permitted by their firm's policies and procedures, registered
representatives' expenses in attending these meetings may be covered by
Distributors.
EXCHANGE PRIVILEGE If you request the exchange of the total value of your
account, declared but unpaid income dividends and capital gain distributions
will be reinvested in the fund and exchanged into the new fund at net asset
value when paid. Backup withholding and information reporting may apply.
If a substantial number of shareholders should, within a short period, sell
their fund shares 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 goal exist immediately. This money will then be withdrawn from the
short-term, interest-bearing 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 seventh day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange
until that seventh 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.
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. There are no service charges
for establishing or maintaining a systematic withdrawal plan. Once your plan
is established, any distributions paid by the fund will be automatically
reinvested in your account.
Payments under the plan will be made from the redemption of an equivalent
amount of shares in your account, generally on the 25th day of the month in
which a payment is scheduled. If the 25th falls on a weekend or holiday, we
will process the redemption on the next business day. When you sell your
shares under a systematic withdrawal plan, it is a taxable transaction.
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.
You may discontinue a systematic withdrawal plan, change the amount and
schedule of withdrawal payments, or suspend one payment by notifying us by
mail or by phone at least seven business days before the end of the month
preceding a scheduled payment. 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.
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 U.S. Securities
and Exchange Commission (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.
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.
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.
The wiring of redemption proceeds is a special service that we make available
whenever possible. 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 the prospectus.
Franklin Templeton Investor Services, Inc. (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.
If you buy or sell shares through your securities dealer, we use the net
asset value next calculated after your securities dealer receives your
request, which is promptly transmitted to the fund. 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. 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. Any loss to you resulting
from your dealer's failure to transmit your redemption order to the fund in a
timely fashion must be settled between you and your securities dealer.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
For institutional accounts, there may be additional methods of buying or
selling fund shares than those described in this SAI or in the prospectus.
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.
PRICING SHARES
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When you buy and sell shares, you pay the net asset value (NAV) per share.
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.
The fund calculates the NAV per share of each class each business day at the
close of trading on the New York Stock Exchange (normally 1:00 p.m. pacific
time). The fund does not calculate the NAV on days the New York Stock
Exchange (NYSE) is closed for trading, which include New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
When determining its NAV, the fund values cash and receivables at their
realizable amounts, and records interest as accrued and dividends on the
ex-dividend date. If market quotations are readily available for portfolio
securities listed on a securities exchange or on the NASDAQ National Market
System, the fund values those securities at the last quoted sale price of the
day or, if there is no reported sale, within the range of the most recent
quoted bid and ask prices. The fund values over-the-counter portfolio
securities within the range of the most recent quoted bid and ask prices. If
portfolio securities trade both in the over-the-counter market and on a stock
exchange, the fund values them according to the broadest and most
representative market as determined by the manager.
The fund values portfolio securities underlying actively traded call options
at their market price as determined above. The current market value of any
option the fund holds is its last sale price on the relevant exchange before
the fund values its assets. If there are no sales that day or if the last
sale price is outside the bid and ask prices, the fund values options within
the range of the current closing bid and ask prices if the fund believes the
valuation fairly reflects the contract's market value.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of
business of the NYSE on each day that the NYSE is open. Trading in European
or Far Eastern securities generally, or in a particular country or countries,
may not take place on every NYSE business day. Furthermore, trading takes
place in various foreign markets on days that are not business days for the
NYSE and on which the fund's NAV is not calculated. Thus, the calculation of
the fund's NAV does not take place contemporaneously with the determination
of the prices of many of the portfolio securities used in the calculation
and, if events materially affecting the values of these foreign securities
occur, the securities will be valued at fair value as determined by
management and approved in good faith by the board.
Generally, trading in 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 NAV 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 NAV.
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 use a pricing service, bank or securities dealer to
perform any of the above described functions.
THE UNDERWRITER
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Franklin Templeton Distributors, Inc. (Distributors) acts as the principal
underwriter in the continuous public offering of the fund's shares.
Distributors is located at 777 Mariners Island Blvd., San Mateo, CA 94404.
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.
PERFORMANCE
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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.
For periods before January 2, 1997, Advisor Class standardized performance
quotations are calculated by substituting Class A performance for the
relevant time period, excluding the effect of Class A's maximum initial sales
charge, and including the effect of the distribution and service (Rule 12b-1)
fees applicable to the fund's Class A shares. For periods after January 2,
1997, Advisor Class standardized performance quotations 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.
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 initial sales charge currently in effect.
The average annual total returns for the indicated periods ended October 31,
1998, were:
SINCE
INCEPTION
1 YEAR 5 YEARS (11/17/89)
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Advisor Class ........ 4.89% 2.51% 6.01%
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 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 returns for the indicated
periods ended October 31, 1998, were:
SINCE
INCEPTION
1 YEAR 5 YEARS (11/17/89)
- ------------------------------------------------------------------------------
Advisor Class ........ 4.89% 13.21% 68.56%
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 of the class during the base period. The
yield for the 30-day period ended October 31, 1998, was:
YIELD
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Advisor Class ................ 2.75%
This figure was obtained using the following SEC formula:
6
Yield = 2 [(A-B + 1) - 1]
---
cd
where:
a = interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the net asset value per share on the last day of the period
CURRENT DISTRIBUTION RATE Current yield, which is calculated according to a
formula prescribed by the SEC, is not indicative of the amounts which were or
will be paid to shareholders. Amounts paid to shareholders are reflected in
the quoted current distribution rate. The current distribution rate is
usually computed by annualizing the dividends paid per share by a class
during a certain period and dividing that amount by the current net asset
value. The current distribution rate differs from the current yield
computation because it may include distributions to shareholders from sources
other than dividends and interest, such as premium income from option writing
and short-term capital gains, and is calculated over a different period of
time. The current distribution rate for the 30-day period ended October 31,
1998, was:
DISTRIBUTION
RATE
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Advisor Class ............. 3.76%
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 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 goals and performance results of funds belonging to
the Franklin Templeton Group of Funds. Franklin Resources, Inc. 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 goal, 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:
o Salomon Brothers Broad Bond Index or its component indices - measures
yield, price and total return for Treasury, agency, corporate and mortgage
bonds.
o Lehman Brothers Aggregate Bond Index or its component indices - measures
yield, price and total return for Treasury, agency, corporate, mortgage
and Yankee bonds.
o Lehman Brothers Municipal Bond Index or its component indices - measures
yield, price and total return for the municipal bond market.
o Bond Buyer 20 Index - an index of municipal bond yields based upon yields
of 20 general obligation bonds maturing in 20 years.
o Bond Buyer 40 Index - an index composed of the yield to maturity of 40
bonds. The index attempts to track the new-issue market as closely as
possible, so it changes bonds twice a month, adding all new bonds that
meet certain requirements and deleting an equivalent number according to
their secondary market trading activity. As a result, the average par call
date, average maturity date, and average coupon rate can and have changed
over time. The average maturity generally has been about 29-30 years.
o Financial publications: The Wall Street Journal, and Business Week,
Financial World, Forbes, Fortune, and Money magazines - provide
performance statistics over specified time periods.
o Salomon Brothers Composite High Yield Index or its component indices -
measures yield, price and total return for the Long-Term High-Yield Index,
Intermediate-Term High-Yield Index, and Long-Term Utility High-Yield Index.
o 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.
o 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.
o 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.
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 certificates of deposit (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
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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 is one of
the oldest mutual fund organizations and now services more than 3 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 $220 billion in assets under management for
more than 7 million U.S. based mutual fund shareholder and other accounts.
The Franklin Templeton Group of Funds offers 115 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
New York Stock Exchange. While many of them have similar investment goals, no
two are exactly alike. Shares of the fund are generally sold through
securities dealers, whose investment representatives are experienced
professionals who can offer advice on the type of investments suitable to
your unique goals and needs, as well as the risks associated with such
investments.
The Information Services & Technology division of Franklin Resources, Inc.
(Resources) established a Year 2000 Project Team in 1996. This team has
already begun making necessary software changes to help the computer systems
that service the fund and its shareholders to be Year 2000 compliant. After
completing these modifications, comprehensive tests are conducted in one of
Resources' U.S. test labs to verify their effectiveness. Resources continues
to seek reasonable assurances from all major hardware, software or
data-services suppliers that they will be Year 2000 compliant on a timely
basis. Resources is also beginning to develop a contingency plan, including
identification of those mission critical systems for which it is practical to
develop a contingency plan. However, in an operation as complex and
geographically distributed as Resources' business, the alternatives to use of
normal systems, especially mission critical systems, or supplies of
electricity or long distance voice and data lines are limited.
DESCRIPTION OF RATINGS
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SHORT-TERM DEBT & COMMERCIAL PAPER RATINGS
MOODY'S
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted. Moody's commercial
paper ratings are opinions of the ability of issuers to repay punctually
their promissory obligations not having an original maturity in excess of
nine months.
Moody's employs the following designations, judged to be investment grade,
used for both short-term debt and commercial paper to indicate the relative
repayment ability of rated issuers:
P-1 (PRIME-1): Superior capacity for repayment.
P-2 (PRIME-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days - including
commercial paper. Ratings are graded into four categories, ranging from "A"
for the highest quality obligations to "D" for the lowest. Issues within the
"A" category are delineated with the numbers 1, 2 and 3 to indicate the
relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment
is very strong. A "plus" (+) designation indicates an even stronger
likelihood of timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
The relative degree of safety, however, is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.
