File No. 33-6510
As filed with the Securities and Exchange Commission on March 3,
1995
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 16 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 / X /
Amendment No. 19 / X /
TEMPLETON INCOME TRUST
(Exact Name of Registrant as Specified in Charter)
700 Central Avenue, P.O. Box 33030
St. Petersburg, Florida 33701-8030
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code:
(813) 823-8712
Jeffrey L. Steele, Esq. Thomas M. Mistele, Esq.
Dechert Price & Rhoads Templeton Global Investors, Inc.
1500 K Street, N.W. 500 East Broward Blvd.
Washington, D.C. 20005 Fort Lauderdale, FL 33394
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box)
_____ immediately upon filing pursuant to paragraph (b)
__X__ on April 1, 1995 pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)
_____ on (date) pursuant to paragraph (a) of Rule 485
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
* Registrant has elected to register an indefinite number of
Shares of beneficial interest pursuant to Rule 24f-2 under
the Investment Company Act of 1940. A Rule 24f-2 Notice for
the Registrant's fiscal year ended August 31, 1994 was filed
with the Commission on October 28, 1994.
TEMPLETON INCOME TRUST
CROSS-REFERENCE SHEET
Item No. Caption
Part A - Templeton Income Fund
1 Cover Page
2 Expense Table
3 Selected Financial
Information
4 General Description;
Investment Techniques
5 Management of the Fund
5A See Annual Report to
Shareholders
6 General Information
7 How to Buy Shares of the
Fund
8 How to Sell Shares of the
Fund
9 Not Applicable
Part A - Templeton Money Fund
This Post-Effective Amendment No. 16 to the
Registration Statement (File No. 33-6510) on Form N-1A
for Templeton Income Trust incorporates by reference
the prospectus for Templeton Money Fund, which was
contained in Templeton Income Trust's Post-Effective
Amendment No. 15, which was filed on December 30, 1994.
Item No. Caption
Part B
10 Cover Page
11 Table of Contents
12 General Information and
History
13 Investment Objectives and
Policies
14 Management of the Trust
15 Principal Shareholders
16 Investment Management and
Other Services
17 Brokerage Allocation
18 Description of Shares, Part
A
19 Purchase, Redemption and
Pricing of Shares
20 Tax Status
21 Principal Underwriter
22 Yield and Performance
Information
23 Financial Statements
<PAGE>
PROSPECTUS -- JANUARY 1, 1995
TEMPLETON AS SUPPLEMENTED APRIL 1, 1995
INCOME FUND
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INVESTMENT Templeton Income Fund (the "Fund") seeks current income with
OBJECTIVE capital appreciation and growth of income through a flexible
AND POLICIES policy of investing primarily in debt securities of companies,
governments and government agencies of various nations
throughout the world, as well as preferred stock, common
stocks which pay dividends, and income-producing securities
convertible into common stock of such companies. The Fund may
borrow money for investment purposes, which will exaggerate
any increase or decrease in the market value of the Fund's
portfolio and subject the money borrowed to interest and other
costs. The Fund is a series of Templeton Income Trust.
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PURCHASE OF Please complete and return the Shareholder Application. If you
SHARES need assistance in completing this form, please call our
Account Services Department. The Fund offers two classes of
Shares to its investors. This structure allows investors to
consider, among other features, the impact of sales charges
and distribution fees ("Rule 12b-1 fees") on their investments
in the Fund. Shareholders should take the differences between
the two classes into account when determining which class of
Shares best meets their investment objective. The minimum
initial investment is $100 ($25 minimum for subsequent
investments).
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PROSPECTUS This Prospectus sets forth concisely information about the
INFORMATION Fund that a prospective investor ought to know before
investing. Investors are advised to read and retain this
Prospectus for future reference. A Statement of Additional
Information ("SAI") dated January 1, 1995, as supplemented
April 1, 1995, has been filed with the Securities and Exchange
Commission and is incorporated in its entirety by reference in
and made a part of this Prospectus. This SAI is available
without charge upon request to Franklin Templeton
Distributors, Inc., 700 Central Avenue, St. Petersburg,
Florida 33701-3628 or by calling the Fund Information
Department.
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FUND INFORMATION DEPARTMENT -- 1-800-292-9293
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TEMPLETON "STAR" SERVICE (24 hours, seven days a week access to current
prices, shareholder account balances/values, last transaction and duplicate
account statements) -- 1-800-654-0123
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TABLE OF CONTENTS
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EXPENSE TABLE........ 2
FINANCIAL HIGHLIGHTS. 3
GENERAL DESCRIPTION.. 4
Investment Objective
and Policies........ 4
INVESTMENT
TECHNIQUES.......... 5
Options on
Securities, Indices
and Futures
Contracts........... 5
Forward Foreign
Currency Contracts
and Options on
Foreign Currencies . 5
Futures Contracts.... 5
When-Issued
Securities ......... 6
Borrowing ........... 6
Loans of Portfolio
Securities.......... 6
Collateralized
Mortgage Obligations
("CMOs") ........... 6
U.S. Government
Securities ......... 6
Commercial Paper .... 7
RISK FACTORS......... 7
HOW TO BUY SHARES OF
THE FUND............ 8
Alternative Purchase
Arrangements........ 8
Deciding Which Class
to Purchase......... 9
Offering Price....... 9
Class I.............. 10
Cumulative Quantity
Discount............ 11
Letter of Intent..... 11
</TABLE>
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Group Purchases...... 11
Class II............. 12
Net Asset Value
Purchases
(Both Classes)...... 12
Additional Dealer
Compensation
(Both Classes)...... 13
Purchasing Class I
and Class II Shares. 14
Automatic Investment
Plan................ 14
Institutional
Accounts............ 14
Account Statements... 14
Templeton STAR
Service............. 15
Retirement Plans..... 15
Net Asset Value...... 15
EXCHANGE PRIVILEGE... 15
Exchanges of Class II
Shares.............. 16
Transfers............ 16
Conversion Rights.... 17
Exchanges by Timing
Accounts............ 17
HOW TO SELL SHARES OF
THE FUND............ 17
Contingent Deferred
Sales Charge........ 17
Reinstatement
Privilege........... 20
Systematic Withdrawal
Plan................ 20
Redemptions by
Telephone........... 21
TELEPHONE
TRANSACTIONS........ 21
</TABLE>
<TABLE>
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Page
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<S> <C>
Verification
Procedures.......... 21
Restricted Accounts.. 21
General.............. 22
MANAGEMENT OF THE
FUND................ 22
Investment Manager... 22
Business Manager..... 23
Transfer Agent....... 23
Custodian............ 23
Plans of
Distribution........ 23
Expenses............. 24
Brokerage
Commissions......... 24
GENERAL INFORMATION.. 24
Description of
Shares/Share
Certificates........ 24
Meetings of
Shareholders........ 24
Dividends and
Distributions....... 24
Federal Tax
Information......... 25
Inquiries............ 25
Performance
Information......... 25
Statements and
Reports............. 25
WITHHOLDING
INFORMATION......... 26
CORPORATE RESOLUTION. 27
AUTHORIZATION
AGREEMENT........... 28
THE FRANKLIN
TEMPLETON GROUP..... 29
</TABLE>
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SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
EXPENSE TABLE
<TABLE>
<CAPTION>
CLASS I CLASS II
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<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage
of Offering Price)........................................ 4.25% 0.65%/1/
Maximum Sales Charge Imposed on Reinvested Dividends....... None None
Deferred Sales Charge...................................... None/2/ 1.00%/3/
Redemption Fees............................................ None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Management Fees............................................ 0.50% 0.50%
12b-1 Fees/4/.............................................. 0.22% 0.65%
Other Expenses (audit, legal, business management, transfer
agent and custodian)...................................... 0.46% 0.46%
Total Fund Operating Expenses.............................. 1.61% 1.61%
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000 investment,
assuming (1) 5% annual return
and (2) redemption at the end of
each time period: Class I: $54 $78 $105 $180
Class II:/5/ $36 $60 $97 $199
</TABLE>
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/1/ Although Class II has a lower initial sales charge than Class I, over time
the higher 12b-1 fee for Class II may cause Shareholders to pay more for
Class II Shares than for Class I Shares. Given the Fund's maximum initial
sales charge and the rate of the Fund's Rule 12b-1 fee, however, it is
estimated that this would take a substantial number of years.
/2/ A contingent deferred sales charge of 1% may be imposed, however, on certain
redemptions of Class I Shares initially purchased without a sales charge as
described in the Prospectus under "How to Sell Shares of the Fund."
/3/ Class II Shares redeemed within 18 months of purchase are subject to a 1%
contingent deferred sales charge. After the 18-month period, however, the
Shares may be redeemed free of the charge.
/4/ Annual Rule 12b-1 fees may not exceed 0.25% of the Fund's average net assets
attributable to Class I Shares and 1.00% of the Fund's average net assets
attributable to Class II Shares. (See "Management of the Fund--Plans of
Distribution.") Consistent with the National Association of Securities
Dealers, Inc.'s rules, it is possible that the combination of front-end
sales charges and Rule 12b-1 fees could cause long-term Shareholders to pay
more than the economic equivalent of the maximum front-end sales charges
permitted under those same rules.
/5/ As noted in the table above, Class II Shares are generally subject to a
contingent deferred sales charge for a period of 18 months.
The information in the table above is an estimate based on the Fund's
expenses as of the end of the most recent fiscal year and has been restated to
reflect current fees. The table is provided for purposes of assisting current
and prospective Shareholders in understanding the various costs and expenses
that an investor in the Fund will bear, directly or indirectly. The
information in the table does not reflect the charge of up to $15 per
transaction if a Shareholder requests that redemption proceeds be sent by
express mail or wired to a commercial bank account or an administrative
service fee of $5.00 per exchange for market timing or allocation service
accounts. THE 5% ANNUAL RETURN AND ANNUAL EXPENSES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF ACTUAL OR EXPECTED FUND PERFORMANCE OR EXPENSES, BOTH OF
WHICH MAY VARY. For a more detailed discussion of the Fund's fees and
expenses, see "Management of the Fund."
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following table of selected financial information has been audited by
McGladrey & Pullen, LLP, independent certified public accountants, whose
report thereon, which is incorporated by reference, appears in the Fund's 1994
Annual Report to Shareholders. This statement should be read in conjunction
with the other financial statements and notes thereto included in the Fund's
1994 Annual Report to Shareholders, which contains further information about
the Fund's performance, and which is available to Shareholders upon request
and without charge.
<TABLE>
<CAPTION>
PERIOD FROM
PER SHARE OPERATING YEAR ENDED AUGUST 31, SEPTEMBER 24,
PERFORMANCE --------------------------------------------------------------------- 1986**
(FOR A SHARE OUTSTANDING 1994++ 1993 1992 1991 1990 1989 1988 TO AUGUST 31, 1987
THROUGHOUT THE PERIOD) -------- -------- -------- -------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year...... $ 9.96 $ 10.55 $ 9.81 $ 9.95 $ 10.18 $ 9.89 $ 10.53 $10.00
Income from investment
operations
Net investment income... 0.72 0.82 0.83 0.91 0.94 0.88 0.74 0.61
Net realized and
unrealized gain (loss). (0.91) (0.35) 0.75 (0.11) (0.18) 0.26 (0.51) 0.55
-------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations............. (0.19) 0.47 1.58 0.80 0.78 1.14 0.23 1.16
-------- -------- -------- -------- -------- -------- -------- --------
Less distributions
Dividends from net
investment income...... (0.53) (0.76) (0.84) (0.91) (0.96) (0.82) (0.75) (0.59)
Distributions from net
realized gains......... (0.07) (0.30) (0.00) (0.03) (0.03) (0.03) (0.12) (0.04)
Tax basis return of
capital................ (0.12) -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total distributions..... (0.72) (1.06) (0.84) (0.94) (0.99) (0.85) (0.87) (0.63)
-------- -------- -------- -------- -------- -------- -------- --------
Change in net asset
value for the year..... (0.91) (0.59) 0.74 (0.14) (0.23) 0.29 (0.64) 0.53
-------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
year................... $ 9.05 $ 9.96 $ 10.55 $ 9.81 $ 9.95 $ 10.18 $ 9.89 $ 10.53
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL RETURN+........... (2.01)% 5.00% 16.75% 8.43% 8.08% 11.92% 2.25% 11.86%
RATIOS/SUPPLEMENT DATA
Net assets, end of year
(000).................. $205,482 $206,667 $179,799 $127,888 $112,492 $117,655 $127,519 $123,203
Ratio to average net
assets of:
Expenses............... 1.18% 1.01% 0.98% 1.05% 1.04% 1.10% 1.10% 1.00%*
Net investment income.. 7.50% 8.45% 8.14% 9.23% 9.50% 8.63% 7.12% 6.68%*
Portfolio turnover rate. 139.23% 288.93% 233.93% 408.39% 86.09% 88.50% 158.15% 104.81%
</TABLE>
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+Does not reflect sales charges.
++Based on weighted average shares outstanding.
*Annualized.
**Commencement of Operations.
3
<PAGE>
GENERAL DESCRIPTION
Templeton Income Fund (the "Fund") is a series of Templeton Income Trust
(the "Trust"). The Trust was organized as a Massachusetts business trust on
June 16, 1986, and is registered under the Investment Company Act of 1940 (the
"1940 Act") as an open-end management investment company with two series of
Shares: Templeton Income Fund, a non-diversified fund, and Templeton Money
Fund. A prospectus for Templeton Money Fund is available upon request and
without charge from the Principal Underwriter.
Shares of the Fund may be purchased (minimum investment of $100 initially
and $25 thereafter) at the current public offering price which is equal to the
Fund's net asset value (see "How to Buy Shares of the Fund--Net Asset Value")
plus a sales charge based upon a variable percentage (ranging from 5.75% to
less than 1.00% of the offering price) depending on factors such as the class
of Shares purchased and the amount invested. (See "How to Buy Shares of the
Fund.")
INVESTMENT OBJECTIVE AND POLICIES. The investment objective of the Fund is
current income with capital appreciation and growth of income. The Fund seeks
to achieve its objective through a flexible policy of investing primarily in
debt securities of companies, governments and government agencies of various
nations throughout the world, as well as preferred stock, common stocks which
pay dividends and income-producing securities which are convertible into
common stock of such companies. The Fund's investments in common stocks will
emphasize companies, in various countries and industries, which pay dividends
and may offer prospects for further growth in dividend payments and capital
appreciation.
The Fund may invest in any debt security, including securities rated in any
category by Standard & Poor's Corporation ("S&P") or Moody's Investors
Service, Inc. ("Moody's") and securities which are unrated by any rating
agency. See the Appendix in the SAI for a description of the S&P and Moody's
ratings. As an operating policy, the Fund will not invest more than 5% of its
total assets in debt securities rated lower than BBB by S&P or Baa by Moody's.
The average maturity of the debt securities in the Fund's portfolio will
fluctuate depending upon the Investment Manager's judgment as to future
interest rate changes. In addition, when the Investment Manager determines
that a temporary defensive strategy is warranted, the Fund may invest without
limit in U.S. Government securities maturing in 13 months or less, commercial
paper, bank time deposits with less than seven days remaining to maturity and
bankers' acceptances.
The Fund may buy and sell financial futures contracts, stock and bond index
futures contracts and foreign currency forward and futures contracts. The Fund
also may write and buy put and call options on securities, indices, foreign
currencies and futures contracts. In addition, the Fund may invest in "when-
issued" securities and collateralized mortgage obligations, lend its portfolio
securities and borrow money for investment purposes (i.e., "leverage" its
portfolio). These investment techniques are described below and under the
heading "Investment Objective and Policies" in the SAI.
Although the Fund may invest up to 25% of its assets in a single industry,
there is no present intention of doing so. Under a non-fundamental policy
approved by the Board of Trustees, the Investment Manager will select
securities for purchase by the Fund from many industries that it believes to
be productive and beneficial.
The Fund may invest up to 5% of its total assets in securities that may not
be resold without registration under applicable law ("restricted securities").
There may be a lapse of time between the Fund's decision to sell any
restricted security and the registration of the security. During this period,
the price of the security will be subject to market fluctuations. The Fund may
invest up to 10% of its total assets in restricted securities and other
securities which are not restricted but which are not readily marketable
(i.e., trading in the security is suspended or, in the case of unlisted
securities, market makers do not exist or will not entertain bids or offers).
The Fund does not intend to emphasize short-term trading profits and usually
expects to have a portfolio turnover rate not exceeding 200%.
4
<PAGE>
INVESTMENT TECHNIQUES
OPTIONS ON SECURITIES, INDICES AND FUTURES CONTRACTS. The Fund may write
(i.e., sell) covered put and call options and purchase put and call options on
securities, securities indices or futures contracts that are traded on United
States and foreign exchanges or in the over-the-counter markets. An option on
a security or futures contract is a contract that permits the purchaser of the
option, in return for the premium paid, the right to buy a specified security
or futures contract (in the case of a call option) or to sell a specified
security or futures contract (in the case of a put option) from or to the
writer of the option at a designated price during the term of the option. An
option on a securities index permits the purchaser of the option, in return
for the premium paid, the right to receive from the seller cash equal to the
difference between the closing price of the index and the exercise price of
the option. The Fund may write a call or put option only if the option is
"covered." This means that so long as the Fund is obligated as the writer of a
call option, it will own the underlying securities or futures contracts
subject to the call, or hold a call at the same or lower exercise price, for
the same exercise period, and on the same securities or futures contracts as
the written call. A put is covered if the Fund maintains liquid assets with a
value equal to the exercise price in a segregated account, or holds a put on
the same underlying securities or futures contracts at an equal or greater
exercise price.
FORWARD FOREIGN CURRENCY CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES. The
Fund will normally conduct its foreign currency exchange transactions either
on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through entering into forward contracts to
purchase or sell foreign currencies. The Fund will generally not enter into a
forward contract with a term of greater than one year. A forward contract is
an obligation to purchase or sell a specific currency for an agreed price at a
future date which is individually negotiated and privately traded by currency
traders and their customers.
The Fund will generally enter into forward contracts only under two
circumstances. First, when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, it may desire to "lock
in" the U.S. dollar price of the security in relation to another currency by
entering into a forward contract to buy the amount of foreign currency needed
to settle the transaction. Second, when the Investment Manager believes that
the currency of a particular foreign country may suffer or enjoy a substantial
movement against another currency, it may enter into a forward contract to
sell or buy the former foreign currency (or another currency which acts as a
proxy for that currency) approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency. This second
investment practice is generally referred to as "cross-hedging." The Fund's
forward transactions may call for the delivery of one foreign currency in
exchange for another foreign currency and may at times not involve currencies
in which its portfolio securities are then denominated. The Fund has no
specific limitation on the percentage of assets it may commit to forward
contracts, subject to its stated investment objective and policies, except
that the Fund will not enter a forward contract if the amount of assets set
aside to cover forward contracts would impede portfolio management or the
Fund's ability to meet redemption requests. Although forward contracts will be
used primarily to protect the Fund from adverse currency movements, they also
involve the risk that anticipated currency movements will not be accurately
predicted.
The Fund may purchase and write put and call options on foreign currencies
for the purpose of protecting against declines in the U.S. dollar value of
foreign currency denominated portfolio securities and against increases in the
U.S. dollar cost of such securities to be acquired. As in the case of other
kinds of options, however, the writing of an option on a foreign currency
constitutes only a partial hedge, up to the amount of the premium received,
and the Fund could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements
adverse to the Fund's position, it may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies to be
written or purchased by the Fund are traded on U.S. and foreign exchanges or
over-the-counter.
FUTURES CONTRACTS. For hedging purposes only, the Fund may buy and sell
financial futures contracts, stock and bond index futures contracts and
foreign currency futures contracts. A financial futures contract is an
agreement between two parties to buy or sell a
5
<PAGE>
specified debt security at a set price on a future date. An index futures
contract is an agreement to take or make delivery of an amount of cash based on
the difference between the value of the index at the beginning and at the end
of the contract period. A futures contract on a foreign currency is an
agreement to buy or sell a specified amount of a 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 security, index or 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. In addition, when the Fund enters into a futures contract,
it will segregate assets or "cover" its position in accordance with the 1940
Act. See "Investment Objectives and Policies -- Futures Contracts" in the SAI.
The Fund may not commit more than 5% of its total assets to initial margin
deposits on futures contracts.
WHEN-ISSUED SECURITIES. New issues of certain debt securities are often
offered on a when-issued basis, that is, the payment obligation and the
interest rate are fixed at the time the buyer enters into the commitment, but
delivery and payment for the securities normally take place after the date of
the commitment to purchase. The value of when-issued securities may vary prior
to and after delivery depending on market conditions and changes in interest
rate levels. However, the Fund will not accrue any income on these securities
prior to delivery. The Fund will maintain in a segregated account with its
Custodian an amount of cash or high quality debt securities equal (on a daily
marked-to-market basis) to the amount of its commitment to purchase the when-
issued securities.
BORROWING. The Board of Trustees has adopted a policy of limiting the Fund's
borrowing to 5% of the value of its net assets to increase its holdings of
portfolio securities. Under the 1940 Act, the Fund is required to maintain
continuous asset coverage of 300% with respect to such borrowings and to sell
(within three days) sufficient portfolio holdings to restore such coverage if
it should decline to less than 300% due to market fluctuations or otherwise,
even if disadvantageous from an investment standpoint. Leveraging by means of
borrowing will exaggerate the effect of any increase or decrease in the value
of portfolio securities on the Fund's net asset value, and money borrowed will
be subject to interest and other costs (which may include commitment fees
and/or the cost of maintaining minimum average balances) which may or may not
exceed the income received from the securities purchased with borrowed funds.
LOANS OF PORTFOLIO SECURITIES. The Fund may lend to broker-dealers portfolio
securities with an aggregate market value of up to one-third 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 the loans 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 and will continue to have
voting rights with respect to the securities.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are fixed-income
securities which are collateralized by pools of mortgage loans created by
commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other issuers in the U.S. In effect, CMOs "pass
through" the monthly payments made by individual borrowers on their mortgage
loans. Timely payment of interest and principal (but not the market value) of
these pools is supported by various forms of insurance or guarantees issued by
U.S. Government agencies, private issuers and the mortgage poolers. The Fund
may buy CMOs without insurance or guarantees if, in the opinion of the
Investment Manager, the sponsor is creditworthy. Prepayments of the mortgages
included in the mortgage pool may influence the yield of the CMO. In addition,
prepayments usually increase when interest rates are decreasing, thereby
decreasing the life of the pool. As a result, reinvestment of prepayments may
be at a lower rate than that on the original CMO.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations of, or
guaranteed by, the U.S. Government, its agencies or instrumentalities. Some
U.S. Government securities, such as Treasury bills and bonds, are supported by
the full faith and credit of the U.S. Treasury; others, such as those of
Federal Home Loan Banks, are supported by the right of the issuer to borrow
from the Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others are supported
only by the credit of the instrumentality.
6
<PAGE>
COMMERCIAL PAPER. Investments in commercial paper are limited to obligations
rated Prime-1 by Moody's or A-1 by S&P or, if not rated by Moody's or S&P,
issued by companies having an outstanding debt issue currently rated Aaa or Aa
by Moody's or AAA or AA by S&P. See the Appendix in the SAI for a description
of these ratings.
RISK FACTORS
Shareholders should understand that all investments involve risk and there
can be no guarantee against loss resulting from an investment in the Fund nor
can there be any assurance that the Fund's investment objective will be
attained. As with any investment in securities, the value of, and income from,
an investment in the Fund can decrease as well as increase, depending on a
variety of factors which may affect the values and income generated by the
Fund's portfolio securities, including general economic conditions and market
factors. In addition to the factors which affect the value of individual
securities, a Shareholder may anticipate that the value of the Shares of the
Fund will fluctuate with movements in the broader equity and bond markets, as
well. A decline in the stock market of any country in which the Fund is
invested may also be reflected in declines in the price of Shares of the Fund.
Changes in currency valuations will also affect the price of Shares of the
Fund. History reflects both decreases and increases in worldwide stock markets
and currency valuations, and these may reoccur unpredictably in the future.
Additionally, investment decisions made by the Investment Manager will not
always be profitable or prove to have been correct. The Fund is not intended as
a complete investment program.
The Fund is a "non-diversified" investment company, which means the Fund is
not limited in the proportion of its assets that may be invested in the
securities of a single issuer. However, the Fund intends to conduct its
operations so as to qualify as a "regulated investment company" for purposes of
the Internal Revenue Code of 1986, as amended (the "Code"), which generally
will relieve the Fund of any liability for Federal income tax to the extent its
earnings are distributed to Shareholders. See "Federal Tax Information." To so
qualify, among other requirements, the Fund will limit its investments so that,
at the close of each quarter of the taxable year, (i) not more than 25% of the
market value of the Fund's total assets will be invested in the securities of a
single issuer, and (ii) with respect to 50% of the market value of its total
assets, not more than 5% of the market value of its total assets will be
invested in the securities of a single issuer and the Fund will not own more
than 10% of the outstanding voting securities of a single issuer. The Fund's
investments in U.S. Government securities are not subject to these limitations.
Because the Fund, as a non-diversified investment company, may invest in a
smaller number of individual issuers than a diversified investment company, and
may be more susceptible to any single economic, political or regulatory
occurrence, an investment in the Fund may present greater risk to an investor
than an investment in a diversified company.
The Fund has the right to purchase securities in any foreign country,
developed or underdeveloped. Investors should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in domestic investments. There is the possibility of expropriation,
nationalization or confiscatory taxation, taxation of income earned in foreign
nations or other taxes with respect to investments in foreign nations, foreign
exchange controls (which may include suspension of the ability to transfer
currency from a given country), default in foreign government securities,
political or social instability or diplomatic developments which could affect
investments in securities of issuers in foreign nations. Some countries may
withhold portions of interest and dividends at the source. In addition, in many
countries there is less publicly available information about issuers than is
available in reports about companies in the United States. Foreign companies
are not generally subject to uniform accounting and auditing and financial
reporting standards, and auditing practice and requirements may not be
comparable to those applicable to United States companies. Further, the Fund
may encounter difficulties or be unable to pursue legal remedies and obtain
judgments in foreign courts. Commission rates in foreign countries, which are
sometimes fixed rather than subject to negotiation as in the United States, are
likely to be higher. Foreign securities markets also have different clearance
and settlement procedures, and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
7
<PAGE>
uninvested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the
Fund due to subsequent declines in value of the portfolio security or, if the
Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser. In many foreign countries, there is less
government supervision and regulation of business and industry practices,
stock exchanges, brokers and listed companies than in the United States. The
foreign securities markets of many of the countries in which the Fund may
invest may also be smaller, less liquid, and subject to greater price
volatility than those in the United States. The Fund may invest in Eastern
European countries, which involves special risks that are described under
"Risk Factors" in the SAI.
The Fund usually effects currency exchange transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign exchange market.
However, some price spread on currency exchange (to cover service charges)
will be incurred when the Fund converts assets from one currency to another.
The Fund is authorized to invest in any debt security, including securities
rated in any category by S&P or Moody's and securities which are unrated by
any rating agency. As an operating policy, which may be changed by the Board
of Trustees without Shareholder approval, the Fund will not invest more than
5% of its total assets in debt securities rated lower than BBB by S&P or Baa
by Moody's. The Board may consider a change in this operating policy if, in
its judgment, economic conditions change such that a higher level of
investment in high risk, lower quality debt securities would be consistent
with the interests of the Fund and its Shareholders. High risk, lower quality
debt securities, commonly referred to as "junk bonds," are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligation and may be in default. Unrated debt securities are not necessarily
of lower quality than rated securities but they may not be attractive to as
many buyers. Regardless of rating levels, all debt securities considered for
purchase (whether rated or unrated) will be carefully analyzed by the
Investment Manager to insure, to the extent possible, that the planned
investment is sound. The Fund may, from time to time, purchase defaulted debt
securities if, in the opinion of the Investment Manager, the issuer may resume
interest payments in the near future. The Fund will not invest more than 10%
of its total assets in defaulted debt securities, which may be illiquid.
Successful use of futures contracts and related options is subject to
special risk considerations. A liquid secondary market for any futures or
option contract may not be available when the Fund seeks to close a futures or
option position. In addition, there may be an imperfect correlation between
movements in the securities or foreign currency on which the futures or option
contract is based and movements in the securities or currency in the Fund's
portfolio. Successful use of futures or option contracts is further dependent
on the Investment Manager's ability to correctly predict movements in the
securities or foreign currency markets and no assurance can be given that its
judgment will be correct. Successful use of options on securities or indices
is subject to similar risk considerations.
There are further risk considerations, including possible losses through the
holding of securities in domestic and foreign custodian banks and
depositories, described in the SAI.
HOW TO BUY SHARES OF THE FUND
Shares of the Fund may be purchased at the Offering Price through any broker
which has a dealer agreement with Franklin Templeton Distributors, Inc.
("FTD"), the Principal Underwriter of the Shares of the Fund, or directly from
FTD upon receipt by FTD of a completed Shareholder Application and check. The
minimum initial purchase order is $100 (other than in monthly investment
plans, such as sponsored payroll deduction, automatic investment, split-
funding or comparable plans, which require a minimum of $25), with subsequent
investments of $25 or more.
ALTERNATIVE PURCHASE ARRANGEMENTS. The Fund offers two different classes of
Shares, each of which has its own initial, contingent, and Rule 12b-1 sales
charge structures. All Fund Shares outstanding before the implementation of
the multiclass structure have been designated as Class I Shares and continue
to possess their previous rights and privileges, except for legally required
modifications to Shareholder voting requirements. Shareholders may not convert
Shares of one class into Shares of the other at this time.
8
<PAGE>
Class I. Class I Shares have higher initial sales charges than Class II
Shares and they have lower yearly asset-based Rule 12b-1 fees. Class I Shares
may be purchased at reduced initial sales charges, or without any initial
sales charge at all if certain conditions are met. In most circumstances,
contingent deferred sales charges will not be assessed against redemptions of
Class I Shares. See "Management of the Fund" and "How to Sell Shares of the
Fund" for more information.
Class II. By contrast, Class II Shares have lower initial sales charges than
Class I Shares and higher yearly Rule 12b-1 fees. Also, although there are
certain exceptions, Class II Shares redeemed within 18 months of purchase will
generally be assessed a contingent deferred sales charge of 1% on the lesser
of the then-current net asset value or the original purchase price of such
Shares. See "Contingent Deferred Sales Charge--Class II Shares" under "How to
Sell Shares of the Fund" for a complete description of the contingent deferred
sales charge.
Purchases of Class II Shares are limited to amounts below $1 million. Any
purchases of $1 million or more will automatically be invested in Class I
Shares, since the Shareholder may purchase the Class I Shares at net asset
value and take advantage of the lower annual fees associated with Class I
Shares. Shareholders who intend to make large investments in the Fund should
consider purchasing Class I Shares through a Letter of Intent instead of
purchasing Class II Shares. With the exception of certain employee benefit
plans described below, however, a Shareholder may maintain an account balance
of an unlimited dollar amount in Class II Shares.
DECIDING WHICH CLASS TO PURCHASE. Each investor's individual objectives must
be carefully evaluated before determining which class of Shares will be more
beneficial to that investor. Generally speaking, an investor who expects to
invest less than $100,000 in the Franklin Group of Funds (R) and Templeton
Family of Funds (collectively, the "Franklin Templeton Group") and who expects
to make substantial redemptions within six years of investment should consider
Class II Shares. This is because it is more economical for a Shareholder to
invest, for example, $50,000 for two years in Class II Shares than in Class I
Shares. Over time, however, the higher annual Rule 12b-1 charges on the Class
II Shares will accumulate to outweigh the difference in initial sales charges.
For this reason, Class I Shares may be more attractive to long-term investors
even if no sales charge reductions are available to them.
Investors who qualify to purchase Class I Shares at reduced sales charges or
at net asset value should consider purchasing Class I Shares, especially if
they intend to hold their Shares for long periods of time. Similarly,
investors who intend to make large investments in the Fund should consider
purchasing Class I Shares through a Letter of Intent or under Cumulative
Quantity Discount rather than purchasing Class II Shares. Investors investing
over $1 million (in a single payment or through a Letter of Intent or
Cumulative Quantity Discount) will be prohibited from purchasing Class II
Shares because Class I Shares would always be more beneficial to such
investors.
In determining which Shares are more appropriate for a Shareholder's
investment objectives and income needs, a Shareholder should also consider
that the higher Rule 12b-1 fees for Class II will generally result in lower
dividends and consequently lower yields for Class II Shares as compared to
Class I Shares.
Each class also has a separate schedule for awarding compensation to
securities dealers for selling Fund Shares. A Shareholder should take all of
the circumstances surrounding each investment into account before deciding
which class of shares to purchase.
IMPORTANT NOTICE!
THE APPLICATION FORM ATTACHED TO THIS PROSPECTUS MUST BE USED FOR ALL FUTURE
PURCHASES. OLD APPLICATION FORMS SHOULD BE DISCARDED.
OFFERING PRICE. Shares of the Fund are offered at the public Offering Price,
which is the net asset value per share plus a sales charge, next computed (i)
after the Shareholder's securities dealer receives the order which is promptly
transmitted to the Fund or (ii) after receipt of an order by mail from the
Shareholder directly in proper form (which generally means a completed
Shareholder Application accompanied by a negotiable check).
9
<PAGE>
CLASS I. The sales charge for Class I Shares is a variable percentage of the
Offering Price depending upon the amount of the sale. A description of the
method of calculating net asset value per share is included under the caption
"Net Asset Value."
Set forth below is a table of total sales charges or underwriting
commissions and dealer concessions for all Class I Shares of the Fund,
including all designated Retirement Plans.
The price to the public on purchases of Class I Shares made by a single
purchaser, by an individual, his or her spouse and their children under the
age of 21, or by a single trust or fiduciary account other than an employee
benefit plan holding Shares of the Fund on or before February 1, 1995, is the
net asset value per Share plus a sales charge not exceeding 4.25% of the
Offering Price (equivalent to 4.44% of the net asset value), which is reduced
on larger sales as shown below.
<TABLE>
<CAPTION>
CLASS I SHARES--TOTAL SALES CHARGE
--------------------------------------------
AS A PERCENTAGE OF AS A PERCENTAGE OF NET PORTION OF TOTAL
AMOUNT OF SALE OFFERING PRICE OF THE ASSET VALUE OF THE OFFERING PRICE
AT OFFERING PRICE SHARES PURCHASED SHARES PURCHASED RETAINED BY DEALERS*
- ----------------- --------------------- ---------------------- --------------------
<S> <C> <C> <C>
Less than $100,000...... 4.25% 4.44% 4.00%
$100,000 but less than
$250,000............... 3.50% 3.63% 3.25%
$250,000 but less than
$500,000............... 2.75% 2.83% 2.50%
$500,000 but less than
$1,000,000............. 2.15% 2.20% 2.00%
$1,000,000 or more...... none none (see below)**
</TABLE>
- -------
* Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
** The following commissions will be paid by FTD, from its own resources, to
securities dealers who initiate and are responsible for purchases of $1
million or more; 1% on sales of $1 million but less than $2 million, plus
0.80% on sales of $2 million but less than $3 million, plus 0.50% on sales
of $3 million but less than $50 million, plus 0.25% on sales of $50 million
but less than $100 million, plus 0.15% on sales of $100 million or more.
Dealer concession breakpoints are reset every 12 months for purposes of
additional purchases.
FTD, or one of its affiliates, may make payments, from its own resources, of
up to 1% of the amount purchased, to securities dealers who initiate and are
responsible for purchases made at net asset value by certain designated
retirement plans (as defined below) (excluding IRA and IRA rollovers), certain
non-designated plans (as defined below), certain trust companies and trust
departments of banks and certain retirement plans of organizations with
collective retirement plan assets of $10 million or more. Please refer to the
SAI for further information.
No initial sales charge applies on investments of $1 million or more, but a
contingent deferred sales charge of 1% is imposed on certain redemptions of
investments of $1 million or more within 12 months of the calendar month
following such investments ("contingency period"). See "How to Sell Shares of
the Fund--Contingent Deferred Sales Charge."
A sales charge of 4% of the Offering Price (4.17% of the net asset value) is
applicable to all purchases of Shares made for any qualified or non-qualified
employee benefit plan which is a Shareholder in the Fund on or before February
1, 1995. Of the 4% sales charge applicable to such purchases, 3.20% of the
Offering Price will be retained by dealers.
At the discretion of FTD, the entire sales commission may at times be
reallowed to dealers. During periods when 90% or more of the sales commission
is reallowed, such dealers may be deemed to be underwriters as that term is
defined in the Securities Act of 1933.
10
<PAGE>
CUMULATIVE QUANTITY DISCOUNT. The schedule of reduced sales charges also may
be applied to qualifying sales of Class I Shares on a cumulative basis. For
this purpose, the dollar amount of the sale is added to the higher of (1) the
value (calculated at the applicable Offering Price) or (2) the purchase price,
of the following: (a) Class I Shares of the Fund; (b) Class I shares of other
funds in the Franklin Templeton Group (except Templeton Capital Accumulator
Fund, Inc., Templeton Variable Annuity Fund, Templeton Variable Products
Series Fund, Franklin Valuemark Funds and Franklin Government Securities
Trust); and (c) other investment products underwritten by FTD or its
affiliates (although certain investments may not have the same schedule of
sales charges and/or may not be subject to reduction in sales charges).
Clauses (a), (b) and (c) above are collectively referred to as "Franklin
Templeton Investments." The cumulative quantity discount applies to Franklin
Templeton Investments owned at the time of purchase by the purchaser, his or
her spouse, and their children under age 21. In addition, the aggregate
investments of a trustee or other fiduciary account (for an account under
exclusive investment authority) may be considered in determining whether a
reduced sales charge is available, even though there may be a number of
beneficiaries of the account. For example, if the investor held Class I Shares
valued at $90,000 (or, if valued at less than $90,000, had been purchased for
$90,000) and purchased an additional $10,000 of the Fund's Class I Shares, the
sales charge for the $10,000 purchase would be at the rate of 3.50%. It is
FTD's policy to give investors the best sales charge rate possible; however,
there can be no assurance that an investor will receive the appropriate
discount unless, at the time of placing the purchase order, the investor or
the dealer makes a request for the discount and gives FTD sufficient
information to determine whether the purchase will qualify for the discount.
On telephone orders from dealers for the purchase of Class I Shares to be
registered in "street name," FTD will accept the dealer's instructions with
respect to the applicable sales charge rate. The cumulative quantity discount
may be amended or terminated at any time.
LETTER OF INTENT. Investors may also reduce sales charges on all investments
in Class I Shares by means of a Letter of Intent ("LOI") which expresses the
investor's intention to invest a certain amount within a 13-month period in
Class I Shares of the Fund or any other fund in the Franklin Templeton Group
(except Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity
Fund, Templeton Variable Products Series Fund, Franklin Valuemark Funds and
Franklin Government Securities Trust). See the Shareholder Application. Except
for certain employee benefit plans, the minimum initial investment under an
LOI is 5% of the total LOI amount. Except for Shares purchased by certain
employee benefit plans, shares purchased with the first 5% of such amount will
be held in escrow to secure payment of the higher sales charge applicable to
the Shares actually purchased if the full amount indicated is not purchased,
and such escrowed Shares will be involuntarily redeemed to pay the additional
sales charge, if necessary. A purchase not originally made pursuant to an LOI
may be included under a subsequent LOI executed within 90 days of the
purchase. Any redemptions made by Shareholders, other than by certain employee
benefit plans, during the 13-month period will be subtracted from the amount
of the purchases for purposes of determining whether the terms of the LOI have
been completed. For a further description of the LOI, see "Purchase,
Redemption and Pricing of Shares -- Letter of Intent" in the SAI.
GROUP PURCHASES. An individual who is a member of a qualified group may also
purchase Class I Shares of the Fund at the reduced sales charge applicable to
the group as a whole. The sales charge is based upon the aggregate dollar
value of Class I Shares previously purchased and still owned by the group,
plus the amount of the current purchase. For example, if members of the group
had previously invested and still held $90,000 of Class I Shares and now were
investing $10,000, the sales charge would be 3.50%. Information concerning the
current sales charge applicable to a group may be obtained by contacting FTD.
A "qualified group" is one which (i) has been in existence for more than six
months, (ii) has a purpose other than acquiring Fund Shares at a discount, and
(iii) satisfies uniform criteria which enable FTD to realize economies of
scale in its costs of distributing Shares. A qualified group must have more
than 10 members, must be available to arrange for group meetings between
representatives of the Fund or FTD and the members, must agree to include
sales and other materials related to the Fund in its publications and mailings
to members at reduced or no cost to FTD, and must seek to arrange for payroll
deduction or other bulk transmission of investments to the Fund.
11
<PAGE>
If an investor selects a payroll deduction plan, subsequent investments will
be automatic and will continue until such time as the investor notifies the
Fund and the investor's employer to discontinue further investments. Due to
the varying procedures to prepare, process and forward the payroll deduction
information to the Fund, there may be a delay between the time of the payroll
deduction and the time the money reaches the Fund. The investment in the Fund
will be made at the Offering Price per share determined on the day that both
the check and payroll deduction data are received in required form by the
Fund.
CLASS II. Unlike Class I Shares, the sales charges and dealer concessions
for Class II Shares do not vary depending on the amount of sale. The total
sales charges or underwriting commissions and dealer concessions for Class II
Shares are set forth below.
<TABLE>
<CAPTION>
CLASS II SHARES--TOTAL SALES CHARGE
--------------------------------------------
AS A PERCENTAGE OF AS A PERCENTAGE OF PORTION OF TOTAL
AMOUNT OF SALE OFFERING PRICE OF THE NET ASSET VALUE OF THE OFFERING PRICE
AT OFFERING PRICE SHARES PURCHASED SHARES PURCHASED RETAINED BY DEALERS*
- ----------------- --------------------- ---------------------- --------------------
<S> <C> <C> <C>
any amount.............. 1.00% 1.01% 1.00%
</TABLE>
- -------
* FTD may pay the dealer, from its own resources, a commission of 1% of the
amount invested. FTD may retain a portion of the Rule 12b-1 fees assessed on
Class II Shares to partially recoup commissions FTD pays to a securities
dealer during the first year.
NET ASSET VALUE PURCHASES (BOTH CLASSES). Shares of the Fund may be
purchased without the imposition of either an initial sales charge ("net asset
value") or a contingent deferred sales charge by (i) officers, trustees,
directors, and full-time employees of the Fund, of the Investment Manager or
its affiliates, or of any fund in the Franklin Templeton Group, and their
spouses and family members; (ii) companies exchanging Shares with or selling
assets pursuant to a merger, acquisition or exchange offer; (iii) insurance
company separate accounts for pension plan contracts; (iv) accounts managed by
the Investment Manager or its affiliates; (v) Shareholders of Templeton
Institutional Funds, Inc. reinvesting redemption proceeds from that fund under
an employee benefit plan qualified under Section 401 of the Internal Revenue
Code of 1986, as amended (the "Code"), in Shares of the Fund; (vi) certain
unit investment trusts and unit holders of such trusts reinvesting their
distributions from the trusts in the Fund; (vii) registered securities dealers
and their affiliates, for their investment account only; and (viii) registered
personnel and employees of securities dealers, and their spouses and family
members, in accordance with the internal policies and procedures of the
employing securities dealer.
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by registered investment
advisers and/or their affiliated broker-dealers, who have entered into a
supplemental agreement with FTD, on behalf of their clients who are
participating in a comprehensive fee program (also known as a wrap fee
program).
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by certain designated
retirement plans, including, profit sharing, pension, 401(k) and simplified
employee pension plans ("designated plans"), subject to minimum requirements
with respect to number of employees or amount of purchase, which may be
established by FTD. Currently, those criteria require that the employer
establishing the plan have 200 or more employees or that the amount invested
or to be invested during the subsequent 13-month period in the Fund or in any
of the Franklin Templeton Investment totals at least $1 million. Employee
benefit plans not designated above or qualified under Section 401 of the Code
("non-designated plans") may be afforded the same privilege if they meet the
above requirements as well as the uniform criteria for qualified groups
previously described under "Group Purchases," which enable FTD to realize
economies of scale in its sales efforts and sales-related expenses.
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by anyone who has taken a
distribution from an existing retirement plan already invested in any other
fund(s) in the Franklin Templeton Group
12
<PAGE>
(including former participants of the Franklin Templeton Profit Sharing 401(k)
plan). In order to exercise this privilege, a written order for the purchase
of Shares of the Fund must be received by Franklin Templeton Trust Company,
the Fund, or Franklin Templeton Investor Services, Inc. (the "Transfer Agent")
within 120 days after the plan distribution. To obtain a free Prospectus for
any fund in the Franklin Templeton Group, please call toll free at 1-800-DIAL
BEN (1-800-342-5236).
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trust companies and bank
trust departments for funds over which they exercise exclusive discretionary
investment authority and which are held in a fiduciary, agency, advisory,
custodial or similar capacity. Such purchases are subject to minimum
requirements with respect to amount of purchase, which may be established by
FTD. Currently, those criteria require that the amount invested or to be
invested during the subsequent 13-month period in the Fund or any of the
Franklin Templeton Investments must total at least $1 million. Orders for such
accounts will be accepted by mail accompanied by a check or by telephone or
other means of electronic data transfer directly from the bank or trust
company, with payment by federal funds received by the close of business on
the next business day following such order.
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by an investor who has,
within the past 60 days, redeemed an investment in an unaffiliated mutual fund
which charged the investor a contingent deferred sales charge upon redemption,
and which has investment objectives similar to those of the Fund.
Shares of the Fund may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge by any state, county or city,
or any instrumentality, department, authority or agency thereof which has
determined that the Fund is a legally permissible investment and which is
prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
management investment company an ("eligible governmental authority"). SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISERS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any,
of various payments made by the Fund or its investment manager on arbitrage
rebate calculations. If an investment by an eligible governmental authority at
net asset value is made through a securities dealer who has executed a dealer
agreement with FTD, FTD or one of its affiliates may make a payment, out of
its own resources, to such securities dealer in an amount not to exceed 0.25%
of the amount invested. Contact Franklin Templeton Institutional Services for
additional information.
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trustees or other
fiduciaries purchasing securities for certain retirement plans of
organizations with collective retirement plan assets of $10 million or more,
without regard to where such assets are currently invested.
ADDITIONAL DEALER COMPENSATION (BOTH CLASSES). FTD or its affiliates, at
their expense, may also provide additional compensation to dealers in
connection with sales of Shares of the Fund and other funds in the Franklin
Group of Funds(R) and the Templeton Family of Funds (collectively, the
"Franklin Templeton Group"). Compensation may include financial assistance to
dealers in connection with conferences, sales or training programs for their
employees, seminars for the public, advertising, sales campaigns and/or
shareholder services and programs regarding one or more funds in the Franklin
Templeton Group and other dealer-sponsored programs or events. In some
instances, this compensation may be made available only to certain dealers
whose representatives have sold or are expected to sell significant amounts of
such Shares. Compensation may include payment for travel expenses, including
lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside
of the U.S. for meetings or seminars of a business nature. Dealers may not use
sales of the Fund's Shares to qualify for this compensation to the extent such
may be prohibited by the laws of any state or any self-regulatory agency, such
as the National Association of Securities Dealers, Inc. In addition, FTD or
its affiliates may make ongoing payments to brokerage firms, financial
institutions (including banks), and others to facilitate the administration
and servicing of shareholder accounts. None of the aforementioned additional
compensation is paid for by the Fund or its Shareholders.
13
<PAGE>
Ongoing payments will be made to qualifying dealers at the annual rate of
0.25% of the average daily net asset value of Class I Shares, and 0.65% of the
average daily net asset value of Class II Shares, registered in the name of
that broker-dealer as nominee or held in a Shareholder account that designates
that broker-dealer as dealer of record. These payments are made in order to
promote selling efforts and to compensate dealers for providing certain
services, including processing purchase and redemption transactions,
establishing Shareholder accounts and providing certain information and
assistance with respect to the Fund. For purchases on or after February 1,
1995 of Class I Shares that are subject to a contingent deferred sales charge,
the dealer will receive ongoing payments beginning in the thirteenth month
after the date of purchase. For all purchases of Class II Shares that are
subject to a contingent deferred sales charge, the dealer will receive
payments representing a service fee (0.15% of average daily net asset value of
the Shares) beginning in the first month after the date of the purchase, and
will receive payments representing compensation for distribution (0.50% of
average daily net asset value of the Shares) beginning in the thirteenth month
after the date of the purchase.
PURCHASING CLASS I AND CLASS II SHARES. When placing purchase orders for
Class I and Class II Shares of the Fund, investors should clearly state
whether Class I or Class II Shares are intended to be purchased. All Share
purchase orders that fail to specify a class will automatically be invested in
Class I Shares. Initial purchases of more than $1 million must be for Class I
Shares. At the present time, there are no conversion features attached to
either class of Shares.
Shareholders who qualify to invest in Class I Shares at net asset value are
prohibited from purchasing Class II Shares. See "Net Asset Value Purchases."
As to telephone orders placed with FTD by dealers, the dealer must receive
the investor's order before the close of the New York Stock Exchange and
transmit it to FTD by 5:00 p.m., New York time, for the investor to receive
that day's Offering Price. Payment for such orders must be by check in U.S.
currency and must be promptly submitted to FTD. Orders mailed to FTD by
dealers or individual investors are effected at the net asset value of the
Fund's Shares next computed after the purchase order accompanied by payment
has been received by FTD. Such payment must be by check in U.S. currency drawn
on a commercial bank in the U.S. and, if over $100,000, may not be deemed to
have been received until the proceeds have been collected unless the check is
certified or issued by such bank. Any subscription may be rejected by FTD or
by the Fund.
The Fund may impose a $10 charge against a Shareholder account in the event
that a check or draft submitted for the purchase of Fund Shares is returned
unpaid to the Fund.
Investors should promptly check the confirmation advice that is mailed after
each purchase (or redemption) in order to insure that it has been accurately
recorded in the investor's account.
AUTOMATIC INVESTMENT PLAN. Investors may accumulate Fund Shares regularly
each month by means of automatic debits to their checking accounts ($25
minimum). Forms for this purpose are in the Shareholder Application in this
Prospectus. Such a plan is voluntary and may be discontinued by written notice
to FTD, which must be received at least 10 days prior to the collection date,
or by FTD upon written notice to the investor at least 30 days prior to the
collection date.
INSTITUTIONAL ACCOUNTS. Institutional investors will likely be required to
complete an institutional account application. There may also be additional
methods of opening accounts, purchasing, redeeming or exchanging Shares of the
Fund available for institutional accounts. To obtain an institutional account
application or additional information regarding institutional accounts,
contact Franklin Templeton Institutional Services at 1-800-321-8563.
ACCOUNT STATEMENTS. Shareholder accounts are opened in accordance with the
Shareholder's registration instructions. Transactions in the account, such as
additional investments and dividend reinvestments, will be reflected on
regular confirmation statements from the Transfer Agent.
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TEMPLETON STAR SERVICE. Shareholders may check the current prices of Shares,
account balances/values, a description of the last transaction, and duplicate
account statements, 24 hours a day, 365 days a year, with Templeton STAR
Service by calling 1-800-654-0123 from a touch-tone telephone. A fund code
(the Fund's Code is 206) and the Shareholder's account number are necessary
for accessing information (other than Share prices) from Templeton STAR
Service.
RETIREMENT PLANS. Shares of the Fund may be purchased through various
retirement plans including the following plans for which Franklin Templeton
Trust Company or its affiliate acts as trustee or custodian: IRAs, Simplified
Employee Pensions, 403(b) plans, qualified plans for corporations, self-
employed individuals and partnerships, and 401(k) plans. For further
information about any of the plans, agreements, applications and annual fees,
contact Franklin Templeton Distributors, Inc. To determine which retirement
plan is appropriate, an investor should contact his or her tax adviser.
NET ASSET VALUE. The net asset value of the Shares of the Fund is computed
as of the close of trading on each day the New York Stock Exchange is open for
trading, by dividing the value of the Fund's securities plus any cash and
other assets (including accrued interest and dividends receivable) less all
liabilities (including accrued expenses) by the number of Shares outstanding,
adjusted to the nearest whole cent. A security listed or traded on a
recognized stock exchange or NASDAQ is valued at its last sale price on the
principal exchange on which the security is traded. The value of a foreign
security is determined in its national currency as of the close of trading on
the foreign exchange on which it is traded, or as of the close of trading on
the New York Stock Exchange, if that is earlier, and that value is then
converted into its U.S. dollar equivalent at the foreign exchange rate in
effect at noon, New York time, on the day the value of the foreign security is
determined. If no sale is reported at that time, the mean between the current
bid and asked price is used. Occasionally, events which affect the values of
such securities and such exchange rates may occur between the times at which
they are determined and the close of the New York Stock Exchange, and will
therefore not be reflected in the computation of the Fund's net asset value.
If events materially affecting the value of such securities occur during such
period, then these securities will be valued at fair value as determined by
the management and approved in good faith by the Board of Trustees. All other
securities for which over-the-counter market quotations are readily available
are valued at the mean between the current bid and asked price. Securities for
which market quotations are not readily available and other assets are valued
at fair value as determined by the management and approved in good faith by
the Board of Trustees.
EXCHANGE PRIVILEGE
A Shareholder may exchange Shares for the same class of shares of other
funds in the Franklin Templeton Group (except Templeton Capital Accumulator
Fund, Inc., Templeton Variable Annuity Fund, Templeton Variable Products
Series Fund, Franklin Valuemark Funds and Franklin Government Securities
Trust). A contingent deferred sales charge will not be imposed on exchanges.
If the exchanged Shares were subject to a contingent deferred sales charge in
the original fund purchased, and Shares are subsequently redeemed within 12
months (Class I Shares) or 18 months (Class II Shares) of the calendar month
of the original purchase date, a contingent deferred sales charge will be
imposed. The period will be tolled (or stopped) for the period Class I Shares
are exchanged into and held in a Franklin or Templeton money market fund. See
also "How to Sell Shares of the Fund--Contingent Deferred Sales Charge."
Exchange purchases are subject to the minimum investment requirements of the
fund purchased and no sales charge generally applies. However, exchanges of
shares from the Franklin Templeton Money Funds are subject to applicable sales
charges on the funds being purchased, unless the Franklin Templeton Money Fund
shares were acquired by an exchange from a fund having a sales charge, or by
reinvestment of dividends or capital gains distributions. Exchanges of Class I
Shares of the Fund which were purchased with a lower sales charge to a fund
which has a higher sales charge will be charged the difference, unless the
shares were held in the original fund for at least six months prior to
executing the exchange. All exchanges are permitted only after at least 15
days have elapsed from the date of the purchase of the Shares to be exchanged.
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A Shareholder may exchange Shares by writing to the Transfer Agent (see "How
to Sell Shares of the Fund"), by contacting his or her investment dealer or --
if the Shareholder Application indicates that the Shareholder has not
declined the option -- by telephoning 1-800-354-9191. Telephone exchange
instructions must be received by FTD by 4:00 p.m., New York time. Telephonic
exchanges can involve only Shares in non-certificated form. Shares held in
certificate form are not eligible, but may be returned and qualify for these
services. All accounts involved in a telephonic exchange must have the same
registration and dividend option as the account from which the Shares are
being exchanged. The Fund and the Transfer Agent will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Please refer to "Telephone Transactions -- Verification Procedures." Forms for
declining the telephone exchange privilege and prospectuses of the other funds
in the Franklin Templeton Group may be obtained from FTD. Exchange redemptions
and purchases are processed simultaneously at the share prices next determined
after the exchange order is received. (See "How to Buy Shares of the Fund --
Offering Price.") A gain or loss for tax purposes generally will be realized
upon the exchange, depending on the tax basis of the Shares redeemed.
This exchange privilege is available only in states where shares of the fund
being acquired may legally be sold and may be modified, limited or terminated
at any time by the Fund upon sixty (60) days' written notice. A Shareholder
who wishes to make an exchange should first obtain and review a current
prospectus of the fund into which he or she wishes to exchange. Broker-dealers
who process exchange orders on behalf of their customers may charge a fee for
their services. Such fee may be avoided by making requests for exchange
directly to the Transfer Agent.
The equivalent of an exchange involving retirement accounts (including IRAs)
between the Templeton Family of Funds and the Franklin Group of Funds (R)
requires the completion of additional documentation before it can be effected.
Call 1-800-354-9191 for further information and forms.
EXCHANGES OF CLASS II SHARES. When an account has some Shares subject to the
contingent deferred sales charge, and some that are not, the Shares will be
transferred proportionately from each type of Share into the new fund. Shares
received from reinvestment of dividends and capital gain distributions are
referred to as "free Shares," Shares which were originally subject to a
contingent deferred sales charge but to which the contingent deferred sales
charge no longer applies are called "matured Shares," and Shares still subject
to the contingent deferred sales charge are referred to as "CDSC liable
Shares," and each represents a different type of Share for purposes of
exchanging into a new fund. CDSC liable Shares held for different periods of
time are considered different. For instance, if a Shareholder has $1,000 in
free Shares, $2,000 in matured Shares, and $3,000 in CDSC liable Shares, and
the Shareholder exchanges $3,000 into a new fund, $500 will be exchanged from
free Shares, $1,000 from matured Shares, and $1,500 from CDSC liable Shares.
Similarly, if CDSC liable Shares have been purchased at different periods, a
proportionate amount will be taken from Shares held for each period. If, for
example, the Shareholder holds $1,000 in Shares bought three months ago,
$1,000 bought six months ago, and $1,000 bought nine months ago, $500 in each
of these Shares will be exchanged into the new fund.
Class II Shares may be exchanged for shares of Franklin Templeton Money Fund
II ("Money Fund II"), a series of the Franklin Templeton Money Fund Trust. No
drafts (checks) may be written on Money Fund II accounts, nor may Shareholders
purchase shares in Money Fund II directly. Shares continue to age and a
contingent deferred sales charge will be assessed if CDSC liable Shares are
redeemed. No other money market funds are available for Class II Shareholders
for exchange purposes. On the other hand, Class I Shares may be exchanged for
shares of any money market funds in the Franklin Group of Funds (R) or the
Templeton Family of Funds except Money Fund II. Draft writing privileges and
direct purchases are allowed on these money market funds as described in their
respective prospectuses.
TRANSFERS. Transfers between accounts in the same fund and class are not
subject to a contingent deferred sales charge. The transferred Shares will
continue to age from the date of original purchase. Like exchanges, Shares
will be moved proportionately from each type of Share in the original account.
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CONVERSION RIGHTS. It is not presently anticipated that Class II Shares will
be converted to Class I Shares at this time. A Shareholder may, however, sell
Class II Shares and use the proceeds to purchase Class I Shares. In that
event, the sales charge for the purchased Class I Shares will be decreased by
the value of any initial sales charge and contingent deferred sales charge
paid in connection with the purchase and redemption of the Class II Shares.
EXCHANGES BY TIMING ACCOUNTS. In the case of market timing or allocation
services ("Timing Accounts"), FTD will deduct an administrative service fee of
$5.00 per exchange. Timing Accounts generally include accounts administered so
as to redeem or purchase Shares based upon certain predetermined market
indicators. In accordance with the terms of their respective prospectuses,
certain funds in the Franklin Templeton Group do not accept or may place
differing limitations than those described below on exchanges by Timing
Accounts.
The Fund reserves the right to temporarily or permanently terminate the
exchange privilege or reject any specific purchase order for any Timing
Account or any person whose transactions seem to follow a timing pattern who:
(i) makes an exchange request out of the Fund within two weeks of an earlier
exchange request out of the Fund, (ii) makes more than two exchanges out of
the Fund per calendar quarter, or (iii) exchanges shares equal in value to at
least $5 million, or more than 1% of the Fund's net assets. Accounts under
common ownership or control, including accounts administered so as to redeem
or purchase shares based upon certain predetermined market indicators, will be
aggregated for purposes of the exchange limits.
In addition, the Fund reserves the right to refuse the purchase side of
exchange requests by any Timing Account, person, or group if, in the
Investment Manager's judgment, the Fund would be unable to invest effectively
in accordance with its investment objectives and policies, or would otherwise
potentially be adversely affected. A Shareholder's exchanges into the Fund may
be restricted or refused if the Fund receives or anticipates simultaneous
orders affecting significant portions of the Fund's assets. In particular, a
pattern of exchanges that coincides with a "market timing" strategy may be
disruptive to the Fund and therefore may be refused.
Finally, as indicated above, the Fund and FTD reserve the right to refuse
any order for the purchase of Shares.
HOW TO SELL SHARES OF THE FUND
CONTINGENT DEFERRED SALES CHARGE. Class I. In order to recover commissions
paid to securities dealers on qualified investments of $1 million or more, or
for purchases made by certain retirement plans of corporations with collective
retirement plan assets of $10 million or more, a contingent deferred sales
charge of 1% applies to redemptions of those investments within 12 months of
the calendar month of their purchase. The charge is 1% of the lesser of the
then-current net asset value of the Shares redeemed (exclusive of reinvested
dividends and capital gain distributions) or the original purchase price of
such Shares, and is retained by FTD.
Class II. Class II Shares redeemed within 18 months of their purchase will
be assessed a contingent deferred sales charge of 1% on the lesser of the
then-current net asset value of the Shares redeemed or the original purchase
price of such Shares unless one of the exceptions described below applies. A
contingent deferred sales charge will not be assessed on increases in net
asset value above the initial purchase price, on Class II Shares held more
than 18 months, or on Shares originally derived from reinvestment of dividends
or capital gain distributions. For tax purposes, a contingent deferred sales
charge is treated as a reduction in redemption proceeds, rather than an
adjustment to the cost basis.
Class I and Class II. In determining if a charge applies, Shares not subject
to a contingent deferred sales charge are deemed to be redeemed first, in the
following order: (i) Shares representing amounts attributable to capital
appreciation of those Shares held less than the contingency period; (ii)
Shares purchased with reinvested dividends and capital gain distributions; and
(iii) other Shares held longer than the contingency period, followed by any
Shares held less than the contingency period, on a "first in, first out"
basis.
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The contingent deferred sales charge is waived for: exchanges; distributions
to participants in Franklin Templeton Trust Company or Templeton Funds Trust
Company retirement plan accounts due to death, disability or attainment of age
59 1/2; tax-free returns of excess contributions to employee benefit plans;
distributions from employee benefit plans, including those due to plan
termination or plan transfer; redemptions through a Systematic Withdrawal Plan
established prior to February 1, 1995 and, for Systematic Withdrawal Plans
established thereafter, redemptions of up to 1% monthly of an account's net
asset value (3% quarterly, 6% semiannually or 12% annually); and redemptions
initiated by the Fund due to a Shareholder's account falling below the minimum
specified account size.
All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that
month, and each subsequent month.
Requests for redemptions for a specified dollar amount will result in
additional Shares being redeemed to cover any applicable contingent deferred
sales charge while requests for redemption of a specific number of Shares will
result in the applicable contingent deferred sales charge being deducted from
the total dollar amount redeemed.
Shares will be redeemed, without charge, on request of the Shareholder in
"Proper Order" to the Transfer Agent. "PROPER ORDER" MEANS THAT THE REQUEST TO
REDEEM MUST MEET ALL OF THE FOLLOWING REQUIREMENTS:
1. Except as provided below under "Redemptions by Telephone," it must be in
writing, signed by the Shareholder(s) exactly in the manner as the Shares are
registered, and must specify either the number of Shares, or the dollar amount
of Shares, to be redeemed and sent to Franklin Templeton Investor Services,
Inc., P.O. Box 33030, St. Petersburg, Florida 33733-8030;
2. The signature(s) of the redeeming Shareholder(s) must be guaranteed by
an "eligible guarantor," including (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities
exchanges, registered securities associations and clearing agencies; (3)
securities broker-dealers which are members of a national securities exchange
or a clearing agency or which have minimum net capital of $100,000; or (4)
institutions that participate in the Securities Transfer Agent Medallion
Program ("STAMP") or other recognized signature medallion program. A notarized
signature will not be sufficient for the request to be in Proper Order. If the
Shares are registered in more than one name, the signature of each of the
redeeming Shareholders must be guaranteed. A signature guarantee is not
required for redemptions of $50,000 or less, requested by and payable to all
Shareholders of record, to be sent to the address of record for that account.
However, the Fund reserves the right to require signature guarantees on all
redemptions. A signature guarantee is required in connection with any written
request for transfer of Shares. Also, a signature guarantee is required if the
Fund or the Transfer Agent believes that a signature guarantee would protect
against potential claims based on the transfer instructions, including, for
example, when (a) the current address of one or more joint owners of an
account cannot be confirmed, (b) multiple owners have a dispute or give
inconsistent instructions to the Fund, (c) the Fund has been notified of an
adverse claim, (d) the instructions received by the Fund are given by an
agent, not the actual registered owner, (e) the Fund determines that joint
owners who are married to each other are separated or may be the subject of
divorce proceedings, or (f) the authority of a representative of a
corporation, partnership, association, or other entity has not been
established to the satisfaction of the Fund;
3. Any outstanding certificates must accompany the request together with a
stock power signed by the Shareholder(s), with signature(s) guaranteed as
described in Item 2 above;
4. Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction, require the following
documentation to be in proper form:
. Corporation--(i) Signature guaranteed letter of instruction from the
authorized officer(s) of the corporation, and (ii) a corporate
resolution in a form satisfactory to the Transfer Agent;
. Partnership--(i) Signature guaranteed letter of instruction from a
general partner and, if necessary, (ii) pertinent pages from the
partnership agreement identifying the general partners or other
documentation in a form satisfactory to the Transfer Agent;
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. Trust--(i) Signature guaranteed letter of instruction from the
trustee(s), and (ii) a copy of the pertinent pages of the trust
document listing the trustee(s) or a certificate of incumbency if the
trustee(s) are not listed on the account registration;
. Custodial (other than a retirement account)--Signature guaranteed
letter of instruction from the custodian;
. Accounts under court jurisdiction--Check court documents and the
applicable state law since these accounts have varying requirements,
depending upon the state of residence; and
5. Redemption of Shares held in a retirement plan for which Franklin
Templeton Trust Company or its affiliate acts as trustee or custodian must
conform to the distribution requirements of the plan and the Fund's redemption
requirements above. Distributions from such plans are subject to additional
requirements under the Code and certain documents (available from the Transfer
Agent) must be completed before the distribution may be made. For example,
distributions from retirement plans are subject to withholding requirements
under the Code, and the IRS Form W-4P (available from the Transfer Agent) may
be required to be submitted to the Transfer Agent with the distribution
request, or the distribution will be delayed. Franklin Templeton Investor
Services, Inc. and its affiliates assume no responsibility to determine
whether a distribution satisfies the conditions of applicable tax laws and
will not be responsible for any penalties assessed.
To avoid delay in redemption or transfer, Shareholders having questions
about these requirements should contact the Account Services Department by
calling 1-800-354-9191 or 813-823-8712.
The redemption price will be the net asset value of the Shares next computed
after the redemption request in Proper Order is received by the Transfer
Agent. Payment of the redemption price ordinarily will be made by check (or by
wire at the sole discretion of the Transfer Agent if wire transfer is
requested, including name and address of the bank and the Shareholder's
account number to which payment of the redemption proceeds is to be wired)
within seven days after receipt of the redemption request in Proper Order.
However, if Shares have been purchased by check, the Fund will make redemption
proceeds available when a Shareholder's check received for the Shares
purchased has been cleared for payment by the Shareholder's bank, which,
depending upon the location of the Shareholder's bank, could take up to
fifteen days or more. The check will be mailed by first class mail to the
Shareholder's registered address (or as otherwise directed). Remittance by
wire (to a commercial bank account in the same name(s) as the Shares are
registered) or express mail, if requested, are subject to a handling charge of
up to $15, which will be deducted from the redemption proceeds.
The Fund, through FTD, also repurchases Shares (whether in certificate or
book-entry form) through securities dealers. The Fund normally will accept
orders to repurchase such Shares by wire or telephone from dealers for their
customers at the net asset value next computed after the dealer has received
the Shareholder's request for repurchase, if the dealer received such request
before closing time of the New York Stock Exchange on that day. Dealers have
the responsibility of submitting such repurchase requests by calling not later
than 5:00 p.m., New York time, on such day in order to obtain that day's
applicable redemption price. Repurchase of Shares is for the convenience of
Shareholders and does not involve a charge by the Fund; however, securities
dealers may impose a charge on the Shareholder for transmitting the notice of
repurchase to the Fund. The Fund reserves the right to reject any order for
repurchase, which right of rejection might adversely affect Shareholders
seeking redemption through the repurchase procedure. Ordinarily payment will
be made to the securities dealer within seven days after receipt of a
repurchase order and Share certificate (if any) in "Proper Order" as set forth
above. The Fund will also accept, from member firms of the New York Stock
Exchange, orders to repurchase Shares for which no certificates have been
issued by wire or telephone without a redemption request signed by the
Shareholder, provided the member firm indemnifies the Fund and FTD from any
liability resulting from the absence of the Shareholder's signature. Forms for
such indemnity agreement can be obtained from FTD.
The Fund may involuntarily redeem an investor's Shares if the net asset
value of such Shares is less than $100, provided that involuntary redemptions
will not result from fluctuations in the value of an investor's Shares. In
addition, the Fund may involuntarily redeem the Shares of any investor who has
failed to provide the Fund with a certified taxpayer identification number or
such other tax-
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related certifications as the Fund may require. A notice of redemption, sent
by first-class mail to the investor's address of record, will fix a date not
less than 30 days after the mailing date, and Shares will be redeemed at the
net asset value at the close of business on that date, unless sufficient
additional Shares are purchased to bring the aggregate account value up to
$100 or more, or unless a certified taxpayer identification number (or such
other information as the Fund has requested) has been provided, as the case
may be. A check for the redemption proceeds will be mailed to the investor at
the address of record.
REINSTATEMENT PRIVILEGE. Shares of the Fund may be purchased at net asset
value with the proceeds from (i) a redemption of Shares of any fund in the
Franklin Templeton Group (except Templeton Capital Accumulator Fund, Inc.,
Templeton Variable Annuity Fund, Templeton Variable Products Series Fund,
Franklin Valuemark Funds and Franklin Government Securities Trust) which were
purchased with an initial sales charge or assessed a contingent deferred sales
charge on redemption, or (ii) a dividend or distribution paid by any fund in
the Franklin Templeton Group, within 120 days after the date of the redemption
or dividend or distribution. However, if a Shareholder's original investment
was in Class I shares of a fund with a lower sales charge, or no sales charge,
the Shareholder must pay the difference. While credit will be given for any
contingent deferred sales charge paid on the Shares redeemed, a new
contingency period will begin. Shares of the Fund redeemed in connection with
an exchange into another fund (see "Exchange Privilege") are not considered
"redeemed" for this privilege. In order to exercise this privilege, a written
order for the purchase of Shares of the Fund must be received by the Fund or
the Fund's Transfer Agent within 120 days after the redemption. The 120 days,
however, do not begin to run on redemption proceeds placed immediately after
redemption in a Franklin Bank Certificate of Deposit ("CD") until the CD
(including any rollover) matures. The amount of gain or loss resulting from a
redemption may be affected by exercise of the reinstatement privilege if the
Shares redeemed were held for 90 days or less, or if a Shareholder reinvests
in the same fund within 30 days. Reinvestment will be at the next calculated
net asset value after receipt.
SYSTEMATIC WITHDRAWAL PLAN. A Shareholder may establish a Systematic
Withdrawal Plan ("Plan") and receive periodic payments from the account
provided that the net asset value of the Shares held by the Shareholder is at
least $5,000. There are no service charges for establishing or maintaining a
Plan. The minimum amount which the Shareholder may withdraw is $50 per
withdrawal transaction although this is merely the minimum amount allowed
under the Plan and should not be mistaken for a recommended amount. The Plan
may be established on a monthly, quarterly, semi-annual or annual basis. If
the Shareholder establishes a Plan, any capital gain distributions and income
dividends to the Shareholder's account must be reinvested for the
Shareholder's account in additional Shares at net asset value. Payments are
then made from the liquidation of Shares at net asset value on the day of the
liquidation (which is generally on or about the 25th of the month) to meet the
specified withdrawals. Payments are generally received three to five days
after the date of liquidation. By completing the "Special Payment Instructions
for Distributions" section of the Shareholder Application included with this
Prospectus, a Shareholder may direct the selected withdrawals to another fund
in the Franklin Templeton Group, to another person, or directly to a checking
account. Liquidation of Shares may reduce or possibly exhaust the Shares in
the Shareholder's account, to the extent withdrawals exceed Shares earned
through dividends and distributions, particularly in the event of a market
decline. If the withdrawal amount exceeds the total Plan balance, the account
will be closed and the remaining balance will be sent to the Shareholder. As
with other redemptions, a liquidation to make a withdrawal payment is a sale
for Federal income tax purposes. Because the amount withdrawn under the Plan
may be more than the Shareholder's actual yield or income, part of such a Plan
payment may be a return of the Shareholder's investment.
Maintaining a Plan concurrently with purchases of additional Shares of the
Fund would be disadvantageous because of the sales charge on the additional
purchases. The Shareholder should ordinarily not make additional investments
of less than $5,000 or three times the annual withdrawals under the Plan
during the time such a Plan is in effect. A Plan may be terminated on written
notice by the Shareholder or the Fund, and it will terminate automatically if
all Shares are liquidated or withdrawn from the account, or upon the Fund's
receipt of notification of the death or incapacity of the Shareholder.
Shareholders may change the amount (but not below $50) and schedule of
withdrawal payments or suspend one such payment by giving written notice to
the Transfer Agent at least seven business days prior to the end of the month
preceding a scheduled payment. Share certificates may not be issued while a
Plan is in effect.
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REDEMPTIONS BY TELEPHONE. Shareholders who file a Telephone Redemption
Authorization Agreement (the "Agreement") (a copy of which is included in this
Prospectus) may redeem Shares of the Fund by telephone, subject to the
Restricted Account exception noted under "Telephone Transactions -- Restricted
Accounts." The Fund and the Transfer Agent will employ reasonable procedures
to confirm that instructions given by telephone are genuine. Shareholders,
however, bear the risk of loss in certain cases as described under "Telephone
Transactions -- Verification Procedures."
For Shareholder accounts with a completed Agreement on file, redemptions of
uncertificated Shares or Shares which have previously been deposited with the
Fund or the Transfer Agent may be made for up to $50,000 per day per Fund
account. Telephone redemption requests received before 4:00 p.m., New York
time, on any business day will be processed that same day. The redemption
check will be sent within seven days, made payable to all the registered
owners on the account, and will be sent only to the address of record.
Redemption requests by telephone will not be accepted within 30 days following
an address change by telephone. In that case, a Shareholder should follow the
other redemption procedures set forth in this Prospectus. Institutional
accounts which wish to execute redemptions in excess of $50,000 must complete
an Institutional Telephone Privileges Agreement which is available from
Franklin Templeton Institutional Services by telephoning 1-800-321-8563.
TELEPHONE TRANSACTIONS
Shareholders of the Fund and their dealer of record, if any, may be able to
execute various transactions by calling the Transfer Agent at 1-800-354-9191.
All Shareholders will be able to: (i) effect a change in address, (ii) change
a dividend option (see "Restricted Accounts" below), (iii) transfer Fund
Shares in one account to another identically registered account in the Fund,
and (iv) exchange Fund Shares by telephone as described in this Prospectus. In
addition, Shareholders who complete and file an Agreement as described under
"How to Sell Shares of the Fund -- Redemptions by Telephone" will be able to
redeem Shares of the Fund.
VERIFICATION PROCEDURES. The Fund and the Transfer Agent will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine. These will include: recording all telephone calls requesting
account activity by telephone, requiring that the caller provide certain
personal and/or account information requested by the telephone service agent
at the time of the call for the purpose of establishing the caller's
identification, and sending a confirmation statement on redemptions to the
address of record each time account activity is initiated by telephone. So
long as the Fund and the Transfer Agent follow instructions communicated by
telephone which were reasonably believed to be genuine at the time of their
receipt, neither they nor their affiliates will be liable for any loss to the
Shareholder caused by an unauthorized transaction. Shareholders are, of
course, under no obligation to apply for or accept telephone transaction
privileges. In any instance where the Fund or the Transfer Agent is not
reasonably satisfied that instructions received by telephone are genuine, the
requested transaction will not be executed and neither the Fund, the Transfer
Agent, nor their affiliates will be liable for any losses which may occur
because of a delay in implementing a transaction.
RESTRICTED ACCOUNTS. Telephone redemptions and dividend option changes may
not be accepted on Franklin Templeton Trust Company ("FTTC") or Templeton
Funds Trust Company ("TFTC") retirement accounts. To assure compliance with
all applicable regulations, special forms are required for any distribution,
redemption, or dividend payment. Although the telephone exchange privilege is
extended to these retirement accounts, a Franklin Templeton Transfer
Authorization Form must be on file in order to transfer retirement plan assets
between the Franklin Group of Funds (R) and the Templeton Family of Funds
within the same plan type. Changes to dividend options for these accounts must
also be made in writing.
To obtain further information regarding distribution or transfer procedures,
including any required forms, FTTC retirement account shareholders may call 1-
800-527-2020 (toll free), and TFTC retirement account shareholders may call 1-
800-354-9191 (press "2") (also toll free).
21
<PAGE>
GENERAL. During periods of drastic economic or market changes, it is
possible that the telephone transaction privileges will be difficult to
execute because of heavy telephone volume. In such situations, Shareholders
may wish to contact their dealer for assistance, or to send written
instructions to the Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor the Transfer Agent will be liable for any losses
resulting from the inability of a Shareholder to execute a telephone
transaction.
The telephone transaction privilege may be modified or discontinued by the
Fund at any time upon 60 days' written notice to Shareholders.
MANAGEMENT OF THE FUND
The Trust is managed by its Board of Trustees and all powers are exercised
by or under authority of the Board. Information relating to the Trustees and
Executive Officers is set forth under the heading "Management of the Trust" in
the SAI.
The Board has carefully reviewed the multiclass structure to ensure that no
material conflict exists between the two classes of Shares. Although the Board
does not expect to encounter material conflicts in the future, the Board will
continue to monitor the Fund and will take appropriate action to resolve such
conflicts if any should later arise.
INVESTMENT MANAGER. Templeton Global Bond Managers, a division of Templeton
Investment Counsel, Inc., Broward Financial Centre, Ft. Lauderdale, Florida
33394-3091, serves as the Investment Manager of the Fund. The Investment
Manager manages the investment and reinvestment of the Fund's assets. The
Investment Manager is an indirect wholly owned subsidiary of Franklin
Resources, Inc. ("Franklin"). Through its subsidiaries, Franklin is engaged in
various aspects of the financial services industry. The Investment Manager and
its affiliates serve as advisers for a wide variety of public investment
mutual funds and private clients in many nations. The Templeton organization
has been investing globally over the past 52 years and, with its affiliates,
provides investment management and advisory services to a worldwide client
base, including over 4.3 million mutual fund shareholders, foundations,
endowments, employee benefit plans and individuals. The Investment Manager and
its affiliates have approximately 4,100 employees in the United States,
Australia, Scotland, Germany, Hong Kong, Luxembourg, Bahamas, Singapore,
Canada and Russia.
The Investment Manager uses a disciplined, long-term approach to value-
oriented global and international investing. It has an extensive global
network of investment research sources. Securities are selected for the Fund's
portfolio on the basis of fundamental company-by-company analysis. Many
different selection methods are used for different funds and clients and these
methods are changed and improved by the Investment Manager's research on
superior selection methods.
The Investment Manager does not furnish any other services or facilities for
the Fund, although such expenses are paid by some investment advisers of other
investment companies. As compensation for its services, the Fund pays the
Investment Manager a fee which, during the most recent fiscal year,
represented 0.50% of its average daily net assets.
Currently, the lead portfolio manager for the Fund is Samuel J. Forester,
Jr. Mr. Forester joined the Templeton organization in 1990 as president of
the Investment Manager. As chief investment officer, Mr. Forester is in charge
of the Investment Manager's investment strategy. Prior to joining the
Templeton organization, Mr. Forester was employed for 16 years by Merrill
Lynch, Pierce, Fenner & Smith Incorporated, both in the United Kingdom and in
the U.S., as well as in the Middle East, where he served as advisor to a large
Mid-East central bank. For the year immediately prior to his joining the
Templeton organization, Mr. Forester ran his own investment counseling firm in
Houston, Texas, managing both U.S. and foreign assets. Neil S. Devlin and
Thomas Latta also exercise significant portfolio management responsibilities
with respect to the Fund. Prior to joining the Templeton organization in 1987,
Mr. Devlin, a senior
22
<PAGE>
Vice President of the Investment Manager, was a portfolio manager and bond
analyst with Constitutional Capital Management of Boston. While there, he
managed a portion of the Bank of New England's pension money, a number of
trust and corporate pension accounts, and began and managed a mortgage-backed
securities fund for the bank. Before that, Mr. Devlin was a bond trader and
research analyst for the Bank of New England. Prior to joining the Templeton
organization in 1991, Mr. Latta, a Vice President of the Investment Manager,
worked as a portfolio manager with Forester & Hairston, a Houston based global
fixed income investment management firm. Prior to that, Mr. Latta spent seven
years with Merrill Lynch, Pierce, Fenner & Smith Incorporated, first as an
investment adviser to a large Mid-East central bank and then working in the
structured products group in New York. In that position he developed asset-
liability management strategies for large ERISA plans. Further information
concerning the Investment Manager is included under the heading "Investment
Management and Other Services" in the SAI.
BUSINESS MANAGER. Templeton Global Investors, Inc. provides certain
administrative facilities and services for the Fund, including payment of
salaries of officers, preparation and maintenance of books and records,
preparation of tax returns, preparation of financial reports, monitoring
compliance with regulatory requirements and monitoring tax-deferred retirement
plans. For its services, the Business Manager receives a monthly fee
equivalent on an annual basis to 0.15% of the combined average daily net
assets of the Funds included in the Trust (the Fund and Templeton Money Fund),
reduced to 0.135% of such assets in excess of $200 million, to 0.10% of such
assets in excess of $700 million, and to 0.075% of such assets in excess of
$1,200 million.
TRANSFER AGENT. Franklin Templeton Investor Services, Inc. serves as
transfer agent and dividend disbursing agent for the Fund.
CUSTODIAN. The Chase Manhattan Bank, N.A. serves as custodian of the Fund's
assets.
PLANS OF DISTRIBUTION. Each class of Shares of the Fund has approved and
adopted a separate Plan of Distribution ("Class I Plan" and "Class II Plan,"
respectively, or "Plans") pursuant to Rule 12b-1 under the 1940 Act. The Rule
12b-1 fees charged to each class will be based solely on the distribution
and/or servicing fees attributable to that particular class. Any portion of
fees remaining from any Plan after distribution to securities dealers up to
the maximum amount permitted under each Plan may be used by the class to
reimburse FTD for routine ongoing promotion and distribution expenses. Such
expenses may include, but are not limited to, the printing of prospectuses and
reports used for sales purposes, expenses of preparing and distributing sales
literature and related expenses, advertisements, and other distribution-
related expenses, including a prorated portion of FTD's overhead expenses
attributable to the distribution of Fund Shares, as well as any distribution
or service fees paid to securities dealers or their firms or others who have
executed a servicing agreement with the Fund, FTD or its affiliates.
The maximum amount which the Fund may pay to FTD under the Class I Plan for
such distribution expenses is 0.25% per annum of Class I's average daily net
assets, payable on a quarterly basis. Under the Class II Plan, the maximum
amount which the Fund may pay to FTD for such distribution expenses is 0.50%
of Class II's average daily net assets per annum, payable on a quarterly
basis. All expenses of distribution and marketing over that amount will be
borne by FTD, or others who have incurred them without reimbursement by the
Fund. In addition to this amount, under the Class II Plan, the Fund shall pay
0.15% per annum of the Class' average daily net assets as a servicing fee.
This fee will be used to pay dealers or others for, among other things,
assisting in establishing and maintaining customer accounts and records;
assisting with purchase and redemption requests; receiving and answering
correspondence; monitoring dividend payments from the Fund on behalf of the
customers; and similar activities related to furnishing personal services and
maintaining Shareholder accounts.
Under both Plans, costs and expenses not reimbursed in any one given month
(including costs and expenses not reimbursed because they exceed the
applicable limit under the Plan may be reimbursed in subsequent months or
years, subject to applicable law. FTD has informed the Fund that it had no
unreimbursed expenses under the Class I Plan at August 31, 1994.
23
<PAGE>
Each Plan also covers any payments to or by the Fund, the Investment
Manager, FTD, or others parties on behalf of the Fund, the Investment Manager
or FTD, to the extent such payments are deemed to be for the financing of any
activity primarily intended to result in the sale of Shares issued by the Fund
within the context of Rule 12b-1. The payments under the Plans are included in
the maximum operating expenses which may be borne by each class of the Fund.
For more information, please see the SAI.
EXPENSES. For the fiscal year ended August 31, 1994, expenses amounted to
1.18% of the Fund's average daily net assets.
BROKERAGE COMMISSIONS. The Fund's brokerage policies are described under the
heading "Brokerage Allocation" in the SAI. The Fund's brokerage policies
provide that the receipt of research services from a broker and the sale of
Shares by a broker are factors which may be taken into account in allocating
securities transactions, so long as the prices and execution provided by the
broker equal the best available within the scope of the Fund's brokerage
policies.
GENERAL INFORMATION
DESCRIPTION OF SHARES/SHARE CERTIFICATES. The capitalization of the Trust
consists of an unlimited number of Shares of beneficial interest, par value
$0.01 per Share. The Board of Trustees is authorized, in its discretion, to
classify and allocate the unissued Shares of the Trust, each such class to
represent a different portfolio of securities. Each Share entitles the holder
to one vote.
Under Massachusetts law, Shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims liability of the Shareholders, Trustees or
officers of the Trust for acts or obligations of the Trust, which are binding
only on the assets and property of the Trust. The Declaration of Trust
provides for indemnification out of Trust property for all loss and expense of
any Shareholder held personally liable for the obligations of the Trust. The
risk of a Shareholder incurring financial loss on account of Shareholder
liability is limited to circumstances in which the Trust itself would be
unable to meet its obligations and, thus, should be considered remote.
The Fund will not ordinarily issue certificates for Shares purchased. Share
certificates representing whole (not fractional) Shares are issued only upon
the specific request of the Shareholder made in writing to the Transfer Agent.
No charge is made for the issuance of one certificate for all or some of the
Shares purchased in a single order.
MEETINGS OF SHAREHOLDERS. The Trust is not required to hold regular annual
meetings of Shareholders and may elect not to do so. The Trust will call a
special meeting of Shareholders when requested to do so by Shareholders
holding at least 10% of the Trust's outstanding Shares. In addition, the Trust
is required to assist Shareholder communications in connection with the
calling of Shareholder meetings to consider removal of a Trustee or Trustees.
DIVIDENDS AND DISTRIBUTIONS. The Fund intends normally to pay a monthly
dividend representing all or substantially all of its net investment income
and to distribute at least annually any net realized capital gains. Dividends
will be calculated and distributed in the same manner for both classes of
Shares, and their value will differ only to the extent that they are affected
by the distribution plan fees and sales charges. Because ongoing Rule 12b-1
expenses will be lower for Class I than Class II, dividends distributed to
Class I Shares will generally be higher than those distributed to Class II
Shares. Income dividends and capital gain distributions paid by the Fund on
its Shares, other than those Shares whose owners keep them registered in the
name of a broker-dealer, are automatically reinvested in whole or fractional
Shares at net asset value as of the ex-dividend date, unless a Shareholder
elects at the time of his investment or makes a subsequent written or
telephonic request for payments in cash. Dividend and capital gain
distributions are eligible for investment in the same class of Shares of the
Fund or the same class of another fund in the Franklin Group of Funds(R) or
Templeton Family of Funds at net asset value. The processing date for the
reinvestment of dividends may vary from month to month, and does not affect
the amount or value of the Shares acquired. Income dividends and capital gain
distributions will be paid in cash on Shares during the time their owners keep
them registered in the name of a broker-dealer, unless the broker-dealer has
made arrangements with the Transfer Agent for reinvestment.
24
<PAGE>
Prior to purchasing Shares of the Fund, the impact of dividends or capital
gain distributions which have been declared but not yet paid should be
carefully considered. Any dividend or capital gain distribution paid shortly
after a purchase by a Shareholder prior to the record date will have the
effect of reducing the per Share net asset value of the Shares by the amount
of the dividend or distribution. All or a portion of such dividend or
distribution, although in effect a return of capital, will generally be
subject to tax.
Checks are forwarded by first-class mail to the address of record. The
proceeds of any such checks which are not accepted by the addressee and
returned to the Fund will be reinvested for the Shareholder's account in whole
or fractional Shares at net asset value next computed after the check has been
received by the Transfer Agent. Subsequent distributions will be reinvested
automatically at net asset value as of the ex-dividend date in additional
whole or fractional Shares.
FEDERAL TAX INFORMATION. The Fund intends to elect to be treated and to
qualify each year as a regulated investment company under Subchapter M of the
Code. See the SAI for a summary of the requirements that must be satisfied to
so qualify. A regulated investment company generally is not subject to Federal
income tax on income and gains distributed in a timely manner to its
shareholders. The Fund intends to distribute to Shareholders substantially all
of its net investment income and realized capital gains, which generally will
be taxable income or capital gains in their hands. Distributions declared in
October, November or December to Shareholders of record on a date in such
month and paid during the following January will be treated as having been
received by Shareholders on December 31 in the year such distributions were
declared. The Fund will inform Shareholders each year of the amount and nature
of such income or gains. A more detailed description of tax consequences to
Shareholders is contained in the SAI under the heading "Tax Status."
The Fund may be required to withhold Federal income tax at the rate of 31%
of all taxable distributions (including redemptions) paid to Shareholders who
fail to provide the Fund with their correct taxpayer identification number or
to make required certifications or where the Fund or the Shareholder has been
notified by the Internal Revenue Service that the Shareholder is subject to
backup withholding. Corporate Shareholders and certain other Shareholders
specified in the Code are exempt from backup withholding. Backup withholding
is not an additional tax. Any amounts withheld may be credited against the
Shareholder's Federal income tax liability.
INQUIRIES. Shareholders' inquiries will be answered promptly. They should be
addressed to Franklin Templeton Investor Services, Inc., 700 Central Avenue,
P.O. Box 33030, St. Petersburg, Florida 33733-8030 -- telephone 1-800-354-9191
or 813-823-8712. Transcripts of Shareholder accounts less than three years old
are provided on request without charge; requests for transcripts going back
more than three years from the date the request is received by the Transfer
Agent are subject to a fee of up to $15 per account.
PERFORMANCE INFORMATION. The Fund may include its total return in
advertisements or reports to Shareholders or prospective investors. Quotations
of average annual total return will be expressed in terms of the average
annual compounded rate of return on a hypothetical investment in the Fund over
a period of 1, 5 and 10 years (or up to the life of the Fund), will reflect
the deduction of the maximum initial sales charge and deduction of a
proportional share of Fund expenses (on an annual basis), and will assume that
all dividends and distributions are reinvested when paid. Total return may be
expressed in terms of the cumulative value of an investment in the Fund at the
end of a defined period of time. For a description of the methods used to
determine total return for the Fund, see the SAI.
STATEMENTS AND REPORTS. The Fund's fiscal year ends on August 31. Annual
reports (containing financial statements audited by independent auditors and
additional information regarding the Fund's performance) and semi-annual
reports (containing unaudited financial statements) are sent to Shareholders
each year. Additional copies may be obtained, without charge, upon request to
the Account Services Department. The Fund also sends to each Shareholder a
confirmation statement after every transaction that affects the Shareholder's
account and a year-end historical confirmation statement.
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<PAGE>
INSTRUCTIONS AND IMPORTANT NOTICE
SUBSTITUTE W-9 INSTRUCTIONS INFORMATION
GENERAL. Backup withholding is not an additional tax. Rather, the tax
liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the IRS.
OBTAINING A NUMBER. If you do not have a Social Security Number/Taxpayer
Identification Number, you must obtain Form SS-5 or Form SS-4 from your local
Social Security or IRS office and apply for one. If you have checked the
"Awaiting TIN" box and signed the certification, withholding will apply to
payments relating to your account unless you provide a certified TIN within 60
days.
WHAT SSN/TIN TO GIVE. Please refer to the following guidelines:
<TABLE>
<CAPTION>
ACCOUNT TYPE GIVE SSN OF ACCOUNT TYPE GIVE TAXPAYER ID # OF
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
. Individual Individual . Trust, Estate, or Trust, Estate, or
Pension Plan Trust Pension Plan Trust
- ---------------------------------------------------------------------------------------------------------
. Joint Individual Actual owner of . Corporation, Corporation,
account, or if Partnership, or other Partnership, or other
combined funds, the organization organization
first-named
individual
- ---------------------------------------------------------------------------------------------------------
. Unif. Gift/Transfer to Minor Minor . Broker nominee Broker nominee
- ---------------------------------------------------------------------------------------------------------
. Sole Proprietor Owner of business
- ---------------------------------------------------------------------------------------------------------
. Legal Guardian Ward, Minor, or Incompetent
- ---------------------------------------------------------------------------------------------------------
</TABLE>
EXEMPT RECIPIENTS. Please provide your TIN and check the "Exempt Recipient"
box if you are an exempt recipient. Exempt recipients generally include:
A corporation A real estate investment trust
A financial institution A common trust fund operated by a bank
under section 584(a)
An organization exempt from tax An entity registered at all times
under section 501(a), or an under the Investment Company Act of
individual retirement plan 1940
A registered dealer in securities or
commodities registered in the U.S.
or a U.S. possession
IRS PENALTIES. If you do not supply us with your SSN/TIN, you will be subject
to an IRS $50 penalty unless your failure is due to reasonable cause and not
willful neglect. If you fail to report certain income on your federal income
tax return, you will be treated as negligent and subject to an IRS 20% penalty
on any underpayment of tax attributable to such negligence, unless there was
reasonable cause for the resulting underpayment and you acted in good faith.
If you falsify information on this form or make any other false statement
resulting in no backup withholding on an account which should be subject to
backup withholding, you may be subject to an IRS $500 penalty and certain
criminal penalties including fines and imprisonment.
SUBSTITUTE W-8 INSTRUCTIONS INFORMATION
EXEMPT FOREIGN PERSON. Check the "Exempt Foreign Person" box if you qualify as
a non-resident alien or foreign entity that is not subject to certain U.S.
information return reporting or to backup withholding rules. Dividends paid to
your account may be subject to withholding of up to 30%. Generally, you are an
"Exempt Foreign Person" if you are not (1) a citizen or resident of the U.S.,
or (2) a U.S. corporation, partnership, estate, or trust. In the case of an
individual, an "Exempt Foreign Person" is one who has been physically present
in the U.S. for less than 31 days during the current calendar year. An
individual who is physically present in the U.S. for at least 31 days during
the current calendar year will still be treated as an "Exempt Foreign Person,"
provided that the total number of days physically present in the current
calendar year and the two preceding calendar years does not equal or exceed
183 days (counting all of the days in the current calendar year, only one-
third of the days in the first preceding calendar year and only one-sixth of
the days in the second preceding calendar year). In addition, lawful permanent
residents or green card holders may not be treated as "Exempt Foreign
Persons." If you are an individual or an entity, you must not now be, or at
this time expect to be, engaged in a U.S. trade or business with respect to
which any gain derived from transactions effected by the Fund/Payer during the
calendar year is effectively connected to the U.S.
PERMANENT ADDRESS. The Shareholder Application must contain your permanent
address if you are an "Exempt Foreign Person." If you are an individual,
provide your permanent address. If you are a partnership or corporation,
provide the address of your principal office. If you are an estate or trust,
provide the address of your permanent residence or the principal office of any
fiduciary.
NOTICE OF CHANGE IN STATUS. If you become a U.S. citizen or resident after you
have provided certification of your foreign status, or if you cease to be an
"Exempt Foreign Person," you must notify the Fund/Payer within 30 days of your
change in status. Reporting will then begin on the account(s) listed, and
backup withholding may also begin unless you certify to the Fund/Payer that
(1) the tax payer identification number you have given is correct, and (2) the
Internal Revenue Service has not notified you that you are subject to backup
withholding because you failed to report certain interest or dividend income.
You may use Form W-9, "Payer's Request for Taxpayer Identification Number and
Certification," to make these certifications. If an account is no longer
active, you do not have to notify a Fund/Payer or broker of your change in
status unless you also have another account with the same Fund/Payer that is
still active. If you receive interest from more than one Fund/Payer or have
dealings with more than one broker or barter exchange, file a certificate with
each. If you have more than one account with the same Fund/Payer, the
Fund/Payer may require you to file a separate certificate for each account.
WHEN TO FILE. File these certifications with the Fund before a payment is made
to you, unless you have already done this in either of the two preceding
calendar years. Only certifications that are in proper order will be treated
as having been filed with the Fund.
HOW OFTEN YOU MUST FILE. This certificate generally remains in effect for
three calendar years. A Fund/Payer or broker, however, may require that a new
certificate be filed each time a payment is made. On joint accounts for which
each joint owner is a foreign person, each must provide a certification of
foreign status.
26
1/94
<PAGE>
FOR CORPORATE SHAREHOLDERS--FORM OF RESOLUTION
It will be necessary for corporate shareholders to provide a certified copy of
a resolution or other certificate of authority to authorize the purchase as
well as sale (redemption) of shares and withdrawals by checks or drafts. You
may use the following form of resolution or you may prefer to use your own. It
is understood that the Fund, Franklin Templeton Distributors, Inc., Franklin
Templeton Investor Services, Inc., the custodian bank and their affiliates may
rely upon these authorizations until revoked or amended by written notice
delivered by registered or certified mail to the Fund.
CERTIFIED COPY OF RESOLUTION (Corporation or Association)
The undersigned hereby certifies and affirms that he/she is the duly elected
____________________________________ of ______________________________________
TITLE CORPORATE NAME
a ___________________________________________ organized under the laws of the
TYPE OF ORGANIZATION
State of __________________________________ and that the following is a true
STATE
and correct copy of a resolution adopted by the Board of Directors at a
meeting duly called and held on _______________________________________________
DATE
RESOLVED, that the _________________________________________________ of this
OFFICERS' TITLES
Corporation or Association are authorized to open an account in the name of
the Corporation or Association with one or more of the Franklin Group of
Funds (R) or Templeton Family of Funds (collectively, the "Funds") and to
deposit such funds of this Corporation or Association in this account as
they deem necessary or desirable; that the persons authorized below may
endorse checks and other instruments for deposit to said account or
accounts; and
FURTHER RESOLVED, that any of the following ____________________ officers are
NUMBER
authorized to sign any share assignment on behalf of this Corporation or
Association and to take any other actions as may be necessary to sell or
redeem its shares in the Funds or to sign checks or drafts withdrawing funds
from the account; and
FURTHER RESOLVED, that this Corporation or Association shall hold harmless,
indemnify, and defend the Funds, their custodian bank, Franklin Templeton
Distributors, Inc., Franklin Templeton Investor Services, Inc., and their
affiliates, from any claim, loss or liability resulting in whole or in
part, directly or indirectly, from their reliance from time to time upon
any certifications by the secretary or any assistant secretary of this
Corporation or Association as to the names of the individuals occupying
such offices and their acting in reliance upon these resolutions until
actual receipt by them of a certified copy of a resolution of the Board of
Directors of the Corporation or Association modifying or revoking any or
all such resolutions.
The undersigned further certifies that the below named persons, whose
signatures appear opposite their names and office titles, are duly elected
officers of the Corporation or Association. (Attach additional list if
necessary)
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME OF CORPORATION OR ASSOCIATION DATE
Certified from minutes
-------------------------------------------------------
NAME AND TITLE
CORPORATE SEAL (if appropriate)
27
<PAGE>
THE FRANKLIN TEMPLETON TELEPHONE REDEMPTION AUTHORIZATION AGREEMENT
You may use Franklin Templeton's telephone redemption privilege to redeem
uncertificated Franklin Templeton Fund shares for up to $50,000 (or your
Shareholder account balance, whichever is less) per day, per fund account in
accordance with the terms of the Fund's Prospectus.
The telephone redemption privilege is available only to Shareholders who
specifically request it. If you would like to add this redemption privilege to
the other telephone transaction privileges automatically available to Franklin
Templeton Fund shareholders, please sign and return this authorization to
Franklin Templeton Investor Services, Inc. ("Services"), transfer agent and
shareholder servicing agent for the Franklin Templeton Funds.
SHAREHOLDER AUTHORIZATION: I/We request the telephone redemption privilege
under the terms described below and in the prospectus for each investment
company in the Franklin Templeton Group (a "Franklin Templeton Fund" or a
"Fund"), now opened or opened at a later date, holding shares registered as
follows:
- ------------------------------------- ---------------------------------------
PRINT NAME(S) AS SHOWN IN YOUR ACCOUNT REGISTRATION ("SHAREHOLDER")
- ------------------------------------- ---------------------------------------
ACCOUNT NUMBER(S)
I/We authorize each Fund and Services to honor and act upon telephone requests
given as provided in this agreement to redeem shares from any
Shareholder account:
- ------------------------------------- ---------------------------------------
SIGNATURE(S) AND DATE
- ------------------------------------- ---------------------------------------
PRINT NAME(S) (AND TITLE/CAPACITY, IF APPLICABLE)
VERIFICATION PROCEDURES: I/We understand and agree that: (1) each Fund and
Services will employ reasonable procedures to confirm that redemption
instructions communicated by telephone are genuine and that if these
confirmation procedures are not followed, the Fund or Services may be liable
for any losses due to unauthorized or fraudulent telephone instructions; (2)
the confirmation procedures will include the recording of telephone calls
requesting redemptions, requiring that the caller provide certain personal
and/or account information requested by the telephone service agent at the
time of the call for the purpose of establishing the caller's identification,
and the sending of confirmation statements to the address of record each time
a redemption is initiated by telephone; and (3) so long as the Fund and
Services follow the confirmation procedures in acting on instructions
communicated by telephone which were reasonably believed to be genuine at the
time of receipt, neither they, nor their parent or affiliates, will be liable
for any loss, damages or expenses caused by an unauthorized or fraudulent
redemption request.
JOINTLY OWNED/CO-TRUSTEE ACCOUNTS: Each of us signing this agreement as either
joint owners or co-trustees authorizes each Fund and Services to honor
telephone redemption requests given by ANY ONE of the signers, or our
investment representative of record, if any, ACTING ALONE.
APPOINTMENT OF ATTORNEY-IN-FACT: In order to issue telephone redemption
requests acting alone, each of us individually makes the following
appointment: I hereby appoint the other joint owner(s)/co-trustee(s) as my
agent(s) (attorney[s]-in-fact) with full power and authority to individually
act for me in any lawful way with respect to the issuance of instructions to a
Fund or Services in accordance with the telephone redemption privilege we have
requested by signing this agreement. This appointment shall not be affected by
my subsequent disability or incompetency and shall remain in effect until it
is revoked by either written notice from any one of us delivered to a Fund or
Services by registered mail, return receipt requested or by a Fund or Services
upon receipt of any information that causes a Fund or Services to believe in
good faith that there is or that there may be a dispute among any of us with
respect to the Franklin Templeton Fund account(s) covered by this agreement.
Each of us agrees to notify the Fund or Services immediately upon the death of
any of the signers.
CORPORATE/PARTNERSHIP/TRUST/RETIREMENT ACCOUNTS: The Shareholder and each of
us signing this agreement on behalf of the Shareholder represent and warrant
to each Franklin Templeton Fund and Services that the Shareholder has the
authority to enter into this agreement and that each of us is duly authorized
to execute this agreement on behalf of the Shareholder. The Shareholder agrees
that its election of the telephone redemption privilege means that a Fund or
Services may honor a telephone redemption request given by ANY
officer/partner/member/administrator/or agent of the Shareholder ACTING ALONE.
RESTRICTED ACCOUNTS: Telephone redemptions may not be accepted on Franklin
Trust Company or Templeton Funds Trust Company retirement accounts.
PLEASE RETURN THIS FORM TO:
Franklin Templeton Investor Services, Inc., Attn.: Telephone Redemptions
Dept., 700 Central Avenue, St. Petersburg, Florida 33701-3628.
28
<PAGE>
THE FRANKLIN TEMPLETON GROUP
To receive a free brochure and prospectus, which contain more complete
information, including charges and expenses on each of the funds listed below,
call Franklin Fund Information, toll free, at 1-800-DIAL-BEN (1-800-342-5236)
or Templeton Fund Information at 1-800-292-9293. Please read the prospectus
carefully before you invest or send money.
TEMPLETON
FAMILY OF FUNDS
Franklin Templeton Japan Fund
Templeton American Trust
Templeton Americas Government
Securities Fund
Templeton Developing
Markets Trust
Templeton Foreign Fund
Templeton Global
Infrastructure Fund
Templeton Global
Opportunities Trust
Templeton Global Rising
Dividends Fund
Templeton Growth Fund
Templeton Income Fund
Templeton Money Fund
Templeton Real Estate
Securities Fund
Templeton Smaller
Companies Growth Fund
Templeton World Fund
FRANKLIN GROUP
OF FUNDS(R)
FRANKLIN GLOBAL/
INTERNATIONAL FUNDS
Franklin Global Health Care Fund
Franklin Global Government
Income Fund
Franklin Global Utilities Fund
Franklin International Equity Fund
Franklin Pacific Growth Fund
FUNDS SEEKING CAPITAL GROWTH
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin Small Cap Growth Fund
FUNDS SEEKING GROWTH AND
INCOME
Franklin Balance Sheet
Investment Fund
Franklin Convertible
Securities Fund
Franklin Income Fund
Franklin Equity Income Fund
Franklin Utilities Fund
FUNDS SEEKING HIGH CURRENT
INCOME
Franklin's AGE High Income Fund
Franklin Investment Grade
Income Fund
Franklin Premier Return Fund
Franklin U.S. Government
Securities Fund
FUNDS SEEKING TAX-FREE
INCOME
Franklin Federal Tax-Free
Income Fund
Franklin High Yield Tax-Free
Income Fund
Franklin California High Yield
Municipal Fund
Franklin Alabama Tax-Free
Income Fund
Franklin Arizona Tax-Free
Income Fund
Franklin California Tax-Free
Income Fund
Franklin Colorado Tax-Free
Income Fund
Franklin Connecticut Tax-Free
Income Fund
Franklin Florida Tax-Free
Income Fund
Franklin Georgia Tax-Free
Income Fund
Franklin Hawaii Municipal
Bond Fund
Franklin Indiana Tax-Free
Income Fund
Franklin Kentucky Tax-Free
Income Fund
Franklin Louisiana Tax-Free
Income Fund
Franklin Maryland Tax-Free
Income Fund
Franklin Missouri Tax-Free
Income Fund
Franklin New Jersey Tax-Free
Income Fund
Franklin New York Tax-Free
Income Fund
Franklin North Carolina Tax-Free
Income Fund
Franklin Oregon Tax-Free
Income Fund
Franklin Pennsylvania Tax-Free
Income Fund
Franklin Puerto Rico Tax-Free
Income Fund
Franklin Texas Tax-Free
Income Fund
Franklin Virginia Tax-Free
Income Fund
Franklin Washington Municipal
Bond Fund
FUNDS SEEKING TAX-FREE
INCOME THROUGH INSURED
PORTFOLIOS
Franklin Insured Tax-Free
Income Fund
Franklin Arizona Insured Tax-
Free Income Fund
Franklin California Insured Tax-
Free Income Fund
Franklin Florida Insured Tax-
Free Income Fund
Franklin Massachusetts Insured
Tax-Free Income Fund
Franklin Michigan Insured Tax-
Free Income Fund
Franklin Minnesota Insured Tax-
Free Income Fund
Franklin New York Insured Tax-
Free Income Fund
Franklin Ohio Insured Tax-
Free Income Fund
FUNDS SEEKING HIGH CURRENT
INCOME AND STABILITY OF
PRINCIPAL
Franklin Adjustable Rate
Securities Fund
Franklin Adjustable U.S.
Government Securities Fund
Franklin Short-Intermediate U.S.
Government Securities Fund
FUND SEEKING HIGH AFTER-TAX
INCOME FOR CORPORATIONS
Franklin Corporate Qualified
Dividend Fund
MONEY MARKET FUNDS SEEKING
SAFETY OF PRINCIPAL AND INCOME
Franklin Money Fund
Franklin Federal Money Fund
Franklin Tax-Exempt Money
Fund
Franklin California Tax-Exempt
Money Fund
Franklin New York Tax-Exempt
Money Fund
IFT Franklin U.S. Treasury
Money Market Portfolio
FUNDS FOR
NON-U.S. INVESTORS
FRANKLIN PARTNERS FUNDS(R)
Franklin Tax-Advantaged
High Yield Securities Fund
Franklin Tax-Advantaged
International Bond Fund
Franklin Tax-Advantaged U.S.
Government Securities Fund
29
<PAGE>
NOTES
-----
30
<PAGE>
NOTES
-----
31
<PAGE>
- --------------------------
TEMPLETON INCOME FUND
PRINCIPAL UNDERWRITER:
Franklin Templeton
Distributors, Inc.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Account Services
1-800-354-9191
Fund Information
1-800-292-9293
Institutional Services
1-800-321-8563
This Prospectus is not an offering of the securities herein
described in any state in which the offering is not authorized.
No sales representative, dealer, or other person is authorized
to give any information or make any representations other than
those contained in this Prospectus. Further information may be
obtained from the Principal Underwriter.
- --------------------------
[RECYCLED PAPER LOGO APPEARS HERE] TL06 P 4/95
TEMPLETON
INCOME
FUND
Prospectus
January 1, 1995
as supplemented
April 1, 1995
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
TEMPLETON INCOME TRUST
THIS STATEMENT OF ADDITIONAL INFORMATION DATED JANUARY 1, 1995,
AS SUPPLEMENTED APRIL 1, 1995, IS NOT A PROSPECTUS. IT SHOULD
BE READ IN CONJUNCTION WITH THE PROSPECTUS OF TEMPLETON INCOME
FUND DATED JANUARY 1, 1995, AS SUPPLEMENTED APRIL 1, 1995, AND
THE PROSPECTUS OF TEMPLETON MONEY FUND DATED JANUARY 1, 1995,
AS SUPPLEMENTED APRIL 1, 1995, WHICH MAY BE OBTAINED WITHOUT
CHARGE UPON REQUEST TO THE PRINCIPAL UNDERWRITER,
FRANKLIN TEMPLETON DISTRIBUTORS, INC.,
700 CENTRAL AVENUE, P.O. BOX 33030
ST. PETERSBURG, FLORIDA 33733-8030
TOLL FREE TELEPHONE: (800) 237-0738
TABLE OF CONTENTS
General Information and History -Business Manager
Investment Objectives and Policies -Custodian and Transfer Agent
-Investment Policies -Legal Counsel
-Repurchase Agreements -Independent Accountants
-Debt Securities -Reports to Shareholders
-Futures Contracts Brokerage Allocation
-Options on Securities, Indices Purchase, Redemption and
and Futures and Pricing of Shares
-Foreign Currency Hedging -Ownership and Authority
Transactions Disputes
-Investment Restrictions -Tax Deferred Retirement Plans
-Risk Factors -Letter of Intent
-Trading Policies -Purchases at Net Asset Value
-Personal Securities Transactions Tax Status
Management of the Trust Principal Underwriter
Principal Shareholders Yield and Performance Information
Investment Management and Other Description of Shares
Services Financial Statements
-Investment Management Agreements Appendix
-Management Fees Corporate Bond and Commercial
-Templeton Global Bond Managers Paper Ratings
Division of Templeton Investment
Counsel, Inc.
GENERAL INFORMATION AND HISTORY
Templeton Income Trust (the "Trust") was organized as a
Massachusetts business trust on June 16, 1986, and is registered
under the Investment Company Act of 1940 (the "1940 Act") as an
open-end management investment company with two series of Shares:
Templeton Income Fund, a non-diversified fund ("Income Fund") and
Templeton Money Fund, a diversified fund ("Money Fund")
(collectively, the "Funds").
INVESTMENT OBJECTIVES AND POLICIES
Investment Policies. The investment objective and policies
of each Fund are described in each Fund's Prospectus under the
heading "General Description--Investment Objective and Policies."
Repurchase Agreements. Repurchase agreements are contracts
under which the buyer of a security simultaneously commits to
resell the security to the seller at an agreed upon price and
date. Under a repurchase agreement, the seller is required to
maintain the value of the securities subject to the repurchase
agreement at not less than their repurchase price. The Templeton
Global Bond Managers Division of Templeton Investment Counsel,
Inc. (the "Investment Manager") will monitor the value of such
securities daily to determine that the value equals or exceeds
the repurchase price. Repurchase agreements may involve risks in
the event of default or insolvency of the seller, including
possible delays or restrictions upon a Fund's ability to dispose
of the underlying securities. A Fund will enter into repurchase
agreements only with parties who meet creditworthiness standards
approved by the Board of Trustees, i.e., banks or broker-dealers
which have been determined by the Investment Manager to present
no serious risk of becoming involved in bankruptcy proceedings
within the time frame contemplated by the repurchase transaction.
Debt Securities. Income Fund may invest in debt securities
which are rated in any category by Standard & Poor's Corporation
("S&P") or Moody's Investors Service, Inc. ("Moody's"). See the
Appendix for a description of the S&P and Moody's ratings. As an
operating policy, Income Fund will invest no more than 5% of its
assets in debt securities rated lower than Baa by Moody's or BBB
by S&P. The market value of debt securities generally varies in
response to changes in interest rates and the financial condition
of each issuer. During periods of declining interest rates, the
value of debt securities generally increases. Conversely, during
periods of rising interest rates, the value of such securities
generally declines. These changes in market value will be
reflected in Income Fund's net asset value.
Although they may offer higher yields than do higher rated
securities, high risk, low rated debt securities (commonly
referred to as "junk bonds") and unrated debt securities
generally involve greater volatility of price and risk of
principal and income, including the possibility of default by, or
bankruptcy of, the issuers of the securities. In addition, the
markets in which low rated and unrated debt securities are traded
are more limited than those in which higher rated securities are
traded. The existence of limited markets for particular
securities may diminish Income Fund's ability to sell the
securities at fair value either to meet redemption requests or to
respond to a specific economic event such as a deterioration in
the creditworthiness of the issuer. Reduced secondary market
liquidity for certain low rated or unrated debt securities may
also make it more difficult for each Fund to obtain accurate
market quotations for the purposes of valuing the Fund's
portfolio. Market quotations are generally available on many low
rated or unrated securities only from a limited number of dealers
and may not necessarily represent firm bids of such dealers or
prices for actual sales.
Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease the values and
liquidity of low rated debt securities, especially in a thinly
traded market. Analysis of the creditworthiness of issuers of
low rated debt securities may be more complex than for issuers of
higher rated securities, and the ability of Income Fund to
achieve its investment objective may, to the extent of investment
in low rated debt securities, be more dependent upon such
creditworthiness analysis than would be the case if Income Fund
were investing in higher rated securities.
Low rated debt securities may be more susceptible to real or
perceived adverse economic and competitive industry conditions
than investment grade securities. The prices of low rated debt
securities have been found to be less sensitive to interest rate
changes than higher rated investments, but more sensitive to
adverse economic downturns or individual corporate developments.
A projection of an economic downturn or of a period of rising
interest rates, for example, could cause a decline in low rated
debt securities prices because the advent of a recession could
lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If the
issuer of low rated debt securities defaults, Income Fund may
incur additional expenses seeking recovery.
Income Fund may accrue and report interest income on high
yield bonds, such as zero coupon bonds or pay-in-kind securities,
even though it receives no cash interest until the security's
maturity or payment date. In order to qualify for beneficial tax
treatment afforded regulated investment companies, and to be
relieved of federal tax liabilities, Income Fund must distribute
substantially all of its net income and gains to Shareholders
(see "Tax Status") generally on an annual basis. Income Fund may
have to dispose of portfolio securities under disadvantageous
circumstances to generate cash or leverage itself by borrowing
cash in order to satisfy the distribution requirement.
Recent legislation, which requires federally-insured savings
and loan associations to divest their investments in low rated
debt securities, may have a material adverse effect on Income
Fund's net asset value and investment practices.
Futures Contracts. Income Fund may purchase and sell
financial futures contracts. Currently, futures contracts are
available on several types of fixed-income securities including:
U.S. Treasury bonds, notes and bills; commercial paper; and
certificates of deposit.
Although some financial futures contracts call for making or
taking delivery of the underlying securities, in most cases these
obligations are closed out before the settlement date. The
closing of a contractual obligation is accomplished by purchasing
or selling an identical offsetting futures contract. Other
financial futures contracts by their terms call for cash
settlements.
Income Fund may also buy and sell index futures contracts
with respect to any stock or bond index traded on a recognized
stock exchange or board of trade. An index futures contract is a
contract to buy or sell units of an index at a specified future
date at a price agreed upon when the contract is made. The stock
index futures contract specifies that no delivery of the actual
stocks making up the index will take place. Instead, settlement
in cash must occur upon the termination of the contract, with the
settlement being the difference between the contract price and
the actual level of the stock index at the expiration of the
contract.
At the time Income Fund purchases a futures contract, an
amount of cash, U.S. Government securities, or other highly
liquid debt securities equal to the market value of the contract
will be deposited in a segregated account with Income Fund's
custodian. When selling a stock index futures contract, Income
Fund will maintain with its custodian liquid assets that, when
added to the amounts deposited with a futures commission merchant
or broker as margin, are equal to the market value of the
instruments underlying the contract. Alternatively, Income Fund
may "cover" its position by owning the instruments underlying the
contract or, in the case of a stock index futures contract,
owning a portfolio with a volatility substantially similar to
that of the index on which the futures contract is based, or
holding a call option permitting Income Fund to purchase the same
futures contract at a price no higher than the price of the
contract written by Income Fund (or at a higher price if the
difference is maintained in liquid assets with Income Fund's
custodian).
Options on Securities, Indices and Futures. Income Fund may
write covered put and call options and purchase put and call
options on securities, securities indices and futures contracts
that are traded on United States and foreign exchanges and in the
over-the-counter markets.
An option on a security or a futures contract is a contract
that gives the purchaser of the option, in return for the premium
paid, the right to buy a specified security or futures contract
(in the case of a call option) or to sell a specified security or
futures contract (in the case of a put option) from or to the
writer of the option at a designated price during the term of the
option. An option on a securities index gives the purchaser of
the option, in return for the premium paid, the right to receive
from the seller cash equal to the difference between the closing
price of the index and the exercise price of the option.
Income Fund may write a call or put option only if the
option is "covered." A call option on a security or futures
contract written by Income Fund is "covered" if Income Fund owns
the underlying security or futures contract covered by the call
or has an absolute and immediate right to acquire that security
without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon
conversion or exchange of other securities held in its portfolio.
A call option on a security or futures contract is also covered
if Income Fund holds a call on the same security or futures
contract and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less
than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is
maintained by Income Fund in cash or high grade U.S. Government
securities in a segregated account with its custodian. A put
option on a security or futures contract written by Income Fund
is "covered" if Income Fund maintains cash or fixed income
securities with a value equal to the exercise price in a
segregated account with its custodian, or else holds a put on the
same security or futures contract and in the same principal
amount as the put written where the exercise price of the put
held is equal to or greater than the exercise price of the put
written.
Income Fund will cover call options on securities indices
that it writes by owning securities whose price changes, in the
opinion of the Investment Manager, are expected to be similar to
those of the index, or in such other manner as may be in
accordance with the rules of the exchange on which the option is
traded and applicable laws and regulations. Nevertheless, where
Income Fund covers a call option on a securities index through
ownership of securities, such securities may not match the
composition of the index. In that event, Income Fund will not be
fully covered and could be subject to risk of loss in the event
of adverse changes in the value of the index. Income Fund will
cover put options on securities indices that it writes by
segregating assets equal to the option's exercise price, or in
such other manner as may be in accordance with the rules of the
exchange on which the option is traded and applicable laws and
regulations.
Income Fund will receive a premium from writing a put or
call option, which increases its gross income in the event the
option expires unexercised or is closed out at a profit. If the
value of a security, index or futures contract on which Income
Fund has written a call option falls or remains the same, Income
Fund will realize a profit in the form of the premium received
(less transaction costs) that could offset all or a portion of
any decline in the value of the portfolio securities being
hedged. If the value of the underlying security, index or
futures contract rises, however, Income Fund will realize a loss
in its call option position, which will reduce the benefit of any
unrealized appreciation in its investments. By writing a put
option, Income Fund assumes the risk of a decline in the
underlying security, index or futures contract. To the extent
that the price changes of the portfolio securities being hedged
correlate with changes in the value of the underlying security,
index or futures contract, writing covered put options will
increase Income Fund's losses in the event of a market decline,
although such losses will be offset in part by the premium
received for writing the option.
Income Fund may also purchase put options to hedge its
investments against a decline in value. By purchasing a put
option, Income Fund will seek to offset a decline in the value of
the portfolio securities being hedged through appreciation of the
put option. If the value of Income Fund's investments does not
decline as anticipated, or if the value of the option does not
increase, its loss will be limited to the premium paid for the
option plus related transaction costs. The success of this
strategy will depend, in part, on the accuracy of the correlation
between the changes in value of the underlying security, index or
futures contract and the changes in value of Income Fund's
security holdings being hedged.
Income Fund may purchase call options on individual
securities or futures contracts to hedge against an increase in
the price of securities or futures contracts that it anticipates
purchasing in the future. Similarly, Income Fund may purchase
call options on a securities index to attempt to reduce the risk
of missing a broad market advance, or an advance in an industry
or market segment, at a time when Income Fund holds uninvested
cash or short-term debt securities awaiting investment. When
purchasing call options, Income Fund will bear the risk of losing
all or a portion of the premium paid if the value of the
underlying security, index or futures contract does not rise.
There can be no assurance that a liquid market will exist
when Income Fund seeks to close out an option position. Trading
could be interrupted, for example, because of supply and demand
imbalances arising from a lack of either buyers or sellers, or
the options exchange could suspend trading after the price has
risen or fallen more than the maximum specified by the exchange.
Although Income Fund may be able to offset to some extent any
adverse effects of being unable to liquidate an option position,
it may experience losses in some cases as a result of such
inability. The value of over-the-counter options purchased by
Income Fund, as well as the cover for options written by Income
Fund, are considered not readily marketable and are subject to
the Trust's limitation on investments in securities that are not
readily marketable. See "Investment Objectives and Policies --
Investment Restrictions."
Foreign Currency Hedging Transactions. In order to hedge
against foreign currency exchange rate risks, Income Fund may
enter into forward foreign currency exchange contracts and
foreign currency futures contracts, as well as purchase put or
call options on foreign currencies, as described below. Income
Fund may also conduct its foreign currency exchange transactions
on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market.
Income Fund may enter into forward foreign currency exchange
contracts ("forward contracts") to attempt to minimize the risk
to Income Fund from adverse changes in the relationship between
the U.S. dollar and foreign currencies. A forward contract is an
obligation to purchase or sell a specific currency for an agreed
price at a future date which is individually negotiated and
privately traded by currency traders and their customers. Income
Fund may enter into a forward contract, for example, when it
enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S.
dollar price of the security. In addition, for example, when
Income Fund believes that a foreign currency may suffer or enjoy
a substantial movement against another currency, it may enter
into a forward contract to sell an amount of the former foreign
currency approximating the value of some or all of its portfolio
securities denominated in such foreign currency. This second
investment practice is generally referred to as "cross-hedging."
Because in connection with Income Fund's forward foreign currency
transactions, an amount of its assets equal to the amount of the
purchase will be held aside or segregated to be used to pay for
the commitment, Income Fund will always have cash, cash
equivalents or high quality debt securities available in an
amount sufficient to cover any commitments under these contracts
or to limit any potential risk. The segregated account will be
marked-to-market on a daily basis. While these contracts are not
presently regulated by the Commodity Futures Trading Commission
("CFTC"), the CFTC may in the future assert authority to regulate
forward contracts. In such event, Income Fund's ability to
utilize forward contracts in the manner set forth above may be
restricted. Forward contracts may limit potential gain from a
positive change in the relationship between the U.S. dollar and
foreign currencies. Unanticipated changes in currency prices may
result in poorer overall performance for Income Fund than if it
had not engaged in such contracts.
Income Fund may purchase and write put and call options on
foreign currencies for the purpose of protecting against declines
in the dollar value of foreign portfolio securities and against
increases in the dollar cost of foreign securities to be
acquired. As is the case with other kinds of options, however,
the writing of an option on foreign currency will constitute only
a partial hedge up to the amount of the premium received, and
Income Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on foreign currency may
constitute an effective hedge against fluctuation in exchange
rates, although, in the event of rate movements adverse to its
position, Income Fund may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign
currencies to be written or purchased by Income Fund will be
traded on U.S. and foreign exchanges or over-the-counter.
Income Fund may enter into exchange-traded contracts for the
purchase or sale for future delivery of foreign currencies
("foreign currency futures"). This investment technique will be
used only to hedge against anticipated future changes in exchange
rates which otherwise might adversely affect the value of Income
Fund's portfolio securities or adversely affect the prices of
securities that Income Fund intends to purchase at a later date.
The successful use of foreign currency futures will usually
depend on the Investment Manager's ability to forecast currency
exchange rate movements correctly. Should exchange rates move in
an unexpected manner, Income Fund may not achieve the anticipated
benefits of foreign currency futures or may realize losses.
Investment Restrictions. The Funds have imposed upon
themselves certain investment restrictions which, together with
their investment objectives, are fundamental policies except as
otherwise indicated. No changes in a Fund's investment
objectives or investment restrictions (except those which are not
fundamental policies) can be made without the approval of the
Shareholders of that Fund. For this purpose, the provisions of
the 1940 Act require the affirmative vote of the lesser of either
(1) 67% or more of that Fund's Shares present at a Shareholders'
meeting at which more than 50% of the outstanding Shares are
present or represented by proxy or (2) more than 50% of the
outstanding Shares of that Fund.
In accordance with these restrictions, each Fund will not:
1. Invest in real estate or mortgages on real estate
(although the Funds may invest in marketable securities
secured by real estate or interests therein); invest in
other open-end investment companies (except in
connection with a merger, consolidation, acquisition or
reorganization); invest in interests (other than
publicly issued debentures or equity stock interests)
in oil, gas or other mineral exploration or development
programs; purchase or sell commodity contracts (except
futures contracts as described in Income Fund's
Prospectus); or, as a fundamental principle approved by
the Board of Trustees, invest in closed-end investment
companies.
2. Purchase or retain securities of any company in which
Trustees or officers of the Trust or of the Investment
Manager, individually owning more than 1/2 of 1% of the
securities of such company, in the aggregate own more
than 5% of the securities of such company.
3. Invest in any company for the purpose of exercising
control or management.
4. Act as an underwriter; issue senior securities; or
purchase on margin or sell short, except that Income
Fund may make margin payments in connection with
futures, options and currency transactions. Money Fund
may not write or buy puts, calls, straddles or spreads.
5. Loan money, except that a Fund may purchase a portion
of an issue of publicly distributed bonds, debentures,
notes and other evidences of indebtedness.
6. Invest more than 5% of the value of its total assets in
securities of issuers which have been in continuous
operation less than three years.
7. Invest more than 15% of its total assets in securities
of foreign companies that are not listed on a
recognized United States or foreign securities
exchange, including no more than 5% of its total assets
in restricted securities and no more than 10% of its
total assets in restricted securities and other
securities (including repurchase agreements having more
than seven days remaining to maturity) which are not
restricted but which are not readily marketable (i.e.,
trading in the security is suspended or, in the case of
unlisted securities, market makers do not exist or will
not entertain bids or offers).
8. Invest more than 25% of its total assets in a single
industry, except that Money Fund may invest in
obligations issued by domestic banks (including
certificates of deposit, bankers' acceptances and
commercial paper) without regard to this limitation.
9. Borrow money, except that Income Fund may borrow money
in amounts up to 30% of the value of that Fund's net
assets. In addition, neither Fund may pledge, mortgage
or hypothecate its assets for any purpose, except that
Income Fund may do so to secure such borrowings and
then only to an extent not greater than 15% of its
total assets. Arrangements with respect to margin for
futures contracts are not deemed to be a pledge of
assets. As a fundamental principle approved by the
Board of Trustees, Income Fund's borrowing shall not
exceed 10% of Income Fund's net assets.
10. Participate on a joint or a joint and several basis in
any trading account in securities. (See "Investment
Objectives and Policies -- Trading Policies" as to
transactions in the same securities for the Funds and
other Templeton Funds and clients.)
11. Invest more than 5% of its net assets in warrants
whether or not listed on the New York or American Stock
Exchanges, and more than 2% of its net assets in
warrants that are not listed on those exchanges.
Warrants acquired in units or attached to securities
are not included in this restriction.
In addition to the above restrictions, Money Fund will not
invest more than 5% of its total assets in the securities of any
one issuer (exclusive of U.S. Government securities) or purchase
more than 10% of any class of securities of any one company,
including more than 10% of its outstanding voting securities.
Whenever any investment restriction states a maximum
percentage of a Fund's assets which may be invested in any
security or other property, it is intended that such maximum
percentage limitation be determined immediately after and as a
result of a Fund's acquisition of such security or property. The
investment restrictions do not preclude either Fund from
purchasing the securities of any issuer pursuant to the exercise
of subscription rights distributed to a Fund by the issuer,
unless such purchase would result in a violation of restrictions
7 or 8.
Risk Factors. Income Fund has an unlimited right to
purchase securities in any foreign country, developed or
underdeveloped, if they are listed on an exchange, as well as a
limited right to purchase such securities if they are unlisted.
Investors should consider carefully the substantial risks
involved in securities of companies and governments of foreign
nations, which are in addition to the usual risks inherent in
domestic investments.
There may be less publicly available information about
foreign companies comparable to the reports and ratings published
about companies in the United States. Foreign companies are not
generally subject to uniform accounting, auditing and financial
reporting standards, and auditing practices and requirements may
not be comparable to those applicable to United States companies.
Foreign markets have substantially less volume than the New York
Stock Exchange and securities of some foreign companies are less
liquid and more volatile than securities of comparable United
States companies. Commission rates in foreign countries, which
are generally fixed rather than subject to negotiation as in the
United States, are likely to be higher. In many foreign
countries there is less government supervision and regulation of
stock exchanges, brokers and listed companies than in the United
States.
Investments in companies domiciled in developing countries
may be subject to potentially higher risks than investments in
developed countries. These risks include (i) less social,
political and economic stability; (ii) the small current size of
the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of
liquidity and in greater price volatility; (iii) certain national
policies which may restrict Income Fund's investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests; (iv) foreign
taxation; (v) the absence of developed structures governing
private or foreign investment or allowing for judicial redress
for injury to private property; (vi) the absence, until recently
in certain Eastern European countries, of a capital market
structure or market-oriented economy; and (vii) the possibility
that recent favorable economic developments in Eastern Europe may
be slowed or reversed by unanticipated political or social events
in such countries.
Investments in Eastern European countries may involve risks
of nationalization, expropriation and confiscatory taxation. The
Communist governments of a number of Eastern European countries
expropriated large amounts of private property in the past, in
many cases without adequate compensation, and there can be no
assurance that such expropriation will not occur in the future.
In the event of such expropriation, Income Fund could lose a
substantial portion of any investments it has made in the
affected countries. Further, no accounting standards exist in
Eastern European countries. Finally, even though certain Eastern
European currencies may be convertible into U.S. dollars, the
conversion rates may be artificial to the actual market values
and may be adverse to Income Fund Shareholders.
Income Fund endeavors to buy and sell foreign currencies on
as favorable a basis as practicable. Some price spread on
currency exchange (to cover service charges) may be incurred,
particularly when the Fund changes investments from one country
to another or when proceeds of the sale of Shares in U.S. dollars
are used for the purchase of securities in foreign countries.
Also, some countries may adopt policies which would prevent
Income Fund from transferring cash out of the country or withhold
portions of interest and dividends at the source. There is the
possibility of expropriation, nationalization or confiscatory
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),
default in foreign government securities, political or social
instability or diplomatic developments which could affect
investments in securities of issuers in foreign nations.
Income Fund may be affected either unfavorably or favorably
by fluctuations in the relative rates of exchange between the
currencies of different nations, by exchange control regulations
and by indigenous economic and political developments. Through
Income Fund's flexible policy, management endeavors to avoid
unfavorable consequences and to take advantage of favorable
developments in particular nations where from time to time it
places Income Fund's investments.
The exercise of this flexible policy may include decisions
to purchase securities with substantial risk characteristics and
other decisions such as changing the emphasis on investments from
one nation to another and from one type of security to another.
Some of these decisions may later prove profitable and others may
not. No assurance can be given that profits, if any, will exceed
losses.
The Trustees consider at least annually the likelihood of
the imposition by any foreign government of exchange control
restrictions which would affect the liquidity of Income Fund's
assets maintained with custodians in foreign countries, as well
as the degree of risk from political acts of foreign governments
to which such assets may be exposed. They also consider the
degree of risk involved through the holding of portfolio
securities in domestic and foreign securities depositories (see
"Investment Management and Other Services -- Custodian and
Transfer Agent"). However, in the absence of willful
misfeasance, bad faith or gross negligence on the part of the
Investment Manager, any losses resulting from the holding of
Income Fund's portfolio securities in foreign countries and/or
with securities depositories will be at the risk of the
Shareholders. No assurance can be given that the Trustees'
appraisal of the risks will always be correct or that such
exchange control restrictions or political acts of foreign
governments might not occur.
Income Fund's ability to reduce or eliminate its futures and
related options positions will depend upon the liquidity of the
secondary markets for such futures and options. Income Fund
intends to purchase or sell futures and related options only on
exchanges or boards of trade where there appears to be an active
secondary market, but there is no assurance that a liquid
secondary market will exist for any particular contract or at any
particular time. Use of futures and options for hedging may
involve risks because of imperfect correlations between movements
in the prices of the futures or options and movements in the
prices of the securities being hedged. Successful use of futures
and related options by Income Fund for hedging purposes also
depends upon the Investment Manager's ability to predict
correctly movements in the direction of the market, as to which
no assurance can be given.
Additional risks may be involved with Income Fund's special
investment techniques, including loans of portfolio securities
and borrowing for investment purposes. These risks are described
under the heading "Investment Techniques" in the Prospectus.
Trading Policies. The Investment Manager and its affiliated
companies serve as investment adviser to other investment
companies and private clients. Accordingly, the respective
portfolios of these funds and clients may contain many or some of
the same securities. When any two or more of these funds or
clients are engaged simultaneously in the purchase or sale of the
same security, the transactions are placed for execution in a
manner designed to be equitable to each party. The larger size
of the transaction may affect the price of the security and/or
the quantity which may be bought or sold for each party. If the
transaction is large enough, brokerage commissions in certain
countries may be negotiated below those otherwise chargeable.
Sale or purchase of securities, without payment of brokerage
commissions, fees (except customary transfer fees) or other
remuneration in connection therewith, may be effected between any
of these funds, or between funds and private clients, under
procedures adopted pursuant to Rule 17a-7 under the 1940 Act.
Personal Securities Transactions. Access persons of the
Franklin Templeton Group, as defined in SEC Rule 17(j) under the
1940 Act, who are employees of Franklin Resources, Inc. or their
subsidiaries, are permitted to engage in personal securities
transactions subject to the following general restrictions and
procedures: (1) The trade must receive advance clearance from a
Compliance Officer and must be completed within 24 hours after
this clearance; (2) Copies of all brokerage confirmations must be
sent to the Compliance Officer and within 10 days after the end
of each calendar quarter, a report of all securities transactions
must be provided to the Compliance Officer; (3) In addition to
items (1) and (2), access persons involved in preparing and
making investment decisions must file annual reports of their
securities holdings each January and also 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.
MANAGEMENT OF THE TRUST
The name, address, principal occupation during the past five
years and other information with respect to each of the Trustees
and Principal Executive Officers of the Trust are as follows:
Name, Address and Principal Occupation
Offices with Trust During Past Five Years
JOHN M. TEMPLETON* Chairman of the Board of other
Lyford Cay Templeton Funds; president of First
Nassau, Bahamas Trust Bank, Ltd., Nassau, Bahamas;
Chairman of the Board and previously Chairman of the
Board and employee of Templeton,
Galbraith & Hansberger Ltd. (prior
to October 30, 1992).
F. BRUCE CLARKE Retired; former credit advisor,
19 Vista View Blvd. National Bank of Canada, Toronto; a
Thornhill, Ontario director or trustee of other
Trustee Templeton Funds.
HASSO-G VON DIERGARDT-NAGLO Farmer; president of Clairhaven
R.R. 3 Investments, Ltd. and other private
Stouffville, Ontario investment companies; a director or
Trustee trustee of other Templeton Funds.
BETTY P. KRAHMER A director or trustee of other
2201 Kentmere Parkway Templeton Funds; director or
Wilmington, Delaware trustee of various civic
Trustee associations; former economic
analyst, U.S. Government.
JOHN G. BENNETT, JR. A director or trustee of other
3 Radnor Corporate Center Templeton Funds; founder, chairman
Suite 150 of the board, and president of the
100 Matsonford Road Foundation for New Era
Radnor, Pennsylvania Philanthropy; president and
Trustee chairman of the boards of the
Evelyn M. Bennett Memorial
Foundation and NEP International
Trust; chairman of the board and
chief executive officer of The
Bennett Group International, LTD;
chairman of the boards of Human
Service Systems, Inc. and Multi-
Media Communicators, Inc.; a
director or trustee of many
national and international
organizations, universities, and
grant-making foundations serving in
various executive board capacities;
member of the Public Policy
Committee of the Advertising
Council.
FRED R. MILLSAPS A director or trustee of other
2665 NE 37th Drive Templeton Funds; manager of
Fort Lauderdale, Florida personal investments (1978-
Trustee present); chairman and chief
executive officer of Landmark
Banking Corporation (1969-1978);
financial vice president of Florida
Power and Light (1965-1969); vice
president of Federal Reserve Bank
of Atlanta (1958-1965); director of
various business and nonprofit
organizations.
ANDREW H. HINES, JR. Consultant, Triangle Consulting
150 2nd Avenue N. Group; chairman of the board and
St. Petersburg, Florida chief executive officer of Florida
Trustee Progress Corporation (1982-February
1990) and director of various of
its subsidiaries; chairman and
director of Precise Power
Corporation; Executive-in-Residence
of Eckerd College (1991-present);
director of Checkers Drive-In
Restaurants, Inc.; a director or
trustee of other Templeton Funds.
CHARLES B. JOHNSON* President, chief executive officer,
777 Mariners Island Blvd. and director, Franklin Resources,
San Mateo, California Inc.; chairman of the board,
Vice President and Franklin Templeton Distributors,
Trustee Inc.; chairman of the board and
director, Franklin Advisers, Inc.;
director, Franklin Administrative
Services, Inc. and General Host
Corporation; director of Templeton
Global Investors, Inc.; director or
trustee of other Templeton Funds;
and officer and director, trustee
or managing general partner, as the
case may be, of most other
subsidiaries of Franklin and of
most of the investment companies in
the Franklin Group of Funds.
HARRIS J. ASHTON Chairman of the board, president
Metro Center, 1 Station and chief executive officer of
Place General Host Corporation (nursery
Stamford, Connecticut and craft centers); director of RBC
Trustee Holdings Inc. (a bank holding
company) and Bar-S Foods; director
or trustee of other Templeton
Funds; and director, trustee or
managing general partner, as the
case may be, for most of the
investment companies in the
Franklin Group of Funds.
S. JOSEPH FORTUNATO Member of the law firm of Pitney,
200 Campus Drive Hardin, Kipp & Szuch; director of
Florham Park, New Jersey General Host Corporation; director
Trustee or trustee of other Templeton
Funds; and director, trustee or
managing general partner, as the
case may be, for most of the
investment companies in the
Franklin Group of Funds.
GORDON S. MACKLIN Chairman of White River Corporation
8212 Burning Tree Road (information services); director of
Bethesda, Maryland Infovest Corporation, Fund America
Trustee Enterprise Holdings, Inc., Martin
Marietta Corporation, MCI
Communications Corporation and
Medimmune, Inc.; director or
trustee of other Templeton Funds;
director, trustee, or managing
general partner, as the case may
be, of most of the investment
companies in the Franklin Group of
Funds; formerly: chairman,
Hambrecht and Quist Group;
director, H&Q Healthcare Investors;
and president, National Association
of Securities Dealers, Inc.
NICHOLAS F. BRADY* A director or trustee of other
The Bullitt House Templeton Funds; chairman of
102 East Dover Street Templeton Emerging Markets
Easton, Maryland Investment Trust PLC; chairman and
Trustee president of Darby Advisors, Inc.
(an investment firm) since January,
1993; director of the H. J. Heinz
Company, Capital Cities/ABC, Inc.
and the Christiana Companies;
Secretary of the United States
Department of the Treasury from
1988 to January, 1993; chairman of
the board of Dillon, Read & Co.
Inc. (investment banking) prior
thereto.
SAMUEL J. FORESTER, JR. President of the Templeton Global
500 East Broward Blvd. Bond Managers Division of Templeton
Fort Lauderdale, Florida Investment Counsel, Inc.; president
President or vice president of other
Templeton Funds; founder and
partner of Forester, Hairston
Investment Management (1989-1990);
managing director (Mid-East Region)
of Merrill Lynch, Pierce, Fenner &
Smith Inc. (1987-1988); advisor for
Saudi Arabian Monetary Agency
(1982-1987).
MARK G. HOLOWESKO President and director of
Lyford Cay Templeton, Galbraith & Hansberger
Nassau, Bahamas Ltd.; director of global equity
Vice President research for Templeton Worldwide,
Inc.; vice president of the
Templeton Funds; investment
administrator with Roy West Trust
Corporation (Bahamas) Limited
(1984-1985).
MARTIN L. FLANAGAN Senior vice president, treasurer
777 Mariners Island Blvd. and chief financial officer of
San Mateo, California Franklin Resources, Inc.; director
Vice President and executive vice president of
Templeton Investment Counsel, Inc.
and Templeton Global Investors,
Inc.; president or vice president
of the Templeton Funds; accountant,
Arthur Andersen & Company (1982-
1983); member of the International
Society of Financial Analysts and
the American Institute of Certified
Public Accountants.
THOMAS M. MISTELE Senior vice president of Templeton
700 Central Avenue Global Investors, Inc.; vice
St. Petersburg, Florida president of Franklin Templeton
Secretary Distributors, Inc.; secretary of
the Templeton Funds; attorney,
Dechert Price & Rhoads (1985-1988)
and Freehill, Hollingdale & Page
(1988); judicial clerk, U.S.
District Court (Eastern District of
Virginia) (1984-1985).
JOHN R. KAY Vice president of the Templeton
500 East Broward Blvd. Funds; vice president and treasurer
Fort Lauderdale, Florida of Templeton Global Investors, Inc.
Vice President and Templeton Worldwide, Inc.;
assistant vice president of
Franklin Templeton Distributors,
Inc.; formerly, vice president and
controller of the Keystone Group,
Inc.
NEIL S. DEVLIN Senior vice president, Portfolio
500 East Broward Blvd. Management/Research, of the
Fort Lauderdale, Florida Templeton Global Bond Managers
Vice President division of Templeton Investment
Counsel, Inc.; formerly, portfolio
manager and bond analyst,
Constitutional Capital Management
(1985-1987); bond trader and
research analyst, Bank of New
England (1982-1985).
JAMES R. BAIO Certified public accountant;
500 East Broward Blvd. treasurer of the Templeton Funds;
Fort Lauderdale, Florida senior vice president of Templeton
Treasurer Worldwide, Inc., Templeton Global
Investors, Inc., and Templeton
Funds Trust Company; formerly,
senior tax manager of Ernst & Young
(certified public accountants)
(1977-1989).
JACK L. COLLINS Assistant treasurer of the
700 Central Avenue Templeton Funds; assistant vice
St. Petersburg, Florida president of Franklin Templeton
Assistant Treasurer Investor Services, Inc.; former
partner of Grant Thornton,
independent public accountants.
JEFFREY L. STEELE Partner, Dechert Price & Rhoads.
1500 K Street, N.W.
Washington, D.C.
Assistant Secretary
____________________
* Messrs. Templeton, Johnson and Brady are Trustees who are
"interested persons" of the Trust as that term is defined in the
1940 Act. Mr. Brady and Franklin Resources, Inc. are limited
partners of Darby Overseas Partners, L.P. ("Darby Overseas").
Mr. Brady established Darby Overseas in February, 1994, and is
Chairman and a shareholder of the corporate general partner of
Darby Overseas. In addition, Darby Overseas and Templeton,
Galbraith & Hansberger, Ltd. are limited partners of Darby
Emerging Markets Fund, L.P. Messrs. Clarke, von Diergardt-Naglo,
Bennett, Hines, Millsaps, Ashton, Macklin and Fortunato and Mrs.
Krahmer are Trustees who are not "interested persons" of the
Trust.
As indicated above, certain of the Trustees and Officers
hold positions with other funds in the Franklin Group of Funds
and the Templeton Family of Funds. Each fund in the Templeton
Family of Funds pays its independent directors/trustees and Mr.
Brady an annual retainer and/or fees for attendance at board and
committee meetings, the amount of which is based on the level of
assets in the fund. Accordingly, the Trust pays each independent
Trustee and Mr. Brady an annual retainer of $____. Trustees are
reimbursed for any expenses incurred in attending meetings.
During the fiscal year ended August 31, 1994, pursuant to the
compensation arrangement then in effect, fees totalling
__________ were paid by the Trust to Messrs. Ashton
($__________), Bennett ($__________), Brady ($__________), Clarke
($__________), Fortunato ($__________), Hines ($__________),
Macklin ($__________), Millsaps ($__________), and von Diergardt-
Naglo ($__________) and Mrs. Krahmer ($__________). For the
fiscal year ended August 31, 1994, pursuant to the compensation
arrangement then in effect, Messrs. Ashton, Bennett, Brady,
Clarke, Fortunato, Hines, Johnson, Macklin, Millsaps, Templeton
and von Diergardt-Naglo and Mrs. Krahmer received total fees of
$__________, $__________, $__________, $__________, $__________,
$__________, $__________, $__________, $__________, $__________,
$__________, and $__________, respectively, from the various
Franklin and Templeton funds for which they serve as directors,
trustees, or managing general partners. No Officer or Trustee
received any other compensation directly from the Fund.
PRINCIPAL SHAREHOLDERS
As of __________, 1995, there were __________ Shares of
Income Fund outstanding, of which _____ Shares (_____%) were
owned beneficially by all the Trustees and officers of the Trust
as a group. As of __________, 1995, there were ___________
Shares of Money Fund outstanding, of which ______ Shares (_____%)
were owned beneficially by all the Trustees and officers of the
Trust as a group. As of __________, 1995, to the knowledge of
management, no person owned beneficially, directly or indirectly,
5% or more of either Fund's outstanding Shares.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Investment Management Agreements. The Investment Manager of
each Fund is the Templeton Global Bond Managers division of
Templeton Investment Counsel, Inc., a Florida corporation with
offices located at Broward Financial Centre, Fort Lauderdale,
Florida 33394-3091. The Investment Management Agreements, dated
October 30, 1992, relating to Income Fund and Money Fund were
approved by the Shareholders of each Fund on October 30, 1992,
were last approved by the Board of Trustees, including a majority
of the Trustees who were not parties to the Agreements or
interested persons of any such party, at a meeting on December 6,
1994, and will run through December 31, 1995. The Investment
Management Agreements continues from year to year subject to
approval annually by the Board of Trustees or by vote of a
majority of the outstanding Shares of each Fund (as defined in
the 1940 Act) and also, in either event, with the approval of a
majority of those Trustees who are not parties to the Agreements
or interested persons of any such party in person at a meeting
called for the purpose of voting on such approval.
Each Investment Management Agreement requires the Investment
Manager to manage the investment and reinvestment of each Fund's
assets. The Investment Manager is not required to furnish any
personnel, overhead items or facilities for the Funds, including
daily pricing or trading desk facilities, although such expenses
are paid by investment advisers of some other investment
companies.
Each Investment Management Agreement provides that the
Investment Manager will select brokers and dealers for execution
of each Fund's portfolio transactions consistent with the Trust's
brokerage policies (see "Brokerage Allocation"). Although the
services provided by broker-dealers in accordance with the
brokerage policies incidentally may help reduce the expenses of
or otherwise benefit the Investment Manager and other investment
advisory clients of the Investment Manager and of its affiliates,
as well as the Funds, the value of such services is
indeterminable and the Investment Manager's fee is not reduced by
any offset arrangement by reason thereof.
When the Investment Manager determines to buy or sell the
same security for a Fund that the Investment Manager or one or
more of its affiliates has selected for one or more of its other
clients or for clients of its affiliates, the orders for all such
securities transactions are placed for execution by methods
determined by the Investment Manager, with approval by the Board
of Trustees, to be impartial and fair, in order to seek good
results for all parties. See "Investment Objectives and Policies
-- Trading Policies." Records of securities transactions of
persons who know when orders are placed by a Fund are available
for inspection at least four times annually by the Compliance
Officer of the Trust so that the non-interested Trustees (as
defined in the 1940 Act) can be satisfied that the procedures are
generally fair and equitable to all parties.
Each Investment Management Agreement provides that the
Investment Manager shall have no liability to the Trust, a Fund
or any Shareholder of a Fund for any error of judgment, mistake
of law, or any loss arising out of any investment or other act or
omission in the performance by the Investment Manager of its
duties under the Agreement, except liability resulting from
willful misfeasance, bad faith or gross negligence on the
Investment Manager's part or reckless disregard of its duties
under the Agreement. Each Investment Management Agreement will
terminate automatically in the event of its assignment, and may
be terminated by the Trust on behalf of a Fund at any time
without payment of any penalty on 60 days' written notice, with
the approval of a majority of the Trustees in office at the time
or by vote of a majority of the outstanding voting securities of
that Fund (as defined in the 1940 Act).
Management Fees. For its services, Income Fund pays the
Investment Manager a monthly fee equal on an annual basis to
0.50% of its average daily net assets, reduced to 0.45% of such
net assets in excess of $200,000,000 and further reduced to 0.40%
of such net assets in excess of $1,300,000,000. Money Fund pays
the Investment Manager a monthly fee equal on an annual basis to
0.35% of its average daily net assets, reduced to 0.30% of such
net assets in excess of $200,000,000 and further reduced to 0.25%
of such net assets in excess of $1,300,000,000. Each class of
Shares pays a portion of the fee, determined by the proportion of
the Fund that it represents.
The Investment Manager will comply with any applicable state
regulations which may require the Investment Manager to make
reimbursements to either Fund in the event that a Fund's
aggregate operating expenses, including the advisory fee, but
generally excluding interest, taxes, brokerage commissions and
extraordinary expenses, are in excess of specific applicable
limitations. The strictest rule currently applicable to a Fund
is 2.5% of the first $30,000,000 of net assets, 2% of the next
$70,000,000 of net assets and 1.5% of the remainder.
During the fiscal years ended August 31, 1994, 1993, and
1992, the Investment Manager (and, prior to April 1, 1993,
Templeton Global Bond Managers, Inc., the Trust's previous
investment manager) received fees from Income Fund of $1,040,324,
$950,197, and $736,511, respectively. During the fiscal years
ended August 31, 1994, 1993, and 1992, the Investment Manager
(and, prior to April 1, 1993, Templeton Global Bond Managers,
Inc.) received fees from Money Fund of $486,625, $346,737, and
$538,444, respectively.
The Templeton Global Bond Managers Division of Templeton
Investment Counsel, Inc. The Investment Manager is an indirect
wholly owned subsidiary of Franklin Resources, Inc. ("Franklin"),
a publicly traded company whose shares are listed on the New York
Stock Exchange. Charles B. Johnson (a Trustee and officer of the
Trust) and Rupert H. Johnson, Jr. are principal shareholders of
Franklin and own, respectively, approximately 20% and 16% of its
outstanding shares. Messrs. Charles B. Johnson and Rupert H.
Johnson, Jr. are brothers.
Business Manager. Templeton Global Investors, Inc. performs
certain administrative functions as Business Manager for the
Funds, including:
providing office space, telephone, office equipment and
supplies for the Trust;
paying compensation of the Trust's officers for
services rendered as such;
authorizing expenditures and approving bills for
payment on behalf of the Funds;
supervising preparation of annual and semiannual
reports to Shareholders, notices of dividends, capital
gain distributions and tax credits, and attending to
correspondence and other special communications with
individual Shareholders;
daily pricing of each Fund's investment portfolio and
preparing and supervising publication of daily
quotations of the bid and asked prices of each Fund's
Shares, earnings reports and other financial data;
monitoring relationships with organizations serving the
Funds, including the custodian and printers;
providing trading desk facilities for the Funds;
supervising compliance by the Funds with recordkeeping
requirements under the 1940 Act and regulations
thereunder, with state regulatory requirements,
maintaining books and records for the Funds (other than
those maintained by the custodian and transfer agent),
and preparing and filing tax reports other than the
Funds' income tax returns;
monitoring the qualifications of tax deferred
retirement plans providing for investment in Shares of
the Funds; and
providing executive, clerical and secretarial help
needed to carry out these responsibilities.
For its services, the Business Manager receives a monthly
fee equal on an annual basis to 0.15% of the first $200,000,000
of the Trust's aggregate average daily net assets (i.e., total of
both Funds), reduced to 0.135% annually of the Trust's aggregate
net assets in excess of $200,000,000, further reduced to 0.1%
annually of such net assets in excess of $700,000,000, and
further reduced to 0.075% annually of such net assets in excess
of $1,200,000,000. Each class of Shares pays a portion of the
fee, determined by the proportion of the Fund that it represents.
The fee is allocated between the Funds according to their
respective average daily net assets. Since the Business
Manager's fee covers services often provided by investment
advisors to other funds, each Fund's combined expenses for
advisory and administrative services together may be higher than
those of some other investment companies.
During the fiscal years ended August 31, 1994, 1993, and
1992, the Business Manager (and, prior to April 1, 1993,
Templeton Funds Management, Inc., the previous business manager)
received business management fees of $499,794, $420,292, and
$436,594, respectively.
The Business Manager is relieved of liability to the Trust
for any act or omission in the course of its performance under
the Business Management Agreement, in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
its duties and obligations under the Agreement. The Business
Management Agreement may be terminated by a Fund at any time on
60 days' written notice without payment of penalty, provided that
such termination by the Fund shall be directed or approved by
vote of a majority of the Trustees of the Trust in office at the
time or by vote of a majority of the outstanding voting
securities of that Fund, and shall terminate automatically and
immediately in the event of its assignment.
Templeton Global Investors, Inc. is a wholly owned
subsidiary of Franklin.
Custodian and Transfer Agent. The Chase Manhattan Bank,
N.A. serves as Custodian of the Trust's assets, which are
maintained at the Custodian's principal office, MetroTech Center,
Brooklyn, New York 11245, and at the offices of its branches and
agencies throughout the world. The Custodian has entered into
agreements with foreign sub-custodians approved by the Trustees
pursuant to Rule 17f-5 under the 1940 Act. The Custodian, its
branches and sub-custodians generally domestically, and
frequently abroad, do not actually hold certificates for the
securities in their custody, but instead have book records with
domestic and foreign securities depositories, which in turn have
book records with the transfer agents of the issuers of the
securities. Compensation for the services of the Custodian is
based on a schedule of charges agreed on from time to time.
Franklin Templeton Investor Services, Inc. serves as the
Funds' Transfer Agent. Services performed by the Transfer Agent
include processing purchase, transfer and redemption orders,
making dividend payments, capital gain distributions and
reinvestments, and handling routine communications with
Shareholders. The Transfer Agent receives from Income Fund an
annual fee of $14.77 per Shareholder account plus out-of-pocket
expenses and from Money Fund an annual fee of $22.91 per
Shareholder account plus out-of-pocket expenses. These fees are
adjusted each year to reflect changes in the Department of Labor
Consumer Price Index.
Legal Counsel. Dechert Price & Rhoads, 1500 K Street, N.W.,
Washington, D.C. 20005, is legal counsel for the Trust.
Independent Accountants. The firm of McGladrey & Pullen,
555 Fifth Avenue, New York, New York 10017, serves as independent
accountants for the Trust. Its audit services comprise
examination of the Funds' financial statements and review of the
Funds' filings with the Securities and Exchange Commission and
the Internal Revenue Service.
Reports to Shareholders. The Funds' fiscal years end on
August 31. Shareholders are provided at least semiannually with
reports showing the Funds' portfolios and other information,
including an annual report with financial statements audited by
the independent accountants.
BROKERAGE ALLOCATION
The Investment Management Agreements provide that the
Investment Manager is responsible for selecting members of
securities exchanges, brokers and dealers (such members, brokers
and dealers being hereinafter referred to as "brokers") for the
execution of a Fund's portfolio transactions and, when
applicable, the negotiation of commissions in connection
therewith. All decisions and placements are made in accordance
with the following principles:
1. Purchase and sale orders are usually placed with
brokers who are selected by the Investment Manager as
able to achieve "best execution" of such orders. "Best
execution" means prompt and reliable execution at the
most favorable securities price, taking into account
the other provisions hereinafter set forth. The
determination of what may constitute best execution and
price in the execution of a securities transaction by a
broker involves a number of considerations, including,
without limitation, the overall direct net economic
result to a Fund (involving both price paid or received
and any commissions and other costs paid), the
efficiency with which the transaction is effected, the
ability to effect the transaction at all where a large
block is involved, availability of the broker to stand
ready to execute possibly difficult transactions in the
future, and the financial strength and stability of the
broker. Such considerations are judgmental and are
weighed by the Investment Manager in determining the
overall reasonableness of brokerage commissions.
2. In selecting brokers for portfolio transactions, the
Investment Manager takes into account its past
experience as to brokers qualified to achieve "best
execution," including brokers who specialize in any
foreign securities held by Income Fund.
3. The Investment Manager is authorized to allocate
brokerage business to brokers who have provided
brokerage and research services, as such services are
defined in Section 28(e) of the Securities Exchange Act
of 1934 (the "1934 Act"), for a Fund and/or other
accounts, if any, for which the Investment Manager
exercises investment discretion (as defined in Section
3(a)(35) of the 1934 Act) and, as to transactions to
which fixed minimum commission rates are not
applicable, to cause a Fund to pay a commission for
effecting a securities transaction in excess of the
amount another broker would have charged for effecting
that transaction, if the Investment Manager in making
the selection in question determines in good faith that
such amount of commission is reasonable in relation to
the value of the brokerage and research services
provided by such broker, viewed in terms of either that
particular transaction or the Investment Manager's
overall responsibilities with respect to the Funds and
the other accounts, if any, as to which it exercises
investment discretion. In reaching such determination,
the Investment Manager is not required to place or
attempt to place a specific dollar value on the
research or execution services of a broker or on the
portion of any commission reflecting either of said
services. In demonstrating that such determinations
were made in good faith, the Investment Manager shall
be prepared to show that all commissions were allocated
and paid for purposes contemplated by the Trust's
brokerage policy; that the research services provide
lawful and appropriate assistance to the Investment
Manager in the performance of its investment decision-
making responsibilities; and that the commissions paid
were within a reasonable range. The determination that
commissions were within a reasonable range shall be
based on any available information as to the level of
commissions known to be charged by other brokers on
comparable transactions, but there shall be taken into
account the Trust's policies that (i) obtaining a low
commission is deemed secondary to obtaining a favorable
securities price, since it is recognized that usually
it is more beneficial to a Fund to obtain a favorable
price than to pay the lowest commission; and (ii) the
quality, comprehensiveness and frequency of research
studies which are provided for the Investment Manager
are useful to the Investment Manager in performing its
advisory services under its Investment Management
Agreements with the Funds. Research services provided
by brokers to the Investment Manager are considered to
be in addition to, and not in lieu of, services
required to be performed by the Investment Manager
under its Investment Management Agreements with the
Funds. Research furnished by brokers through whom a
Fund effects securities transactions may be used by the
Investment Manager for any of its accounts, and not all
such research may be used by the Investment Manager for
that Fund. When execution of portfolio transactions is
allocated to brokers trading on exchanges with fixed
brokerage commission rates, account may be taken of
various services provided by the broker, including
quotations outside the United States for daily pricing
of foreign securities held in a Fund's portfolio.
4. Purchases and sales of portfolio securities within the
United States other than on a securities exchange are
executed with primary market makers acting as
principal, except where, in the judgment of the
Investment Manager, better prices and execution may be
obtained on a commission basis or from other sources.
5. Sales of the Funds' Shares (which shall be deemed to
include also shares of other companies registered under
the 1940 Act which have either the same investment
adviser or an investment adviser affiliated with the
Investment Manager) made by a broker are one factor
among others to be taken into account in deciding to
allocate portfolio transactions (including agency
transactions, principal transactions, purchases in
underwritings or tenders in response to tender offers)
for the account of a Fund to that broker; provided that
the broker shall furnish "best execution," as defined
in paragraph 1 above, and that such allocation shall be
within the scope of that Fund's other policies as
stated above; and provided further, that in every
allocation made to a broker in which the sale of Shares
is taken into account there shall be no increase in the
amount of the commissions or other compensation paid to
such broker beyond a reasonable commission or other
compensation determined, as set forth in paragraph 3
above, on the basis of best execution alone or best
execution plus research services, without taking
account of or placing any value upon such sale of
Shares.
Insofar as known to management, no Trustee or officer of the
Trust, nor the Investment Manager or Principal Underwriter or any
person affiliated with either of them, has any material direct or
indirect interest in any broker employed by or on behalf of the
Trust. Franklin Templeton Distributors, Inc., the Trust's
Principal Underwriter, is a registered broker-dealer, but it has
never executed any purchase or sale transactions for the Funds'
portfolios or participated in any commissions on any such
transactions, and has no intention of doing so in the future.
During the fiscal years ended August 31, 1994, 1993, and 1992,
Income Fund paid total brokerage commissions of $32,000, $5,363,
and $16,578, respectively. Money Fund paid no brokerage
commissions during those years. All portfolio transactions are
allocated to broker-dealers only when their prices and execution,
in the judgment of the Investment Manager, are equal to the best
available within the scope of the Trust's policies. There is no
fixed method used in determining which broker-dealers receive
which order or how many orders.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Each Fund's Prospectus describes the manner in which a
Fund's Shares may be purchased and redeemed. See "How to Buy
Shares of the Fund" and "How to Sell Shares of the Fund."
Net asset value per Share is calculated separately for each
Fund. Net asset value per Share is determined as of the close of
business on the New York Stock Exchange, every Monday through
Friday (exclusive of national business holidays). The Trust's
offices will be closed, and net asset value will not be
calculated, on those days on which the New York Stock Exchange is
closed, which currently are: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Trading in securities on European and Far Eastern securities
exchanges and over-the-counter markets is normally completed well
before the close of business in New York on each day on which the
New York Stock Exchange is open. Trading of European or Far
Eastern securities generally, or in a particular country or
countries, may not take place on every New York business day.
Furthermore, trading takes place in various foreign markets on
days which are not business days in New York and on which each
Fund's net asset value is not calculated. Income Fund calculates
net asset value per Share, and therefore effects sales,
redemptions and repurchases of its Shares, as of the close of the
New York Stock Exchange once on each day on which that Exchange
is open. Such calculation does not take place contemporaneously
with the determination of the prices of many of the portfolio
securities used in such calculation and if events occur which
materially affect the value of those foreign securities, they
will be valued at fair market value as determined by the
management and approved in good faith by the Board of Trustees.
Money Fund uses the amortized cost method to determine the
value of its portfolio securities pursuant to Rule 2a-7 under the
1940 Act. The amortized cost method involves valuing a security
at its cost and amortizing any discount or premium over the
period until maturity, regardless of the impact of fluctuating
interest rates on the market value of the security. While this
method provides certainty in valuation, it may result in periods
during which the value, as determined by amortized cost, is
higher or lower than the price which Money Fund would receive if
the security were sold. During these periods the yield to a
Shareholder may differ somewhat from that which could be obtained
from a similar fund which utilizes a method of valuation based
upon market prices. Thus, during periods of declining interest
rates, if the use of the amortized cost method resulted in a
lower value of Money Fund's portfolio on a particular day, a
prospective investor in Money Fund would be able to obtain a
somewhat higher yield than would result from investment in a fund
utilizing solely market values, and existing Money Fund
Shareholders would receive correspondingly less income. The
converse would apply during periods of rising interest rates.
Rule 2a-7 provides that in order to value its portfolio
using the amortized cost method, Money Fund must (i) maintain a
dollar-weighted average portfolio maturity of 90 days or less;
(ii) purchase securities having remaining maturities of 397 days
or less; and (iii) invest only in U.S. dollar denominated
securities determined in accordance with procedures established
by the Board of Trustees to present minimal credit risks and
which are rated in one of the two highest rating categories for
debt obligations by at least two nationally recognized
statistical rating organizations (or one rating organization if
the instrument is rated by only one such organization, subject to
ratification of the investment by the Board of Trustees). If a
security is unrated, it must be of comparable quality as
determined in accordance with procedures established by the Board
of Trustees, including approval or ratification of the security
by the Board except in the case of U.S. Government securities.
Pursuant to Rule 2a-7, the Board is required to establish
procedures designed to stabilize, to the extent reasonably
possible, Money Fund's price per Share as computed for the
purpose of sales and redemptions at $1.00. Such procedures will
include review of Money Fund's portfolio holdings by the Board of
Trustees, at such intervals as it may deem appropriate, to
determine whether Money Fund's net asset value calculated by
using available market quotations deviates from $1.00 per Share
based on amortized cost. The extent of any deviation will be
examined by the Board of Trustees. If such deviation exceeds 1/2
of 1%, the Board will promptly consider what action, if any, will
be initiated. In the event the Board determines that a deviation
exists which may result in material dilution or other unfair
results to investors or existing Shareholders, the Board will
take such corrective action as it regards as necessary and
appropriate, including the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average
portfolio maturity, withholding dividends or establishing a net
asset value per Share by using available market quotations.
The Board of Trustees may establish procedures under which a
Fund may suspend the determination of net asset value for the
whole or any part of any period during which (1) the New York
Stock Exchange is closed other than for customary weekend and
holiday closings, (2) trading on the New York Stock Exchange is
restricted, (3) an emergency exists as a result of which disposal
of securities owned by a Fund is not reasonably practicable or it
is not reasonably practicable for a Fund fairly to determine the
value of its net assets, or (4) for such other period as the
Securities and Exchange Commission may by order permit for the
protection of the holders of a Fund's Shares.
Ownership and Authority Disputes. In the event of disputes
involving multiple claims of ownership or authority to control a
shareholder's account, each Fund has the right (but has no
obligation) to: (a) freeze the account and require the written
agreement of all persons deemed by the Fund to have a potential
property interest in the account, prior to executing instructions
regarding the account; or (b) interplead disputed funds or
accounts with a court of competent jurisdiction. Moreover, a
Fund may surrender ownership of all or a portion of an account to
the Internal Revenue Service in response to a Notice of Levy.
In addition to the special purchase plans described in the
Prospectus, the following special purchase plans also are
available:
Tax Deferred Retirement Plans. The Trust offers its
Shareholders the opportunity to participate in the following
types of retirement plans:
For individuals whether or not covered by other
qualified plans;
For simplified employee pensions;
For employees of tax-exempt organizations; and
For corporations, self-employed individuals and
partnerships.
Capital gains and income received by the foregoing plans
generally are exempt from taxation until distribution from the
plans. Investors considering participation in any such plan
should review specific tax laws relating thereto and should
consult their attorneys or tax advisers with respect to the
establishment and maintenance of any such plan. Additional
information, including the fees and charges with respect to all
of these plans, is available upon request to the Principal
Underwriter. No distribution under a retirement plan will be
made until Templeton Funds Trust Company receives the
participant's election on Internal Revenue Service Form W-4P
(available on request from Templeton Funds Trust Company) and
such other documentation as it deems necessary, as to whether or
not U.S. income tax is to be withheld from such distribution.
Individual Retirement Account (IRA). All individuals
(whether or not covered by qualified private or governmental
retirement plans) may purchase Shares of a Fund pursuant to an
Individual Retirement Account. However, contributions to an IRA
by an individual who is covered by a qualified private or
governmental plan may not be tax-deductible depending on the
individual's income. Custodial services for Individual
Retirement Accounts are available through Templeton Funds Trust
Company. Disclosure statements summarizing certain aspects of
Individual Retirement Accounts are furnished to all persons
investing in such accounts, in accordance with Internal Revenue
Service regulations.
Simplified Employee Pensions (SEP-IRA). For employers who
wish to establish a simplified form of employee retirement
program investing in Shares of a Fund, there are available
Simplified Employee Pensions invested in IRA Plans. Details and
materials relating to these plans will be furnished upon request
to the Principal Underwriter.
Retirement Plan for Employees of Tax-Exempt Organizations
(403(b)). Employees of public school systems and certain types
of charitable organizations may enter into a deferred
compensation arrangement for the purchase of Shares of a Fund
without being taxed currently on the investment. Contributions
which are made by the employer through salary reduction are
excludable from the gross income of the employee. Such deferred
compensation plans, which are intended to qualify under Section
403(b) of the Internal Revenue Code, are available through the
Principal Underwriter. Custodial services are provided by
Templeton Funds Trust Company.
Qualified Plan for Corporations, Self-Employed Individuals
and Partnerships. For employers who wish to purchase Shares of a
Fund in conjunction with employee retirement plans, there is a
prototype master plan which has been approved by the Internal
Revenue Service. A "Section 401(k) plan" is also available.
Templeton Funds Trust Company furnishes custodial services for
these plans. For further details, including custodian fees and
plan administration services, see the master plan and related
material which is available from the Principal Underwriter.
Letter of Intent. Purchasers who intend to invest $100,000
or more in Class I Shares of Templeton Income Fund or any other
fund in the Franklin Templeton Group (except Templeton Capital
Accumulator Fund, Inc., Templeton Variable Annuity Fund,
Templeton Variable Products Series Fund, Franklin Valuemark Funds
and Franklin Government Securities Trust) within 13 months
(whether in one lump sum or in installments, the first of which
may not be less than 5% of the total intended amount and each
subsequent installment not less than $25 unless the investor is a
qualifying employee benefit plan (the "Benefit Plan"), including
automatic investment and payroll deduction plans), and to
beneficially hold the total amount of such Class I Shares fully
paid for and outstanding simultaneously for at least one full
business day before the expiration of that period, should execute
a Letter of Intent ("LOI") on the form provided in the
Shareholder Application in the Prospectus. Payment for not less
than 5% of the total intended amount must accompany the executed
LOI unless the investor is a Benefit Plan. Except for purchases
of Shares by a Benefit Plan, those Class I Shares purchased with
the first 5% of the intended amount stated in the LOI will be
held as "Escrowed Shares" for as long as the LOI remains
unfulfilled. Although the Escrowed Shares are registered in the
investor's name, his full ownership of them is conditional upon
fulfillment of the LOI. No Escrowed Shares can be redeemed by
the investor for any purpose until the LOI is fulfilled or
terminated. If the LOI is terminated for any reason other than
fulfillment, the Transfer Agent will redeem that portion of the
Escrowed Shares required and apply the proceeds to pay any
adjustment that may be appropriate to the sales commission on all
Class I Shares (including the Escrowed Shares) already purchased
under the LOI and apply any unused balance to the investor's
account. The LOI is not a binding obligation to purchase any
amount of Shares, but its execution will result in the purchaser
paying a lower sales charge at the appropriate quantity purchase
level. A purchase not originally made pursuant to an LOI may be
included under a subsequent LOI executed within 90 days of such
purchase. In this case, an adjustment will be made at the end of
13 months from the effective date of the LOI at the net asset
value per Share then in effect, unless the investor makes an
earlier written request to the Principal Underwriter upon
fulfilling the purchase of Shares under the LOI. In addition,
the aggregate value of any Shares purchased prior to the 90-day
period referred to above may be applied to purchases under a
current LOI in fulfilling the total intended purchases under the
LOI. However, no adjustment of sales charges previously paid on
purchases prior to the 90-day period will be made.
If an LOI is executed on behalf of a benefit plan (such
plans are described under "How to Buy Shares of the Fund--Net
Asset Value Purchases" in the Prospectus), the level and any
reduction in sales charge for these employee benefit plans will
be based on actual plan participation and the projected
investments in the Franklin Templeton Group (except Templeton
Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund,
Templeton Variable Products Series Fund, Franklin Valuemark Funds
and Franklin Government Securities Trust) under the LOI. Benefit
Plans are not subject to the requirement to reserve 5% of the
total intended purchase, or to any penalty as a result of the
early termination of a plan, nor are Benefit Plans entitled to
receive retroactive adjustments in price for investments made
before executing LOIs.
Purchases at Net Asset Value. Except for the Templeton
Money Fund, the following amounts will be paid by FTD, from its
own resources, to securities dealers who initiate and are
responsible for purchases of $1 million or more or for purchases
made at net asset value by non-designated retirement plans:
0.75% on sales of $1 million but less than $2 million, plus 0.60%
on sales of $2 million but less than $3 million, plus 0.50% on
sales of $3 million but less than $50 million, plus 0.25% on
sales of $50 million but less than $100 million, plus 0.15% on
sales of $100 million or more. In the case of purchases made at
net asset value by certain designated retirement plans (excluding
IRA and IRA rollovers) described under the "How to Buy Shares of
the Fund--Net Asset Value Purchases" section of the Prospectus,
the applicable percentages are: 1.00% on sales of $1 million but
less $2 million, plus 0.80% on sales of $2 million but less than
$3 million, plus 0.50% on sales of $3 million but less than $50
million, plus 0.25% on sales of $50 million but less than $100
million, plus 0.15% on sales of $100 million or more. FTD, or
one of its affiliates, may make payment, from its own resources,
of up to 1% of the amount purchased, to securities dealers who
initiate and are responsible for purchases made at net asset
value by certain trust companies and trust departments of banks
and of certain retirement plans of organizations with collective
retirement plan assets of $10 million or more, as described in
the Prospectus. Dealer concession breakpoints are reset every 12
months for purposes of additional purchases.
As described in the Prospectus, FTD or its affiliates may
make payments, from its own resources, to securities dealers
responsible for certain purchases at net asset value. As a
condition of such payments, FTD or its affiliates may require
reimbursement from such securities dealers with respect to
certain redemptions made within 12 months of the calendar month
following purchase as well as other conditions, all of which may
be imposed by an agreement between FTD, or its affiliates, and
the securities dealer.
TAX STATUS
Income Fund intends normally to pay a monthly dividend
representing its net investment income and to distribute at least
annually any net realized capital gains. Money Fund intends to
declare dividends daily and to pay dividends monthly. By so
doing and meeting certain diversification of assets and other
requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), each Fund intends to qualify as a regulated
investment company under the Code. The status of a Fund as a
regulated investment company does not involve government
supervision of management or of its investment practices or
policies. As a regulated investment company, a Fund generally
will be relieved of liability for U.S. federal income tax on that
portion of its net investment income and net realized capital
gains which it distributes to its Shareholders. Amounts not
distributed on a timely basis in accordance with a calendar year
distribution requirement are also subject to a nondeductible 4%
excise tax. To avoid application of the excise tax, each Fund
intends to distribute in accordance with the calendar year
distribution requirement.
Dividends from net investment income and distributions from
short-term capital gains (the excess of net short-term capital
gains over net long-term capital losses) are taxable to
Shareholders as ordinary income. Distributions from net
investment income may be eligible for the corporate dividends
received deduction to the extent attributable to Income Fund's
qualifying dividend income. However, the alternative minimum tax
applicable to corporations may reduce the benefit of the
dividends received deduction. Distributions from net long-term
capital gains (the excess of net long-term capital gains over net
short-term capital losses) designated by a Fund as capital gain
dividends are taxable to Shareholders as long-term capital gains,
regardless of the length of time a Fund's Shares have been held
by a Shareholder, and are not eligible for the dividends received
deduction. All dividends and distributions are taxable to
Shareholders, whether or not reinvested in Shares of either Fund.
Shareholders will be notified annually as to the Federal tax
status of dividends and distributions they received and any tax
withheld thereon.
Debt securities purchased by a Fund may be treated for
federal income tax purposes as having original issue discount.
Original issue discount essentially represents interest for
federal tax purposes and can be defined generally as the excess
of the stated redemption price at maturity over the issue price.
Original issue discount, whether or not any income is actually
received by a Fund, is treated for U.S. federal income tax
purposes as income earned by the Fund, and therefore is subject
to the distribution requirements of the Code. Generally, the
amount of original issue discount included in the income of a
Fund each year is determined on the basis of a constant yield to
maturity which takes into account the compounding of accrued but
unpaid interest.
In addition, debt securities may be purchased by a Fund at a
discount which exceeds the original issue discount remaining on
the securities, if any, at the time the Fund purchased the
securities. This additional discount represents market discount
for federal income tax purposes. In the case of any debt
security having a fixed maturity date of more than one year from
the date of issue and having market discount, the gain realized
on disposition will be treated as interest for most purposes of
the Code to the extent it does not exceed the accrued market
discount on the security (unless a Fund elects for all its debt
securities having a fixed maturity date of more than one year
from the date of issue to include market discount in income in
tax years to which it is attributable). Generally, market
discount accrues on a daily basis. In the case of any debt
security having a fixed maturity date of not more than one year
from the date of issue, the gain realized on disposition will be
treated as short-term capital gain. Market discount on
securities with a fixed maturity date not exceeding one year from
the date of issue generally is included in income on a ratable
basis.
Income Fund may invest in shares of foreign corporations
which may be classified under the Code as passive foreign
investment companies ("PFICs"). In general, a foreign
corporation is classified as a PFIC for a taxable year if at
least one-half of its assets constitute investment-type assets or
75% or more of its gross income is investment-type income. If
Income Fund receives a so-called "excess distribution" with
respect to PFIC stock, Income Fund itself may be subject to a tax
on a portion of the excess distribution, whether or not the
corresponding income is distributed by Income Fund to
Shareholders. In general, under the PFIC rules, an excess
distribution is treated as having been realized ratably over the
period during which Income Fund held the PFIC shares. Income
Fund itself will be subject to tax on the portion, if any, of an
excess distribution that is so allocated to prior Fund taxable
years and an interest factor will be added to the tax, as if the
tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC
shares are treated as excess distributions. Excess distributions
are characterized as ordinary income even though, absent
application of the PFIC rules, certain excess distributions might
have been classified as capital gain.
Income Fund may be eligible to elect alternative tax
treatment with respect to PFIC shares. Under an election that
currently is available in some circumstances, the Fund generally
would be required to include in its gross income its share of the
earnings of a PFIC on a current basis, regardless of whether
distributions are received from the PFIC in a given year. If this
election were made, the special rules, discussed above, relating
to the taxation of excess distributions, would not apply. In
addition, another election may be available that would involve
marking to market Income Fund's PFIC shares at the end of each
taxable year (and on certain other dates prescribed in the Code),
with the result that unrealized gains are treated as though they
were realized. If this election were made, tax at the fund level
under the PFIC rules would generally be eliminated, but Income
Fund could, in limited circumstances, incur nondeductible
interest charges. Income Fund's intention to qualify annually as
a regulated investment company may limit its elections with
respect to PFIC shares.
Certain of the options, futures contracts and forward
contracts in which Income Fund may invest are "section 1256
contracts." Gains or losses on section 1256 contracts generally
are considered 60% long-term and 40% short-term capital gains or
losses ("60/40"); however, foreign currency gains or losses (as
discussed below) arising from certain section 1256 contracts may
be treated as ordinary income or loss. Also, section 1256
contracts held by Income Fund at the end of each taxable year
(and, with certain exceptions, for purposes of the 4% excise tax,
on October 31 of each year) are "marked-to-market" with the
result that unrealized gains or losses are treated as though they
were realized.
Generally, the hedging transactions undertaken by Income
Fund may result in "straddles" for U.S. federal income tax
purposes. The straddle rules may affect the character of gains
(or losses) realized by Income Fund. In addition, losses
realized by Income Fund on positions that are part of a straddle
may be deferred under the straddle rules, rather than being taken
into account in calculating the taxable income for the taxable
year in which the losses are realized. Because only a few
regulations implementing the straddle rules have been
promulgated, the tax consequences to Income Fund of hedging
transactions are not entirely clear. The hedging transactions
may increase the amount of short-term capital gain realized by
Income Fund which is taxed as ordinary income when distributed to
Shareholders.
Income Fund may make one or more of the elections available
under the Code which are applicable to straddles. If Income Fund
makes any of the elections, the amount, character, and timing of
the recognition of gains or losses from the affected straddle
positions will be determined under rules that vary according to
the elections made. The rules applicable under certain of the
elections may operate to accelerate the recognition of gains or
losses from the affected straddle positions.
Because application of the straddle rules may affect the
character of gains or losses, defer losses and/or accelerate the
recognition of gains or losses from the affected straddle
positions, the amount which must be distributed to Shareholders
and which will be taxed to Shareholders as ordinary income or
long-term capital gain may be increased or decreased as compared
to a fund that did not engage in such hedging transactions.
Requirements relating to Income Fund's tax status as a
regulated investment company may limit the extent to which Income
Fund will be able to engage in such transactions in options,
futures and forward contracts.
Under the Code, gains or losses attributable to fluctuations
in exchange rates which occur between the time a Fund accrues
income or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time a Fund
actually collects such receivables or pays such liabilities
generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of certain forward and
futures contracts and options, gains or losses attributable to
fluctuations in the value of foreign currency between the date of
acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These
gains and losses, referred to under the Code as "section 988"
gains and losses, may increase or decrease the amount of a Fund's
net investment income to be distributed to its Shareholders as
ordinary income. For example, fluctuations in exchange rates may
increase the amount of income that a Fund must distribute in
order to qualify for treatment as a regulated investment company
and to prevent application of an excise tax on undistributed
income. Alternatively, fluctuations in exchange rates may
decrease or eliminate income available for distribution. If
section 988 losses exceed other net investment income during a
taxable year, a Fund would not be able to make ordinary dividend
distributions, or distributions made before the losses were
realized would be recharacterized as a return of capital to
Shareholders for federal income tax purposes, rather than as an
ordinary dividend, reducing each Shareholder's basis in his Fund
Shares.
Income received by the Funds from sources within foreign
countries may be subject to withholding and other income or
similar taxes imposed by such countries. If more than 50% of the
value of Income Fund's total assets at the close of its taxable
year consists of securities of foreign corporations, Income Fund
will be eligible and intends to elect to "pass through" to Income
Fund's Shareholders the amount of foreign taxes paid by Income
Fund. Pursuant to this election, a Shareholder will be required
to include in gross income (in addition to taxable dividends
actually received) his pro rata share of the foreign taxes paid
by Income Fund, and will be entitled either to deduct (as an
itemized deduction) his pro rata share of foreign income and
similar taxes in computing his taxable income or to use it as a
foreign tax credit against his U.S. federal income tax liability,
subject to limitations. No deduction for foreign taxes may be
claimed by a Shareholder who does not itemize deductions, but
such a Shareholder may be eligible to claim the foreign tax
credit (see below). Each Shareholder will be notified within 60
days after the close of Income Fund's taxable year whether the
foreign taxes paid by Income Fund will "pass through" for that
year.
Generally, a credit for foreign taxes is subject to the
limitation that it may not exceed the Shareholder's U.S. tax
attributable to his foreign source taxable income. For this
purpose, if the pass-through election is made, the source of
Income Fund's income flows through to its Shareholders. With
respect to Income Fund, gains from the sale of securities will be
treated as derived from U.S. sources and certain currency
fluctuation gains, including fluctuation gains from foreign
currency denominated debt securities, receivables and payables,
will be treated as ordinary income derived from U.S. sources.
The limitation on the foreign tax credit is applied separately to
foreign source passive income (as defined for purposes of the
foreign tax credit), including the foreign source passive income
passed through by Income Fund. Shareholders may be unable to
claim a credit for the full amount of their proportionate share
of the foreign taxes paid by Income Fund. Foreign taxes may not
be deducted in computing alternative minimum taxable income and
the foreign tax credit can be used to offset only 90% of the
alternative minimum tax (as computed under the Code for purposes
of this limitation) imposed on corporations and individuals. If
Income Fund is not eligible to make the election to "pass
through" to its Shareholders its foreign taxes, the foreign
income taxes it pays generally will reduce investment company
taxable income and the distributions by Income Fund will be
treated as United States source income.
Upon the sale or exchange of Income Fund Shares, a
Shareholder will realize a taxable gain or loss depending upon
his basis in the Shares. Such gain or loss generally will be
treated as capital gain or loss if the Shares are capital assets
in the Shareholder's hands, and will be long-term if the
Shareholder's holding period for the Shares is more than one year
and generally otherwise will be short-term. Any loss realized on
a sale or exchange will be disallowed to the extent that the
Shares disposed of are replaced (including replacement through
the reinvesting of dividends and capital gain distributions in
Income Fund) within a period of 61 days beginning 30 days before
and ending 30 days after the disposition of the Shares. In such
a case, the basis of the Shares acquired will be adjusted to
reflect the disallowed loss. Any loss realized by a Shareholder
on the sale of Income Fund Shares held by the Shareholder for 6
months or less will be treated for federal income tax purposes as
a long-term capital loss to the extent of any distributions of
capital gain dividends received by the Shareholder with respect
to such Shares. It is not anticipated that gain or loss will be
realized from a disposition of Money Fund Shares since that Fund
intends to maintain a share price of $1.
In some cases, Shareholders will not be permitted to take
sales charges into account for purposes of determining the
amount of gain or loss realized on the disposition of their
Shares. This prohibition generally applies where (1) the
Shareholder incurs a sales charge in acquiring the stock of a
regulated investment company, (2) the stock is disposed of before
the 91st day after the date on which it was acquired, and (3) the
Shareholder subsequently acquires shares of the same or another
regulated investment company and the otherwise applicable sales
charge is reduced or eliminated under a "reinvestment right"
received upon the initial purchase of stock. Sales charges
affected by this rule are treated as if they were incurred with
respect to the stock acquired under the reinvestment right. This
provision may be applied to successive acquisitions of stock.
The Funds generally will be required to withhold federal
income tax at a rate of 31% ("backup withholding") from dividends
paid, capital gain distributions and redemption proceeds (except
redemptions from Money Fund), to a Shareholder if (1) the
Shareholder fails to furnish a Fund with the Shareholder's
correct taxpayer identification number or social security number,
(2) the Internal Revenue Service (the "IRS") notifies the
Shareholder or a Fund that the Shareholder has failed to report
properly certain interest and dividend income to the IRS and to
respond to notices to that effect, or (3) when required to do so,
the Shareholder fails to certify that he is not subject to backup
withholding.
Ordinary dividends and taxable capital gain distributions
declared in October, November, or December with a record date in
such a month and paid during the following January will be
treated as having been paid by a Fund and received by
Shareholders on December 31 of the calendar year in which
declared, rather than the calendar year in which the dividends
are actually received.
U.S. tax rules applicable to foreign investors may differ
significantly from those outlined above. Distributions also may
be subject to state, local and foreign taxes. Shareholders
should consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Fund.
PRINCIPAL UNDERWRITER
Franklin Templeton Distributors, Inc. ("FTD" or the
"Principal Underwriter"), 700 Central Avenue, P.O. Box 33030, St.
Petersburg, Florida 33733-8030, toll free telephone (800) 237-
0738, is the Principal Underwriter of each Fund's Shares. FTD is
a wholly owned subsidiary of Franklin.
Each Fund, pursuant to Rule 12b-1 under the 1940 Act, has
adopted Distribution Plans ("Plans"). Under the Plans adopted
with respect to Class I Shares (including all Shares issued by
Money Fund), each Fund may reimburse FTD monthly (subject to a
limit of 0.15% per annum of Money Fund's average daily net assets
and 0.25% per annum of Income Fund's average daily net assets
attributable to Class I Shares) for FTD's costs and expenses in
connection with any activity which is primarily intended to
result in the sale of the Funds' Shares. Income Fund also has a
second class of Shares, designated Class II Shares. Under the
Plan adopted with respect to Class II Shares, Income Fund may
reimburse FTD monthly (subject to a limit of 0.65% per annum of
the Fund's average daily assets attributable to Class II Shares
of which up to 0.15% of such net assets may be paid to dealers
for personal service and/or maintenance of Shareholder accounts)
for FTD's costs and expenses in connection with any activity
which is primarily intended to result in the sale of the Fund's
Shares. Payments to FTD could be for various types of
activities, including (1) payments to broker-dealers who provide
certain services of value to each Fund's Shareholders (sometimes
referred to as a "trail fee"); (2) reimbursement of expenses
relating to selling and servicing efforts or of organizing and
conducting sales seminars; (3) payments to employees or agents of
the Principal Underwriter who engage in or support distribution
of Shares; (4) payments of the costs of preparing, printing and
distributing Prospectuses and reports to prospective investors
and of printing and advertising expenses; (5) payment of dealer
commissions and wholesaler compensation in connection with sales
of the Funds' Shares exceeding $1 million (on which Income Fund
imposes no initial sales charge) and interest or carrying charges
in connection therewith; and (6) such other similar services as
the Trust's Board of Trustees determines to be reasonably
calculated to result in the sale of Shares. Under the Plans, the
costs and expenses not reimbursed in any one given month
(including costs and expenses not reimbursed because they exceed
the percentage limit applicable to either class of Shares) may be
reimbursed in subsequent months or years.
During the fiscal year ended August 31, 1994, FTD incurred
costs and expenses of $469,730 in connection with distribution of
Class I Shares of Income Fund and $213,238 in connection with
distribution of Class I Shares of Money Fund. During the same
period, the Trust made reimbursements pursuant to the Plans in
the amount of $469,730 on behalf of Income Fund and $208,553 on
behalf of Money Fund. As indicated above, unreimbursed expenses,
which amount to $16,230 for Class I Shares of Money Fund, may be
reimbursed by the Trust during the fiscal year ending August 31,
1995 or in subsequent years. In the event that a Plan is
terminated, the Trust will not be liable to FTD for any
unreimbursed expenses that had been carried forward from previous
months or years. During the fiscal year ended August 31, 1994,
FTD spent, with respect to Income Fund, the following amounts on:
compensation to dealers, $368,478; sales promotion, $6,940;
wholesale costs and expenses, $14,317; advertising, $397; and
printing, $79,598; and, with respect to Money Fund, the following
amounts on: compensation to dealers, $181,970; printing,
$16,263; wholesale costs and expenses, $14,609; and advertising,
$396.
The Underwriting Agreement provides that the Principal
Underwriter will use its best efforts to maintain a broad and
continuous distribution of each Fund's Shares among bona fide
investors and may sign selling agreements with responsible
dealers, as well as sell to individual investors. The Shares are
sold only at the Offering Price in effect at the time of sale,
and each Fund receives not less than the full net asset value of
the Shares sold. The discount between the Offering Price and the
net asset value of Income Fund Shares may be retained by the
Principal Underwriter or it may reallow all or any part of such
discount to dealers. During the fiscal years ended August 31,
1994, 1993, and 1992, FTD (and, prior to June 1, 1993, Templeton
Funds Distributor, Inc.) retained of such discount $277,670,
$326,584, and $144,697, or approximately 18.16%, 19.54%, and
10.88%, of the gross commissions on sales of Income Fund Shares,
respectively. The Principal Underwriter in all cases buys Shares
from a Fund acting as principal for its own account. Dealers
generally act as principal for their own account in buying Shares
from the Principal Underwriter. No agency relationship exists
between any dealer and a Fund or the Principal Underwriter.
The Underwriting Agreement provides that each Fund shall pay
the costs and expenses incident to registering and qualifying its
Shares for sale under the Securities Act of 1933 and under the
applicable blue sky laws of the jurisdictions in which the
Principal Underwriter desires to distribute such Shares, and for
preparing, printing and distributing Prospectuses and reports to
Shareholders. The Principal Underwriter pays the cost of
printing additional copies of Prospectuses and reports to
Shareholders used for selling purposes. (The Funds pay costs of
preparation, set-up and initial supply of the Funds' Prospectuses
for existing Shareholders.)
The Underwriting Agreement is subject to renewal from year
to year in accordance with the provisions of the 1940 Act and
terminates automatically in the event of its assignment. The
Underwriting Agreement may be terminated without penalty by
either party upon 60 days' written notice to the other, provided
termination by the Trust shall be approved by the Board of
Trustees or a majority (as defined in the 1940 Act) of the
Shareholders. The Principal Underwriter is relieved of liability
for any act or omission in the course of its performance of the
Underwriting Agreement, in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its
obligations.
FTD is the principal underwriter for the other Templeton
Funds.
YIELD AND PERFORMANCE INFORMATION
Money Fund may, from time to time, include its yield and
effective yield in advertisements or reports to Shareholders or
prospective investors. Current yield for Money Fund will be
based on the change in the value of a hypothetical investment
(exclusive of capital changes) over a particular seven-day
period, less a pro-rata share of Money Fund expenses accrued over
that period (the "base period"), and stated as a percentage of
the investment at the start of the base period (the "base period
return"). The base period return is then annualized by
multiplying by 365/7, with the resulting yield figure carried to
at least the nearest hundredth of one percent. "Effective Yield"
for Money Fund assumes that all dividends received during an
annual period have been reinvested. Calculation of "effective
yield" begins with the same "base period return" used in the
calculation of yield, which is then annualized to reflect weekly
compounding pursuant to the following formula:
EFFECTIVE YIELD = (1 + Base Period Return) 365/7 - 1
YIELD = 2[(1 + a-b)6 - 1]
cd
where a = dividend and interest earned during the period,
b = expenses accrued for the period (net of
reimbursements),
c = the average daily number of Shares outstanding
during the period that were entitled to receive
dividends, and
d = the maximum offering price per Share on the last
day of the period.
For the seven-day period ending August 31, 1994, the yield
of Money Fund was 3.08% and the effective yield of Money Fund was
3.11%.
The Funds may, from time to time, include their total return
in advertisements or reports to Shareholders or prospective
investors. Quotations of average annual total return for the
Funds will be expressed in terms of the average annual compounded
rate of return for periods in excess of one year or the total
return for periods less than one year of a hypothetical
investment in the Funds over periods of one, five, or ten years
(up to the life of a Fund) calculated pursuant to the following
formula: P(1 + T)n = ERV (where P = a hypothetical initial
payment of $1,000, T = the average annual total return for
periods of one year or more or the total return for periods of
less than one year, n = the number of years, and ERV = the ending
redeemable value of a hypothetical $1,000 payment made at the
beginning of the period). All total return figures reflect the
deduction of the maximum initial sales charge and deduction of a
proportional share of Fund expenses on an annual basis, and
assume that all dividends and distributions are reinvested when
paid. Income Fund's average annual total return for the one- and
five-year periods ended August 31, 1994 and from inception on
September 24, 1986 through August 31, 1994, was -6.17%, 6.23%,
and 7.09%, respectively. Money Fund's average annual total
return for the one- and five-year periods ended August 31, 1994
and from inception on October 3, 1987 through August 31, 1994,
was 2.66%, 4.50% and 5.36%, respectively.
Performance information for either Fund may be compared, in
reports and promotional literature, to: (i) unmanaged indices so
that investors may compare the Fund's results with those of a
group of unmanaged securities widely regarded by investors as
representative of the securities market in general; (ii) other
groups of mutual funds tracked by Lipper Analytical Services,
Inc., a widely used independent research firm which ranks mutual
funds by overall performance, investment objectives and assets,
or tracked by other services, companies, publications, or persons
who rank mutual funds on overall performance or other criteria;
and (iii) the Consumer Price Index (measure for inflation) to
assess the real rate of return from an investment in a Fund.
Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and
management costs and expenses.
Performance information for a Fund reflects only the
performance of a hypothetical investment in a Fund during the
particular time period on which the calculations are based.
Performance information should be considered in light of a Fund's
investment objective and policies, characteristics and quality of
the portfolio and the market conditions during the given time
period, and should not be considered as a representation of what
may be achieved in the future.
From time to time, each Fund and the Investment Manager may
also refer to the following information:
(1) The Investment Manager's and its affiliates' market share of
international equities managed in mutual funds prepared or
published by Strategic Insight or a similar statistical
organization.
(2) The performance of U.S. equity and debt markets relative to
foreign markets prepared or published by Morgan Stanley
Capital International or a similar financial organization.
(3) The capitalization of U.S. and foreign stock markets as
prepared or published by the International Finance Corp.,
Morgan Stanley Capital International or a similar financial
organization.
(4) The geographic distribution of the Fund's portfolio.
(5) The gross national product and populations, including age
characteristics, of various countries as published by
various statistical organizations.
(6) To assist investors in understanding the different returns
and risk characteristics of various investments, the Fund
may show historical returns of various investments and
published indices (e.g., Ibbotson Associates, Inc. Charts
and Morgan Stanley EAFE - Index).
(7) The major industries located in various jurisdictions as
published by the Morgan Stanley Index.
(8) Rankings by DALBAR Surveys, Inc. with respect to mutual fund
shareholder services.
(9) Allegorical stories illustrating the importance of
persistent long-term investing.
(10) The Fund's portfolio turnover rate and its ranking relative
to industry standards as published by Lipper Analytical
Services, Inc. or Morningstar, Inc.
(11) A description of the Templeton organization's investment
management philosophy and approach, including its worldwide
search for undervalued or "bargain" securities and its
diversification by industry, nation and type of stocks or
other securities.
(12) Quotations from the Templeton organization's founder, Sir
John Templeton,* advocating the virtues of diversification
and long-term investing, including the following:
o "Never follow the crowd. Superior performance is
possible only if you invest differently from the
crowd."
o "Diversify by company, by industry and by
country."
o "Always maintain a long-term perspective."
_______________
* Sir John Templeton, who currently serves as Chairman of the
Trust's Board, is not involved in investment decisions,
which are made by each Fund's Investment Manager.
o "Invest for maximum total real return."
o "Invest - don't trade or speculate."
o "Remain flexible and open-minded about types of
investment."
o "Buy low."
o "When buying stocks, search for bargains among
quality stocks."
o "Buy value, not market trends or the economic
outlook."
o "Diversify. In stocks and bonds, as in much else,
there is safety in numbers."
o "Do your homework or hire wise experts to help
you."
o "Aggressively monitor your investments."
o "Don't panic."
o "Learn from your mistakes."
o "Outperforming the market is a difficult task."
o "An investor who has all the answers doesn't even
understand all the questions."
o "There's no free lunch."
o And now the last principle: Do not be fearful or
negative too often."
In addition, each Fund and the Investment Manager may also
refer to the number of shareholders in the Fund or the aggregate
number of shareholders in the Franklin Templeton Group or the
dollar amount of fund and private account assets under management
in advertising materials.
DESCRIPTION OF SHARES
The Shares of each Fund have the same preferences,
conversion and other rights, voting powers, restrictions and
limitations as to dividends, qualifications and terms and
conditions of redemption, except as follows: all consideration
received from the sale of Shares of a Fund, together with all
income, earnings, profits and proceeds thereof, belongs to that
Fund and is charged with liabilities in respect to that Fund and
of that Fund's part of general liabilities of the Trust in the
proportion that the total net assets of the Fund bear to the
total net assets of both Funds. The net asset value of a Share
of a Fund is based on the assets belonging to that Fund less the
liabilities charged to that Fund, and dividends are paid on
Shares of a Fund only out of lawfully available assets belonging
to that Fund. In the event of liquidation or dissolution of the
Trust, the Shareholders of each Fund will be entitled, out of
assets of the Trust available for distribution, to the assets
belonging to that particular Fund.
The Declaration of Trust provides that the holders of not
less than two-thirds of the outstanding Shares of the Funds may
remove a person serving as Trustee either by declaration in
writing or at a meeting called for such purpose. The Trustees
are required to call a meeting for the purpose of considering the
removal of a person serving as Trustee if requested in writing to
do so by the holders of not less than 10% of the outstanding
Shares of the Trust.
Under Massachusetts law, Shareholders could, under certain
circumstances, be held personally liable for the obligations of
the Trust. However, the Declaration of Trust disclaims liability
of the Shareholders, Trustees or officers of the Trust for acts
or obligations of the Trust, which are binding only on the assets
and property of the Trust. The Declaration of Trust provides for
indemnification out of Trust property for all loss and expenses
of any Shareholder held personally liable for the obligations of
the Trust. The risk of a Shareholder incurring financial loss on
account of Shareholder liability is limited to circumstances in
which the Trust itself would be unable to meet its obligations
and, thus, should be considered remote.
The Shares have non-cumulative voting rights so that the
holders of a plurality of the Shares voting for the election of
Trustees at a meeting at which 50% of the outstanding Shares are
present can elect all the Trustees and in such event, the holders
of the remaining Shares voting for the election of Trustees will
not be able to elect any person or persons to the Board of
Trustees.
FINANCIAL STATEMENTS
The financial statements contained in the 1994 Annual
Reports to Shareholders of Templeton Income Fund and Templeton
Money Fund are incorporated herein by reference.
APPENDIX
CORPORATE BOND AND COMMERCIAL PAPER RATINGS
Corporate Bonds. Bonds rated Aa by Moody's Investors
Service, Inc. ("Moody's") are judged by Moody's to be of high
quality by all standards. Together with bonds rated Aaa (Moody's
highest rating), they comprise what are generally known as high-
grade bonds. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds,
or fluctuations of protective elements may be of greater
amplitude, or there may be other elements present which make the
long-term risks appear somewhat larger than those applicable to
Aaa securities. Bonds which are rated A by Moody's possess many
favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal
and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the
future.
Moody's Baa rated bonds are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payment and principal security appear adequate
for the present, but certain protective elements may be lacking
or may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative
elements because their future cannot be considered as well
assured. Uncertainty of position characterizes bonds in this
class, because the protection of interest and principal payments
often may be very moderate and not well safeguarded.
Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the security over
any long period of time may be small. Bonds which are rated Caa
are of poor standing. Such securities may be in default or there
may be present elements of danger with respect to principal or
interest. Bonds which are rated Ca represent obligations which
are speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
Bonds rated AAA by Standard & Poor's Corporation ("S&P") are
considered by S&P to be the highest grade obligations and possess
the ultimate degree of protection as to principal and interest.
Bonds rated AA are judged by S&P to be high-grade obligations and
in the majority of instances differ only in small degree from
issues rated AAA (S&P's highest rating). Bonds rated A by S&P
have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
S&P's BBB rated bonds, or medium-grade category bonds, are
between sound obligations and those where the speculative
elements begin to predominate. Although these bonds have
adequate asset coverage and normally are protected by
satisfactory earnings, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to
pay interest and principal.
Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity
to pay interest and principal in accordance with the terms of the
obligation. While such bonds may have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Commercial Paper. The Prime rating is the highest
commercial paper rating assigned by Moody's. Among the factors
considered by Moody's in assigning ratings are the following:
(1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in
certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity;
(5) amount and quality of long-term debt; (6) trend of earnings
over a period of ten years; (7) financial strength of a parent
company and the relationships which exist with the issuer; and
(8) recognition by management of obligations which may be present
or may arise as a result of public interest questions and
preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the
relative strengths of these factors.
Commercial paper rated A by S&P has the following
characteristics: (i) liquidity ratios are adequate to meet cash
requirements; (ii) long-term senior debt rating should be A or
better, although in some cases BBB credits may be allowed if
other factors outweigh the BBB; (iii) the issuer should have
access to at least two additional channels of borrowing;
(iv) basic earnings and cash flow should have an upward trend
with allowances made for unusual circumstances; and (v) typically
the issuer's industry should be well established and the issuer
should have a strong position within its industry and the
reliability and quality of management should be unquestioned.
Issuers rated A are further referred to by use of numbers 1, 2
and 3 to denote relative strength within this highest
classification.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements: Incorporated by Reference
from the 1994 Annual Reports to Shareholders of
Templeton Income Fund and Templeton Money Fund:
Independent Auditors' Report
Investment Portfolio as of August 31, 1994
Statement of Assets and Liabilities as of August
31, 1994
Statement of Operations for the year ended August
31, 1994
Statements of Changes in Net Assets for the years
ended August 31, 1994 and 1993
Notes to Financial Statements
(b) Exhibits:
(1)(A) Amended and Restated Declaration of Trust*
(B) Establishment and Designation of Series of
Shares of Beneficial Interest*
(C) First Amendment to Declaration of Trust*
(D) Second Amendment to Declaration of Trust
(E) Establishment and Designation of Classes
(2) By-Laws*
(3) Not applicable
(4)(A) Specimen security of Templeton Income Fund*
(B) Specimen security of Templeton Money Fund*
(5)(A) Form of Amended and Restated Investment
Management Agreement - Templeton Income Fund
_______________
* Previously filed with Registration No. 33-6510 and
incorporated by reference herein.
(B) Form of Amended and Restated Investment
Management Agreement - Templeton Money Fund
(6)(A) Distribution Agreement*
(B) Dealer Agreement*
(7) Not applicable
(8)(A) Custody Agreement - Templeton Income Fund*
(B) Custody Agreement - Templeton Money Fund*
(9)(A) Business Management Agreement*
(B) Form of Transfer Agent Agreement*
(C) Form of Sub-Transfer Agent Services
Agreement*
(D) Form of Sub-Accounting Services Agreement*
(10) Opinion and consent of counsel (Included in Rule
24f-2 notice)
(11) Consent of independent public accountants
(12) Not applicable
(13) Initial capital agreement*
(14) Model retirement plans*
(15)(A)(1) Distribution Plan -- Templeton Income Fund
Class I Shares
(2) Distribution Plan -- Templeton Income Fund
Class II Shares
(B) Distribution Plan - Templeton Money Fund*
(16) Schedule showing computation of performance
quotations provided in response to Item 22*
(17) Assistant Secretary's Certificate pursuant to Rule
483(b)*
Item 25. Persons Controlled by or Under Common Control with
Registrant
None.
Item 26. Number of Record Holders
Number of
Date Title of Class Recordholders
January 31, 1995 Templeton Income 11,999
Fund - Shares of
Beneficial Interest
January 31, 1995 Templeton Money 13,051
Fund - Shares of
Beneficial Interest
Item 27. Indemnification
Reference is made to Article IV of the Registrant's
Declaration of Trust, which is filed herewith.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
trustees, officers and controlling persons of the
Registrant by the Registrant pursuant to the
Declaration of Trust or otherwise, the Registrant is
aware that in the opinion of the Securities and
Exchange Commission, such indemnification is against
public policy as expressed in the Act and, therefore,
is unenforceable. In the event that a claim for
indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or
paid by trustees, officers or controlling persons of
the Registrant in connection with the successful
defense of any act, suit or proceeding) is asserted by
such trustees, officers or controlling persons in
connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against
public policy as expressed in the Act and will be
governed by the final adjudication of such issues.
Item 28. Business and Other Connections of Investment Adviser
and its Officers and Directors
The business and other connections of Registrant's
investment adviser, the Templeton Global Bond Managers
Division of Templeton Investment Counsel, Inc., are
described in Parts A and B.
For information relating to the investment adviser's
officers and directors, reference is made to Form ADV
filed under the Investment Advisers Act of 1940 by
Templeton Investment Counsel, Inc.
Item 29. Principal Underwriters
principal underwriter of shares of Templeton
Growth Fund, Inc., Templeton Funds, Inc.,
Templeton Smaller Companies Growth Fund, Inc.,
Templeton Income Trust, Templeton Real Estate
Securities Fund, Templeton Capital Accumulator
Fund, Inc., Templeton Developing Markets Trust,
Templeton American Trust, Inc., Templeton
Institutional Funds, Inc., Templeton Global
Opportunities Trust, Templeton Variable Products
Series Fund, Templeton Global Investment Trust,
Templeton Variable Annuity Fund, AGE High Income
Fund, Inc., Franklin Balance Sheet Investment
Fund, Franklin California Tax Free Income Fund,
Inc., Franklin California Tax Free Trust, Franklin
Custodian Funds, Inc., Franklin Equity Fund,
Franklin Federal Money Fund, Franklin Federal Tax-
Free Income Fund, Franklin Gold Fund, Franklin
International Trust, Franklin Investors Securities
Trust, Franklin Managed Trust, Franklin Money
Fund, Franklin Municipal Securities Trust,
Franklin New York Tax-Free Income Fund, Franklin
New York Tax-Free Trust, Franklin Premier Return
Fund, Franklin Real Estate Securities Fund,
Franklin Strategic Series, Franklin Tax-Advantaged
High Yield Securities Fund, Franklin Tax-
Advantaged International Bond Fund, Franklin Tax-
Advantaged U.S. Government Securities Fund,
Franklin Tax Exempt Money Fund, Franklin Tax-Free
Trust, Franklin/Templeton Japan Fund, and
Institutional Fiduciary Trust.
(b) The directors and officers of FTD, located at 700
Central Avenue, St. Petersburg, Florida
33733-9926, are as follows:
Positions and Positions and
Offices with Offices with
Name Underwriter Registrant
Charles B. Johnson Chairman of the Board Vice President
and Director and Trustee
Gregory E. Johnson President None
Rupert H. Johnson, Jr. Executive Vice President None
and Director
Harmon E. Burns Executive Vice President None
and Director
Edward V. McVey Senior Vice President None
Kenneth V. Domingues Senior Vice President None
Martin L. Flanagan Senior Vice President Vice President
and Treasurer
William J. Lippman Senior Vice President None
Richard C. Stoker Senior Vice President None
Charles E. Johnson Senior Vice President None
Deborah R. Gatzek Senior Vice President and None
Assistant Secretary
Peter Black Vice President None
James K. Blinn Vice President None
Bernie Buckley Vice President None
Joel Burns Vice President None
Debra Carter Vice President None
Richard O. Conboy Vice President None
Joe Cronin Vice President None
James F. Duryea Vice President None
James A. Escobedo Vice President None
Loretta Fry Vice President None
Robert N. Geppner Vice President None
John Gould Vice President None
Sheppard G. Griswold Vice President None
Mike Hackett Vice President None
Brad N. Hanson Vice President None
Carolyn L. Hennion Vice President None
Andrew Jennings Vice President None
Peter Jones Vice President None
Philip J. Kearns Vice President None
John Leach Vice President None
Ken Leder Vice President None
Jack Lemein Vice President None
John R. McGee Vice President None
Thomas M. Mistele Vice President Secretary
Harry G. Mumford Vice President None
Mike Nardone Vice President None
Thomas H. O'Connor Vice President None
Vivian J. Palmieri Vice President None
Roger Pearson Vice President None
Richard S. Petrell Vice President None
John Phillips Vice President None
Darrell Plocher Vice President None
Dennis Shannon Vice President None
Robert E. Silvani Vice President None
Kent P. Strazza Vice President None
Susan K. Tallarico Vice President None
Leslie M. Kratter Secretary None
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be
maintained by Registrant pursuant to Section 31(a) of
the Investment Company Act of 1940 and rules promul-
gated thereunder are in the possession of Templeton
Global Investors, Inc., 500 East Broward Blvd., Fort
Lauderdale, Florida 33394.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish to each person to
whom a Prospectus for Templeton Income Fund or
Templeton Money Fund is provided a copy of such
Fund's latest Annual Report, upon request and
without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933 and the Investment Company Act of 1940, the Registrant
certifies that it meets all the requirements for effectiveness of
the Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-Effective
Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City
of Washington, D.C., on the 1st day of March, 1995.
Templeton Income Trust
By: _________________________
Samuel J. Forester, Jr.*
President
*By: /s/ Jeffrey L. Steele
Jeffrey L. Steele
as attorney-in-fact**
Pursuant to the requirements of the Securities Act of
1933, this Amendment to the Registrant's Registration Statement
has been signed below by the following persons in the capacities
and on the dates indicated.
______________________ President (Chief March 1, 1995
Samuel J. Forester, Jr.* Executive Officer)
______________________ Trustee March 1, 1995
F. Bruce Clarke*
______________________ Trustee March 1, 1995
Betty P. Krahmer*
______________________ Trustee March 1, 1995
Hasso-G von Diergardt-Naglo*
______________________ Trustee March 1, 1995
Fred R. Millsaps*
______________________ Trustee March 1, 1995
John G. Bennett, Jr.*
______________________ Trustee March 1, 1995
John M. Templeton
______________________ Trustee March 1, 1995
Charles B. Johnson*
______________________ Trustee March 1, 1995
Andrew H. Hines, Jr.*
______________________ Trustee March 1, 1995
Harris J. Ashton*
______________________ Trustee March 1, 1995
S. Joseph Fortunato*
______________________ Trustee March 1, 1995
Gordon S. Macklin*
______________________ Trustee March 1, 1995
Nicholas F. Brady*
______________________ Treasurer March 1, 1995
James R. Baio* (Chief Financial
Officer)
/s/ Jeffrey L. Steele
* By: Jeffrey L. Steele**
** Powers of Attorney are contained in Post-Effective Amendment
No. 10 to this Registration Statement filed on August 19,
1992, Post-Effective Amendment No. 12 to this Registration
Statement filed on November 2, 1993, Post-Effective
Amendment No. 13 to this Registration Statement filed on
December 23, 1993, and Post-Effective Amendment No. 15 to
this Registration Statement filed on December 30, 1994.
EXHIBIT LIST
Exhibit Number Name of Exhibit
(1)(D) Second Amendment to the
Declaration of Trust
(1)(E) Establishment and Designation
of Classes
(5)(A) Form of Amended and Restated
Investment Management
Agreement -- Templeton Income
Fund
(5)(B) Form of Amended and Restated
Investment Management
Agreement -- Templeton Money
Fund
(11) Consent of Independent Public
Accountants
(15)(A)(1) Distribution Plan --
Templeton Income Fund
Class I Shares
(15)(A)(2) Distribution Plan --
Templeton Income Fund
Class II Shares
SECOND AMENDMENT TO
DECLARATION OF TRUST
OF
TEMPLETON INCOME TRUST
This Second Amendment to the Declaration of Trust (the
"Declaration") of Templeton Income Trust (the "Trust") is made
this 24th day of February, 1995 by the parties signatory hereto,
as Trustees of the Trust (the "Trustees").
WITNESSETH
WHEREAS, the Declaration was made on June 16, 1986 and
amended on September 30, 1987 and the Trustees now desire to
further amend the Declaration; and
WHEREAS, Article V, Section 5.12 of the Declaration provides
that the Trustees may amend the Declaration, without Shareholder
action, so as to add to, delete, replace or otherwise modify any
provisions relating to the Shares contained in the Declaration,
provided that before adopting any such amendment without
Shareholder approval the Trustees shall determine that it is
consistent with the fair and equitable treatment of all
Shareholders or that Shareholder approval is not otherwise
required by the Investment Company Act of 1940 (the "1940 Act")
or other applicable law; and
WHEREAS, the Trustees have determined that the following
amendment to the Declaration is consistent with the fair and
equitable treatment of all Shareholders and that Shareholder
approval is not otherwise required by the 1940 Act or other
applicable law;
NOW, THEREFORE, the Trustees hereby declare that Article V,
Section 5.12 be redesignated as Article V, Section 5.13 and that
Article V, Sections 5.1 and 5.11 be deleted and replaced with the
following:
Section 5.1. Beneficial Interest. The interest of the
beneficiaries hereunder shall be divided into transferable Shares
which may be divided into one or more separate and distinct
series, or classes thereof, as the Trustees shall from time to
time create and establish. The number of shares of beneficial
interest authorized hereunder is unlimited and each Share shall
have a par value of $0.01. All Shares issued hereunder
including, without limitation, Shares issued in connection with a
dividend in Shares or a split of Shares, shall be fully paid and
non-assessable.
Section 5.11. Series Designation. The Trustees, in their
discretion, may authorize the division of Shares into two or more
series, and the different series shall be established and
designated, and the variations in the relative rights and
preferences as between the different series shall be fixed and
determined, by the Trustees; provided, that all Shares shall be
identical except that there may be variations so fixed and
determined between different series as to investment objective,
purchase price, allocation of expenses, right of redemption,
special and relative rights as to dividends and on liquidation,
conversion rights, and conditions under which the several series
shall have separate voting rights. All references to Shares in
this Declaration shall be deemed to be Shares of any or all
series as the context may require.
If the Trustees shall divide the Shares of the Trust into
two or more series, the following provisions shall be applicable:
(a) All provisions herein relating to the Trust shall apply
equally to each series of the Trust except as the context
requires otherwise.
(b) The number of authorized Shares and the number of
Shares of each series that may be issued shall be unlimited. The
Trustees may classify or reclassify any unissued Shares or any
Shares previously issued and reacquired of any series into one or
more series that may be established and designated from time to
time. The Trustees may hold as treasury shares (of the same or
some other series), reissue for such consideration and on such
terms as they may determine, or cancel any Shares of any series
reacquired by the Trust at their discretion from time to time.
(c) All consideration received by the Trust for the issue
or sale of Shares of a particular series, together with all
assets in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment
of such proceeds in whatever form the same may be, shall
irrevocably belong to that series for all purposes, subject only
to the rights of creditors of such series and except as may
otherwise be required by applicable tax laws, and shall be so
recorded upon the books of account of the Trust. In the event
that there are any assets, income, earnings, profits, and
proceeds thereof, funds, or payments which are not readily
identifiable as belonging to any particular series, the Trustees
shall allocate them among any one or more of the series
established and designated from time to time in such manner and
on such basis as they, in their sole discretion, deem fair and
equitable. Each such allocation by the Trustees shall be
conclusive and binding upon the Shareholders of all series for
all purposes.
(d) The assets belonging to each particular series shall be
charged with the liabilities of the Trust in respect of that
series and all expenses, costs, charges and reserves attributable
to that series, and any general liabilities, expenses, costs,
charges or reserves of the Trust which are not readily
identifiable as belonging to any particular series shall be
allocated and charged by the Trustees to and among any one or
more of the series established and designated from time to time
in such manner and on such basis as the Trustees in their sole
discretion deem fair and equitable and no series shall be liable
to any person except for its allocated share. Each allocation of
liabilities, expenses, costs, charges and reserves by the
Trustees shall be conclusive and binding upon the Shareholders of
all series for all purposes. The Trustees shall have full
discretion, to the extent not inconsistent with the 1940 Act, to
determine which items are capital; and each such determination
and allocation shall be conclusive and binding upon the
Shareholders. The assets of a particular series of the Trust
shall, under no circumstances, be charged with liabilities
attributable to any other series of the Trust. All persons
extending credit to, or contracting with or having any claim
against a particular series of the Trust shall look only to the
assets of that particular series for payment of such credit,
contract or claim. No Shareholder or former Shareholder of any
series shall have any claim on or right to any assets allocated
or belonging to any other series.
(e) Each Share of a series of the Trust shall represent a
beneficial interest in the net assets of such series. Each
holder of Shares of a series shall be entitled to receive his pro
rata share of distributions of income and capital gains made with
respect to such series. Upon redemption of his Shares or
indemnification for liabilities incurred by reason of his being
or having been a Shareholder of a series, such Shareholder shall
be paid solely out of the funds and property of such series of
the Trust. Upon liquidation or termination of a series of the
Trust, Shareholders of such series shall be entitled to receive a
pro rata share of the net assets of such series. A Shareholder
of a particular series of the Trust shall not be entitled to
participate in a derivative or class action on behalf of any
other series or the Shareholders of any other series of the
Trust.
(f) The establishment and designation of any series of
Shares shall be effective upon the execution by a majority of the
Trustees of an instrument setting forth such establishment and
designation and the relative rights and preferences of such
series, or as otherwise provided in such instrument. The
Trustees may by an instrument executed by a majority of their
number abolish any series and the establishment and designation
thereof. Except as otherwise provided in this Article V, the
Trustees shall have the power to determine the designations,
preferences, privileges, limitations and rights, of each class
and series of Shares. Each instrument referred to in this
paragraph shall have the status of an amendment to this
Declaration.
Section 5.12. Class Designation. The Trustees, in their
discretion, may authorize the division of the Shares of the
Trust, or, if any series be established, the Shares of any
series, into two or more classes, and the different classes shall
be established and designated, and the variations in the relative
rights and preferences as between the different classes shall be
fixed and determined, by the Trustees; provided, that all Shares
of the Trust or of any series shall be identical to all other
Shares of the Trust or the same series, as the case may be,
except that there may be variations between different classes as
to allocation of expenses, right of redemption, special and
relative rights as to dividends and on liquidation, conversion
rights, and conditions under which the several classes shall have
separate voting rights. All references to Shares in this
Declaration shall be deemed to be Shares of any or all classes as
the context may require.
If the Trustees shall divide the Shares of the Trust or any
series into two or more classes, the following provisions shall
be applicable:
(a) All provisions herein relating to the Trust, or any
series of the Trust, shall apply equally to each class of Shares
of the Trust or of any series of the Trust, except as the context
requires otherwise.
(b) The number of Shares of each class that may be issued
shall be unlimited. The Trustees may classify or reclassify any
unissued Shares of the Trust or any series or any Shares
previously issued and reacquired of any class of the Trust or of
any series into one or more classes that may be established and
designated from time to time. The Trustees may hold as treasury
Shares (of the same or some other class), reissue for such
consideration and on such terms as they may determine, or cancel
any Shares of any class reacquired by the Trust at their
discretion from time to time.
(c) Liabilities, expenses, costs, charges and reserves
related to the distribution of, and other identified expenses
that should properly be allocated to, the Shares of a particular
class may be charged to and borne solely by such class and the
bearing of expenses solely by a class of Shares may be
appropriately reflected (in a manner determined by the Trustees)
and cause differences in the net asset value attributable to, and
the dividend, redemption and liquidation rights of, the Shares of
different classes. Each allocation of liabilities, expenses,
costs, charges and reserves by the Trustees shall be conclusive
and binding upon the Shareholders of all classes for all
purposes.
(d) The establishment and designation of any class of
Shares shall be effective upon the execution of a majority of the
then Trustees of an instrument setting forth such establishment
and designation and the relative rights and preferences of such
class, or as otherwise provided in such instrument. The Trustees
may, by an instrument executed by a majority of their number,
abolish any class and the establishment and designation thereof.
Each instrument referred to in this paragraph shall have the
status of an amendment to this Declaration.
IN WITNESS WHEREOF, the undersigned have executed this
instrument this 24th day of February, 1995.
______________________________
John M. Templeton
______________________________
F. Bruce Clarke
______________________________
Hasso-G von Diergardt-Naglo
______________________________
Betty P. Krahmer
______________________________
John G. Bennett, Jr.
______________________________
Harris J. Ashton
______________________________
S. Joseph Fortunato
______________________________
Fred R. Millsaps
______________________________
Andrew H. Hines, Jr.
______________________________
Charles B. Johnson
______________________________
Gordon S. Macklin
______________________________
Nicholas F. Brady
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this Amendment to
the Declaration of Trust of Templeton Income Trust is made in
accordance with the provisions of the Declaration, and shall be
effective upon its filing with the Secretary of the Commonwealth
of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
John M. Templeton
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this Amendment to
the Declaration of Trust of Templeton Income Trust is made in
accordance with the provisions of the Declaration, and shall be
effective upon its filing with the Secretary of the Commonwealth
of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
F. Bruce Clarke
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this Amendment to
the Declaration of Trust of Templeton Income Trust is made in
accordance with the provisions of the Declaration, and shall be
effective upon its filing with the Secretary of the Commonwealth
of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Hasso-G von Diergardt-Naglo
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this Amendment to
the Declaration of Trust of Templeton Income Trust is made in
accordance with the provisions of the Declaration, and shall be
effective upon its filing with the Secretary of the Commonwealth
of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Betty P. Krahmer
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this Amendment to
the Declaration of Trust of Templeton Income Trust is made in
accordance with the provisions of the Declaration, and shall be
effective upon its filing with the Secretary of the Commonwealth
of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
John G. Bennett, Jr.
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this Amendment to
the Declaration of Trust of Templeton Income Trust is made in
accordance with the provisions of the Declaration, and shall be
effective upon its filing with the Secretary of the Commonwealth
of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Harris J. Ashton
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this Amendment to
the Declaration of Trust of Templeton Income Trust is made in
accordance with the provisions of the Declaration, and shall be
effective upon its filing with the Secretary of the Commonwealth
of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
S. Joseph Fortunato
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this Amendment to
the Declaration of Trust of Templeton Income Trust is made in
accordance with the provisions of the Declaration, and shall be
effective upon its filing with the Secretary of the Commonwealth
of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Fred R. Millsaps
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this Amendment to
the Declaration of Trust of Templeton Income Trust is made in
accordance with the provisions of the Declaration, and shall be
effective upon its filing with the Secretary of the Commonwealth
of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Andrew H. Hines, Jr.
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this Amendment to
the Declaration of Trust of Templeton Income Trust is made in
accordance with the provisions of the Declaration, and shall be
effective upon its filing with the Secretary of the Commonwealth
of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Charles B. Johnson
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this Amendment to
the Declaration of Trust of Templeton Income Trust is made in
accordance with the provisions of the Declaration, and shall be
effective upon its filing with the Secretary of the Commonwealth
of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Gordon S. Macklin
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this Amendment to
the Declaration of Trust of Templeton Income Trust is made in
accordance with the provisions of the Declaration, and shall be
effective upon its filing with the Secretary of the Commonwealth
of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Nicholas F. Brady
Establishment and Designation
Of Classes of Shares of Beneficial Interest
Par Value $0.01 Per Share
The undersigned, being a majority of the Trustees of
Templeton Income Trust, a Massachusetts business trust (the
"Trust"), acting pursuant to Section 5.12 of the Declaration of
Trust dated June 16, 1986, as previously amended (the
"Declaration of Trust") of the Trust, hereby divide the shares of
beneficial interest of the Templeton Income Fund series of the
Trust (the "Fund") into two separate classes, each class to have
the following special and relative rights:
1. The classes shall be designated "Templeton Income
Fund Class I" and "Templeton Income Fund Class II."
2. The Fund shall be authorized to invest in cash,
securities, instruments and other property as from time to time
described in the Trust's then currently effective registration
statement under the Securities Act of 1933. Each share of
beneficial interest of the Fund ("Share") shall be redeemable,
shall be entitled to one vote (or fraction thereof in respect of
a fractional Share) on matters on which Shares of the Fund shall
be entitled to vote (subject to paragraph 3 below), shall
represent a pro rata beneficial interest in the assets allocated
to the Fund (subject to paragraph 4 below) and shall be entitled
to receive its pro rata share of net assets of the Fund upon
liquidation of the Fund, all as provided in the Declaration of
Trust.
3. Shareholders of the Fund shall vote together as a
single class on any matter, except to the extent required by the
Investment Company Act of 1940, as amended (the "1940 Act"), or
when the Trustees have determined that the matter affects only
the interests of Shareholders of a particular class of Shares, in
which case only the Shareholders of such class shall be entitled
to vote thereon. Any matter shall be deemed to have been
effectively acted upon with respect to any class as provided in
Rule 18f-2 under the 1940 Act, or any successor rule, and in the
Declaration of Trust.
4. Liabilities, expenses, costs, charges and reserves
related to the distribution of, and other identified expenses
that should properly be allocated to, the Shares of a particular
class may be charged to and borne solely by such class and the
bearing of expenses solely by a class of Shares may be
appropriately reflected (in a manner determined by the Trustees),
and cause differences in, the net asset value attributable to,
and the dividend, redemption and liquidation rights of, the
Shares of different classes. Each allocation of liabilities,
expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all classes for
all purposes.
5. Shares of each class of the Fund may vary between
themselves as to rights of redemption and conversion rights, as
may be approved by the Trustees and set forth in the Fund's then-
current prospectus.
6. The Trustees shall have the right at any time and
from time to time to reallocate assets and expenses or to change
the designation of the Fund or any class thereof hitherto or
hereafter created, or to otherwise change the special and
relative rights of the Fund or any class thereof, provided that
such change shall not adversely affect to rights of the
Shareholders of such Fund or class.
IN WITNESS WHEREOF, the undersigned have executed
this instrument this 24th day of February, 1995.
______________________________ ______________________________
John M. Templeton S. Joseph Fortunato
______________________________ ______________________________
F. Bruce Clarke Fred R. Millsaps
______________________________ ______________________________
Hasso-G von Diergardt-Naglo Andrew H. Hines, Jr.
______________________________ ______________________________
Betty P. Krahmer Charles B. Johnson
______________________________ ______________________________
John G. Bennett, Jr. Gordon S. Macklin
______________________________ ______________________________
Harris J. Ashton Nicholas F. Brady
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this instrument is
made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
John M. Templeton
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this instrument is
made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
F. Bruce Clarke
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this instrument is
made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Hasso-G von Diergardt-Naglo
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this instrument is
made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Betty P. Krahmer
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this instrument is
made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
John G. Bennett, Jr.
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this instrument is
made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Harris J. Ashton
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this instrument is
made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
S. Joseph Fortunato
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this instrument is
made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Fred R. Millsaps
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this instrument is
made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Andrew H. Hines, Jr.
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this instrument is
made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Charles B. Johnson
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this instrument is
made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Gordon S. Macklin
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this instrument is
made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Nicholas F. Brady
INVESTMENT MANAGEMENT CONTRACT
AGREEMENT made as of the 30th day of October, 1992, and
amended and restated as of the 1st day of April, 1993, and
__________________, between TEMPLETON INCOME TRUST, a
Massachusetts business trust (the "Trust"), on behalf of its
series of shares called TEMPLETON INCOME FUND (the "Fund") and
TEMPLETON INVESTMENT COUNSEL, INC., a Florida corporation (the
"Investment Manager").
WHEREAS, this Contract was originally made between the
Trust on behalf of the Fund and Templeton Global Bond Managers,
Inc. ("TGBM");
WHEREAS, TGBM is being merged with and into the
Investment Manager in a transaction that will not result in a
change of actual control or management with respect to the Fund's
investment management arrangements;
WHEREAS, the purpose of this amendment and restatement
is to identify the Investment Manager as the investment manager
hereunder as a result of said transaction;
NOW THEREFORE, in consideration of the mutual
agreements herein made, the Trust and the Investment Manager
understand and agree as follows:
(1) The Investment Manager agrees, during the life of
this Contract, to manage the investment and reinvestment of the
Fund's assets consistent with the provisions of the Trust's
Declaration of Trust and the investment policies adopted and
declared by the Trust's Board of Trustees. In pursuance of the
foregoing, the Investment Manager shall make all determinations
with respect to the investment of the Fund's assets and the
purchase and sale of its investment securities, and shall take
all such steps as may be necessary to implement those
determinations.
(2) The Investment Manager is not required to furnish
any personnel, overhead items or facilities for the Fund.
(3) The Investment Manager shall be responsible for
selecting members of securities exchanges, brokers and dealers
(such members, brokers and dealers being hereinafter referred to
as "brokers") for the execution of the Fund's portfolio
transactions and, when applicable, the negotiation of commissions
in connection therewith.
All recommendations, decisions and placements shall be
made in accordance with the following principles:
1. Purchase and sale orders will usually be placed
with brokers which are selected by the Investment
Manager as able to achieve "best execution" of such
orders. "Best execution" shall mean prompt and
reliable execution at the most favorable security
price, taking into account the other provisions as
hereinafter set forth. The determination of what may
constitute best execution and price in the execution of
a securities transaction by a broker involves a number
of considerations, including, without limitation, the
overall direct net economic result to the Fund
(involving both price paid or received and any
commissions and other costs paid), the efficiency with
which the transaction is effected, the ability to
effect the transaction at all where a large block is
involved, availability of the broker to stand ready to
execute possibly difficult transactions in the future,
and the financial strength and stability of the broker.
Such considerations are judgmental and are weighed by
the Investment Manager in determining the overall
reasonableness of brokerage commissions;
2. In selecting brokers for portfolio transactions,
the Investment Manager shall take into account its past
experience as to brokers qualified to achieve "best
execution," including brokers who specialize in any
foreign securities held by the Fund;
3. The Investment Manager is authorized to allocate
brokerage business to brokers who have provided
brokerage and research services, as such services are
defined in Section 28(e)(3) of the Securities Exchange
Act of 1934 (the "1934 Act"), for the Fund and/or other
accounts, if any, for which the Investment Manager
exercises investment discretion (as defined in Section
3(a)(35) of the 1934 Act) and, as to transactions as to
which fixed minimum commission rates are not
applicable, to cause the Fund to pay a commission for
effecting a securities transaction in excess of the
amount another broker would have charged for effecting
that transaction, if the Investment Manager in making
the selection in question determines in good faith that
such amount of commission is reasonable in relation to
the value of the brokerage and research services
provided by such broker, viewed in terms of either that
particular transaction or the Investment Manager's
overall responsibilities with respect to the Fund and
the other accounts, if any, as to which it exercises
investment discretion. In reaching such determination,
the Investment Manager will not be required to place or
attempt to place a specific dollar value on the
research or execution services of a broker or on the
portion of any commission reflecting either of said
services. In demonstrating that such determinations
were made in good faith, the Investment Manager shall
be prepared to show that all commissions were allocated
and paid for purposes contemplated by the Fund's
brokerage policy; that the research services provide
lawful and appropriate assistance to the Investment
Manager in the performance of its investment decision-
making responsibilities; and that the commissions paid
were within a reasonable range. The determination that
commissions are within a reasonable range shall be
based on any available information as to the level of
commissions known to be charged by other brokers on
comparable transactions, but there shall be taken into
account the Fund's policies that (i) obtaining a low
commission is deemed secondary to obtaining a favorable
securities price, since it is recognized that usually
it is more beneficial to the Fund to obtain a favorable
price than to pay the lowest commission; and (ii) the
quality, comprehensiveness and frequency of research
studies that are provided for the Investment Manager
are useful to the Investment Manager in performing its
advisory services under this Contract. Research
services provided by brokers to the Investment Manager
are considered to be in addition to, and not in lieu
of, services required to be performed by the Investment
Manager under this Contract;
4. Purchases and sales of portfolio securities within
the United States other than on a securities exchange
shall be executed with primary market makers acting as
principal except where, in the judgment of the
Investment Manager, better prices and execution may be
obtained on a commission basis or from other sources;
and
5. Sales of the Fund's shares (which shall be deemed
to include also shares of other companies registered
under the Investment Company Act of 1940 (the "1940
Act") which have either the same investment manager or
an investment manager affiliated with the Investment
Manager) made by a broker are one factor among others
to be taken into account in deciding to allocate
portfolio transactions (including agency transactions,
principal transactions, purchases in underwritings or
tenders in response to tender offers) for the account
of the Fund to that broker; provided that the broker
shall furnish "best execution," as defined in paragraph
1 above, and that such allocation shall be within the
scope of the Fund's other policies as stated above; and
provided further, that in every allocation made to a
broker in which the sale of Fund shares is taken into
account, there shall be no increase in the amount of
the commissions or other compensation paid to such
broker beyond a reasonable commission or other
compensation determined, as set forth in paragraph 3
above, on the basis of best execution plus research
services, without taking account of or placing any
value upon such sale of the Fund's shares.
(4) The Fund agrees during the term of this Contract
to pay to the Investment Manager the monthly pro-rated portion of
an annual fee equivalent for the first $200,000,000 of the Fund's
average daily net assets to 0.50% of such assets, reduced for
such assets over $200,000,000 to 0.45%, and further reduced for
such assets in excess of $1,300,000,000 to 0.40%, the monthly
portion in each case to be based on the Fund's average daily net
assets during the preceding month.
If the total expenses of the Fund (including the fee to
the Investment Manager) in any fiscal year of the Fund exceed any
expense limitation imposed by applicable State law, the
Investment Manager shall reimburse the Fund for such excess in
the manner and to the extent required by applicable State law.
The term "total expenses," as used in this paragraph, does not
include interest, taxes, litigation expenses, brokerage
commissions or other costs of acquiring or disposing of any of
the Fund's portfolio securities or any costs or expenses incurred
or arising other than in the ordinary and necessary course of the
Fund's business.
(5) This Contract shall become effective on October
30, 1992 and shall continue in effect until December 31, 1993.
If not sooner terminated, this Contract shall continue in effect
for successive periods of 12 months each thereafter, provided
that each such continuance shall be specifically approved
annually by the vote of a majority of the Trust's Board of
Trustees who are not parties to this Contract or interested
persons (as such term is defined in the 1940 Act) of any such
party, cast in person at a meeting called for the purpose of
voting on such approval, and (a) either the vote of a majority of
the outstanding voting securities of the Fund, or (b) a majority
of the Trust's Board of Trustees as a whole.
(6) Notwithstanding the foregoing, this Contract may
be terminated at any time by the Fund, without the payment of any
penalty, upon vote of a majority of the Trust's Board of Trustees
or a majority of the outstanding voting securities of the Fund,
or by the Investment Manager, on sixty (60) days' written notice
to the other party.
(7) This Contract shall automatically and immediately
terminate in the event of its assignment (as such term is defined
in the 1940 Act).
(8) In the event this Contract is terminated and the
Investment Manager no longer acts as Investment Manager to the
Fund, the Investment Manager reserves the right to withdraw from
the Fund the use of the name "Templeton" or any name misleadingly
implying a continuing relationship between the Fund and the
Investment Manager or any of its affiliates.
(9) The Fund may purchase and/or sell securities which
are also purchased or sold by the Investment Manager or its
owners or their affiliates or other investment advisory clients
of theirs.
(10) The Investment Manager may rely on the information
reasonably believed by it to be accurate and reliable. Except as
may otherwise be provided by the 1940 Act, neither the Investment
Manager nor its officers, directors, employees or agents shall be
subject to any liability to the Fund or any Shareholder of the
Fund for any error of judgment, mistake of law or any loss
arising out of any investment or other act or omission in the
course of, connected with or arising out of any service to be
rendered hereunder, except by reason of willful misfeasance, bad
faith or gross negligence in the performance of the Investment
Manager's duties or by reason of reckless disregard of the
Investment Manager's obligations and duties under this Contract.
(11) It is understood that the services of the
Investment Manager are not deemed to be exclusive, and nothing in
this Contract shall prevent the Investment Manager, or any
affiliate thereof, from providing similar services to other
investment companies and other clients (whether or not their
investment objectives and policies are similar to those of the
Fund) or from engaging in other activities. When other clients
of the Investment Manager desire to purchase or sell a security
at the same time such security is purchased or sold for the Fund,
it is understood that such purchases and sales will be made in a
manner designed to be fair to all parties.
(12) This Contract shall be construed in accordance
with the laws of the State of Florida, provided that nothing
herein shall be construed as being inconsistent with applicable
Federal and state securities laws and any rules, regulations and
orders thereunder.
(13) If any provision of this Contract shall be held or
made invalid by a court decision, statute, rule or otherwise, the
remainder of this Contract shall not be affected thereby and, to
this extent, the provisions of this Contract shall be deemed to
be severable.
(14) Nothing herein shall be construed as constituting
the Investment Manager an agent of the Fund or Trust.
(15) It is understood and expressly stipulated that
neither the holders of shares of the Fund nor any Trustee,
officer, agent or employee of the Trust shall be personally
liable hereunder, nor shall any resort be had to other private
property for the satisfaction of any claim or obligation
hereunder, but the Trust only shall be liable.
TEMPLETON INCOME TRUST
on behalf of Templeton Income Fund
By:______________________________
John R. Kay
Vice President
TEMPLETON INVESTMENT COUNSEL, INC.
By:______________________________
INVESTMENT MANAGEMENT CONTRACT
AGREEMENT made as of the 30th day of October, 1992, and
amended and restated as of the 1st day of April, 1993, and
____________, between TEMPLETON INCOME TRUST, a Massachusetts
business trust (the "Trust"), on behalf of its series of shares
called TEMPLETON MONEY FUND (the "Fund") and TEMPLETON INVESTMENT
COUNSEL, INC., a Florida corporation (the "Investment Manager").
WHEREAS, this Contract was originally made between the
Trust on behalf of the Fund and Templeton Global Bond Managers,
Inc. ("TGBM");
WHEREAS, TGBM is being merged with and into the
Investment Manager in a transaction that will not result in a
change of actual control or management with respect to the Fund's
investment management arrangements;
WHEREAS, the purpose of this amendment and restatement
is to identify the Investment Manager as the investment manager
hereunder as a result of said transaction;
NOW THEREFORE, in consideration of the mutual
agreements herein made, the parties hereto understand and agree
as follows:
(1) The Investment Manager agrees, during the life of
this Contract, to manage the investment and reinvestment of the
Fund's assets consistent with the provisions of the Trust's
Declaration of Trust and the investment policies adopted and
declared by the Trust's Board of Trustees. In pursuance of the
foregoing, the Investment Manager shall make all determinations
with respect to the investment of the Fund's assets and the
purchase and sale of its investment securities, and shall take
all such steps as may be necessary to implement those
determinations.
(2) The Investment Manager is not required to furnish
any personnel, overhead items or facilities for the Fund.
(3) The Investment Manager shall be responsible for
selecting members of securities exchanges, brokers and dealers
(such members, brokers and dealers being hereinafter referred to
as "brokers") for the execution of the Fund's portfolio
transactions and, when applicable, the negotiation of commissions
in connection therewith.
All recommendations, decisions and placements shall be
made in accordance with the following principles:
1. Purchase and sale orders will usually be placed
with brokers which are selected by the Investment
Manager as able to achieve "best execution" of such
orders. "Best execution" shall mean prompt and
reliable execution at the most favorable security
price, taking into account the other provisions as
hereinafter set forth. The determination of what may
constitute best execution and price in the execution of
a securities transaction by a broker involves a number
of considerations, including, without limitation, the
overall direct net economic result to the Fund
(involving both price paid or received and any
commissions and other costs paid), the efficiency with
which the transaction is effected, the ability to
effect the transaction at all where a large block is
involved, availability of the broker to stand ready to
execute possibly difficult transactions in the future,
and the financial strength and stability of the broker.
Such considerations are judgmental and are weighed by
the Investment Manager in determining the overall
reasonableness of brokerage commissions;
2. In selecting brokers for portfolio transactions,
the Investment Manager shall take into account its past
experience as to brokers qualified to achieve "best
execution," including brokers who specialize in any
foreign securities held by the Fund;
3. The Investment Manager is authorized to allocate
brokerage business to brokers who have provided
brokerage and research services, as such services are
defined in Section 28(e)(3) of the Securities Exchange
Act of 1934 (the "1934 Act"), for the Fund and/or other
accounts, if any, for which the Investment Manager
exercises investment discretion (as defined in Section
3(a)(35) of the 1934 Act) and, as to transactions as to
which fixed minimum commission rates are not
applicable, to cause the Fund to pay a commission for
effecting a securities transaction in excess of the
amount another broker would have charged for effecting
that transaction, if the Investment Manager in making
the selection in question determines in good faith that
such amount of commission is reasonable in relation to
the value of the brokerage and research services
provided by such broker, viewed in terms of either that
particular transaction or the Investment Manager's
overall responsibilities with respect to the Fund and
the other accounts, if any, as to which it exercises
investment discretion. In reaching such determination,
the Investment Manager will not be required to place or
attempt to place a specific dollar value on the
research or execution services of a broker or on the
portion of any commission reflecting either of said
services. In demonstrating that such determinations
were made in good faith, the Investment Manager shall
be prepared to show that all commissions were allocated
and paid for purposes contemplated by the Fund's
brokerage policy; that the research services provide
lawful and appropriate assistance to the Investment
Manager in the performance of its investment decision-
making responsibilities; and that the commissions paid
were within a reasonable range. The determination that
commissions are within a reasonable range shall be
based on any available information as to the level of
commissions known to be charged by other brokers on
comparable transactions, but there shall be taken into
account the Fund's policies that (i) obtaining a low
commission is deemed secondary to obtaining a favorable
securities price, since it is recognized that usually
it is more beneficial to the Fund to obtain a favorable
price than to pay the lowest commission; and (ii) the
quality, comprehensiveness and frequency of research
studies that are provided for the Investment Manager
are useful to the Investment Manager in performing its
advisory services under this Contract. Research
services provided by brokers to the Investment Manager
are considered to be in addition to, and not in lieu
of, services required to be performed by the Investment
Manager under this Contract;
4. Purchases and sales of portfolio securities within
the United States other than on a securities exchange
shall be executed with primary market makers acting as
principal except where, in the judgment of the
Investment Manager, better prices and execution may be
obtained on a commission basis or from other sources;
and
5. Sales of the Fund's shares (which shall be deemed
to include also shares of other companies registered
under the Investment Company Act of 1940 (the "1940
Act") which have either the same investment manager or
an investment manager affiliated with the Investment
Manager) made by a broker are one factor among others
to be taken into account in deciding to allocate
portfolio transactions (including agency transactions,
principal transactions, purchases in underwritings or
tenders in response to tender offers) for the account
of the Fund to that broker; provided that the broker
shall furnish "best execution," as defined in paragraph
1 above, and that such allocation shall be within the
scope of the Fund's other policies as stated above; and
provided further, that in every allocation made to a
broker in which the sale of Fund shares is taken into
account, there shall be no increase in the amount of
the commissions or other compensation paid to such
broker beyond a reasonable commission or other
compensation determined, as set forth in paragraph 3
above, on the basis of best execution plus research
services, without taking account of or placing any
value upon such sale of the Fund's shares.
(4) The Fund agrees during the term of this Contract
to pay to the Investment Manager the monthly pro-rated portion of
an annual fee equivalent 0.35% of the first $200,000,000 of the
Fund's average daily net assets, reduced for such assets over
$200,000,000 to 0.30%, and further reduced for such assets in
excess of $1,300,000,000 to 0.25%, the monthly portion in each
case to be based on the Fund's average daily net assets during
the preceding month.
If the total expenses of the Fund (including the fee to
the Investment Manager) in any fiscal year of the Fund exceed any
expense limitation imposed by applicable State law, the
Investment Manager shall reimburse the Fund for such excess in
the manner and to the extent required by applicable State law.
The term "total expenses," as used in this paragraph, does not
include interest, taxes, litigation expenses, brokerage
commissions or other costs of acquiring or disposing of any of
the Fund's portfolio securities or any costs or expenses incurred
or arising other than in the ordinary and necessary course of the
Fund's business.
(5) This Contract shall become effective on October
30, 1992 and shall continue in effect until December 31, 1993.
If not sooner terminated, this Contract shall continue in effect
for successive periods of 12 months each thereafter, provided
that each such continuance shall be specifically approved
annually by the vote of a majority of the Trust's Board of
Trustees who are not parties to this Contract or interested
persons (as such term is defined in the 1940 Act) of any such
party, cast in person at a meeting called for the purpose of
voting on such approval, and (a) either the vote of a majority of
the outstanding voting securities of the Fund, or (b) a majority
of the Trust's Board of Trustees as a whole.
(6) Notwithstanding the foregoing, this Contract may
be terminated at any time by the Fund, without the payment of any
penalty, upon vote of a majority of the Trust's Board of Trustees
or a majority of the outstanding voting securities of the Fund,
or by the Investment Manager, on sixty (60) days' written notice
to the other party.
(7) This Contract shall automatically and immediately
terminate in the event of its assignment (as such term is defined
in the 1940 Act).
(8) In the event this Contract is terminated and the
Investment Manager no longer acts as Investment Manager to the
Fund, the Investment Manager reserves the right to withdraw from
the Fund the use of the name "Templeton" or any name misleadingly
implying a continuing relationship between the Fund and the
Investment Manager or any of its affiliates.
(9) The Fund may purchase and/or sell securities which
are also purchased or sold by the Investment Manager or its
owners or their affiliates or other investment advisory clients
of theirs.
(10) The Investment Manager may rely on the information
reasonably believed by it to be accurate and reliable. Except as
may otherwise be provided by the 1940 Act, neither the Investment
Manager nor its officers, directors, employees or agents shall be
subject to any liability to the Fund or any Shareholder of the
Fund for any error of judgment, mistake of law or any loss
arising out of any investment or other act or omission in the
course of, connected with or arising out of any service to be
rendered hereunder, except by reason of willful misfeasance, bad
faith or gross negligence in the performance of the Investment
Manager's duties or by reason of reckless disregard of the
Investment Manager's obligations and duties under this Contract.
(11) It is understood that the services of the
Investment Manager are not deemed to be exclusive, and nothing in
this Contract shall prevent the Investment Manager, or any
affiliate thereof, from providing similar services to other
investment companies and other clients (whether or not their
investment objectives and policies are similar to those of the
Fund) or from engaging in other activities. When other clients
of the Investment Manager desire to purchase or sell a security
at the same time such security is purchased or sold for the Fund,
it is understood that such purchases and sales will be made in a
manner designed to be fair to all parties.
(12) This Contract shall be construed in accordance
with the laws of the State of Florida, provided that nothing
herein shall be construed as being inconsistent with applicable
Federal and state securities laws and any rules, regulations and
orders thereunder.
(13) If any provision of this Contract shall be held or
made invalid by a court decision, statute, rule or otherwise, the
remainder of this Contract shall not be affected thereby and, to
this extent, the provisions of this Contract shall be deemed to
be severable.
(14) Nothing herein shall be construed as constituting
the Investment Manager an agent of the Fund or Trust.
(15) It is understood and expressly stipulated that
neither the holders of shares of the Fund nor any Trustee,
officer, agent or employee of the Trust shall be personally
liable hereunder, nor shall any resort be had to other private
property for the satisfaction of any claim or obligation
hereunder, but the Trust only shall be liable.
TEMPLETON INCOME TRUST
on behalf of Templeton Money Fund
By:______________________________
John R. Kay
Vice President
TEMPLETON INVESTMENT COUNSEL, INC.
By:______________________________
McGLADREY & PULLEN, LLP
Certified Public Accountants and Consultants
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated September
27, 1994, on the financial statements of Templeton Income Fund
and Templeton Money Fund, series of Templeton Income Trust,
referred to therein, which appears in the 1994 Annual Reports to
Shareholders and which are incorporated herein by reference, in
Post-Effective Amendment No. 16 to the Registration Statement on
Form N-1A, File No. 33-6510 as filed with the Securities and
Exchange Commission.
We also consent to the reference to our firm in the
Statement of Additional Information under the caption
"Independent Accountants" and in the Prospectus under the caption
"Financial Highlights."
McGladrey & Pullen, LLP
New York, New York
February 27, 1995
DISTRIBUTION PLAN
WHEREAS, Templeton Income Trust (the "Trust") is
registered as an open-end diversified management investment
company under the Investment Company Act of 1940 (the "1940
Act"); and
WHEREAS, the Trust on behalf of Templeton Income Fund
(the "Fund") and Franklin Templeton Distributors, Inc. (the
"Selling Company"), a wholly owned subsidiary of Franklin
Resources, Inc. and a broker-dealer registered under the
Securities Exchange Act of 1934, have entered into a Distribution
Agreement pursuant to which the Selling Company will act as
principal underwriter of the Class I Shares of the Fund for sale
to the public; and
WHEREAS, shares of beneficial interest of the Fund are
divided into classes of shares, one of which is designated Class
I; and
WHEREAS, the Board of Trustees of the Trust has
determined to adopt this Distribution Plan (the "Plan"), in
accordance with the requirements of the 1940 Act and has
determined that there is a reasonable likelihood that the Plan
will benefit the Fund and the holders of Class I Shares.
NOW THEREFORE, the Trust on behalf of the Fund hereby
adopts, with respect to its Class I Shares, the Plan on the
following terms and conditions:
1. The Fund will reimburse the Selling Company for
costs and expenses incurred in connection with the distribution
and marketing of the Class I Shares of the Fund. Such
distribution costs and expenses may include: (a) payments to
broker-dealers who provide certain services of value to the
Fund's Class I Shareholders (sometimes referred to as a "trail
fee"); (b) reimbursement of expenses relating to selling and
servicing efforts or of organizing and conducting sales seminars;
(c) payments to employees or agents of the Selling Company who
engage in or support distribution of the Class I Shares; (d)
payment of the costs of preparing, printing and distributing
prospectuses and reports to prospective investors and of printing
and advertising expenses; (e) payment of dealer commissions and
wholesaler compensation in connection with sales of the Fund's
Class I Shares exceeding $1 million (for which the Trust imposes
no sales charge) and interest or carrying charges in connection
therewith; and (f) such other similar services as the Trust's
Board of Trustees determines to be reasonably calculated to
result in the sale of Class I Shares.
The Selling Company will be reimbursed for such costs,
expenses or payments on a monthly basis, subject to a limit of
0.25% per annum of the average daily net assets of the Fund's
Class I Shares. Payments made out of or charged against the
assets of the Class I Shares of the Fund must be in reimbursement
for costs and expenses in connection with any activity which is
primarily intended to result in the sale of the Fund's Class I
Shares. The costs and expenses not reimbursed in any one given
month (including costs and expenses not reimbursed because they
exceeded the limit of 0.25% per annum of the average daily net
assets of the Fund's Class I Shares) may be reimbursed in
subsequent months or years.
2. The Plan shall not take effect with respect to the
Fund's Class I Shares until it has been approved by a vote of at
least a majority (as defined in the 1940 Act) of the outstanding
voting securities of the Class I Shares of the Fund. With
respect to the submission of the Plan for such a vote, it shall
have been effectively approved with respect to the Fund's Class I
Shares if a majority of the outstanding voting securities of the
Class I Shares of the Fund votes for approval of the Plan.
3. The Plan shall not take effect until it has been
approved, together with any related agreements and supplements,
by votes of a majority of both (a) the Board of Trustees of the
Trust, and (b) those Trustees of the Trust who are not
"interested persons" (as defined in the 1940 Act) and have no
direct or indirect financial interest in the operation of the
Plan or any agreements related to it (the "Plan Trustees"), cast
in person at a meeting (or meetings) called for the purpose of
voting on the Plan and such related agreements.
4. The Plan shall continue in effect so long as such
continuance is specifically approved at least annually in the
manner provided for approval of the Plan in paragraph 3.
5. Any person authorized to direct the disposition of
monies paid or payable by the Class I Shares of the Fund pursuant
to the Plan or any related agreement shall provide to the Trust's
Board of Trustees, and the Board shall review, at least
quarterly, a written report of the amounts so expended and the
purposes for which such expenditures were made.
6. Any agreement related to the Plan shall be in
writing and shall provide: (a) that such agreement may be
terminated at any time as to the Fund's Class I Shares, without
payment of any penalty, by vote of a majority of the Plan
Trustees or by vote of a majority of the outstanding voting
securities of the Class I Shares of the Fund, on not more than
sixty days' written notice to any other party to the agreement;
and (b) that such agreement shall terminate automatically in the
event of its assignment.
7. The Plan may be terminated at any time, without
payment of any penalty, by vote of a majority of the Plan
Trustees, or by vote of a majority of the outstanding Class I
Shares of the Fund.
8. The Plan may be amended at any time by the Trust's
Board of Trustees, provided that (a) any amendment to increase
materially the costs which the Class I Shares of the Fund may
bear for distribution pursuant to the Plan shall be effective
only upon approval by a vote of a majority of the Class I Shares
of the Fund, and (b) any material amendments of the terms of the
Plan shall become effective only upon approval as provided in
paragraph 3 hereof.
9. While the Plan is in effect, the selection and
nomination of Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Fund shall be committed to the
discretion of the Trustees who are not interested persons.
10. The Trust shall preserve copies of the Plan, any
related agreement and any report made pursuant to paragraph 5
hereof, for a period of not less than six years from the date of
the Plan, such agreement or report, as the case may be, the first
two years of which shall be in an easily accessible place.
11. It is understood and expressly stipulated that
neither the holders of Class I Shares of the Fund nor any
Trustee, officer, agent or employee of the Trust shall be
personally liable hereunder, nor shall any resort be had to other
private property for the satisfaction of any claim or obligation
hereunder, but the Trust only shall be liable.
IN WITNESS WHEREOF, the Trust has executed this
Distribution Plan on this ___ day of _____, 1995.
TEMPLETON INCOME TRUST
By: _______________________________
John R. Kay
Vice President
DISTRIBUTION PLAN
WHEREAS, Templeton Income Trust (the "Trust") is
registered as an open-end diversified management investment
company under the Investment Company Act of 1940 (the "1940
Act"); and
WHEREAS, the Trust on behalf of Templeton Income Fund
(the "Fund") and Franklin Templeton Distributors, Inc. (the
"Selling Company"), a wholly owned subsidiary of Franklin
Resources, Inc. and a broker-dealer registered under the
Securities Exchange Act of 1934, have entered into a Distribution
Agreement pursuant to which the Selling Company will act as
principal underwriter of the Class II Shares of the Fund for sale
to the public; and
WHEREAS, shares of beneficial interest of the Fund are
divided into classes of shares, one of which is designated Class
II; and
WHEREAS, the Board of Trustees of the Trust has
determined to adopt this Distribution Plan (the "Plan"), in
accordance with the requirements of the 1940 Act and has
determined that there is a reasonable likelihood that the Plan
will benefit the Fund and the holders of Class II Shares.
NOW THEREFORE, the Trust on behalf of the Fund hereby
adopts, with respect to its Class II Shares, the Plan on the
following terms and conditions:
1. The Fund will reimburse the Selling Company for
costs and expenses incurred in connection with the distribution
and marketing of the Class II Shares of the Fund. Such
distribution costs and expenses may include: (a) payments to
broker-dealers who provide certain services of value to the
Fund's Class II Shareholders (sometimes referred to as a "trail
fee"); (b) reimbursement of expenses relating to selling and
servicing efforts or of organizing and conducting sales seminars;
(c) payments to employees or agents of the Selling Company who
engage in or support distribution of the Class II Shares; (d)
payment of the costs of preparing, printing and distributing
prospectuses and reports to prospective investors and of printing
and advertising expenses; (e) payment of dealer commissions and
wholesaler compensation in connection with sales of the Fund's
Class II Shares exceeding $1 million (for which the Trust imposes
no sales charge) and interest or carrying charges in connection
therewith; and (f) such other similar services as the Trust's
Board of Trustees determines to be reasonably calculated to
result in the sale of Class II Shares.
The Selling Company will be reimbursed for such costs,
expenses or payments on a monthly basis, subject to an annual
limit of 0.65% per annum of the average daily net assets of the
Fund's Class II Shares (of which up to 0.15% of such net assets
may be paid to dealers for personal service and/or the
maintenance of Class II Shareholder accounts (the "Service Fee"))
and subject to any applicable restriction imposed by rules of the
National Association of Securities Dealers, Inc. Payments made
out of or charged against the assets of the Class II Shares of
the Fund must be in reimbursement for costs and expenses in
connection with any activity which is primarily intended to
result in the sale of the Fund's Class II Shares or account
maintenance and personal service to Shareholders. The costs and
expenses not reimbursed in any one given month (including costs
and expenses not reimbursed because they exceeded the limit of
0.65% per annum of the average daily net assets of the Fund's
Class II Shares) may be reimbursed in subsequent months or years.
2. The Plan shall not take effect with respect to the
Fund's Class II Shares until it has been approved by a vote of at
least a majority (as defined in the 1940 Act) of the outstanding
voting securities of the Class II Shares of the Fund. With
respect to the submission of the Plan for such a vote, it shall
have been effectively approved with respect to the Fund's Class
II Shares if a majority of the outstanding voting securities of
the Class II Shares of the Fund votes for approval of the Plan.
3. The Plan shall not take effect until it has been
approved, together with any related agreements and supplements,
by votes of a majority of both (a) the Board of Trustees of the
Trust, and (b) those Trustees of the Trust who are not
"interested persons" (as defined in the 1940 Act) and have no
direct or indirect financial interest in the operation of the
Plan or any agreements related to it (the "Plan Trustees"), cast
in person at a meeting (or meetings) called for the purpose of
voting on the Plan and such related agreements.
4. The Plan shall continue in effect so long as such
continuance is specifically approved at least annually in the
manner provided for approval of the Plan in paragraph 3.
5. Any person authorized to direct the disposition of
monies paid or payable by the Class II Shares of the Fund
pursuant to the Plan or any related agreement shall provide to
the Trust's Board of Trustees, and the Board shall review, at
least quarterly, a written report of the amounts so expended and
the purposes for which such expenditures were made.
6. Any agreement related to the Plan shall be in
writing and shall provide: (a) that such agreement may be
terminated at any time as to the Fund's Class II Shares, without
payment of any penalty, by vote of a majority of the Plan
Directors or by vote of a majority of the outstanding voting
securities of the Class II Shares of the Fund, on not more than
sixty days' written notice to any other party to the agreement;
and (b) that such agreement shall terminate automatically in the
event of its assignment.
7. The Plan may be terminated at any time, without
payment of any penalty, by vote of a majority of the Plan
Trustees, or by vote of a majority of the outstanding Class II
Shares of the Fund.
8. The Plan may be amended at any time by the Trust's
Board of Trustees, provided that (a) any amendment to increase
materially the costs which the Class II Shares of the Fund may
bear for distribution pursuant to the Plan shall be effective
only upon approval by a vote of a majority of the Class II Shares
of the Fund, and (b) any material amendments of the terms of the
Plan shall become effective only upon approval as provided in
paragraph 3 hereof.
9. While the Plan is in effect, the selection and
nomination of Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Trust shall be committed to the
discretion of the Trustees who are not interested persons.
10. The Fund shall preserve copies of the Plan, any
related agreement and any report made pursuant to paragraph 5
hereof, for a period of not less than six years from the date of
the Plan, such agreement or report, as the case may be, the first
two years of which shall be in an easily accessible place.
11. It is understood and expressly stipulated that
neither the holders of Class II Shares of the Fund nor any
Trustee, officer, agent or employee of the Trust shall be
personally liable hereunder, nor shall any resort be had to other
private property for the satisfaction of any claim or obligation
hereunder, but the Trust only shall be liable.
IN WITNESS WHEREOF, the Trust has executed this
Distribution Plan on this ___ day of _____, 1995.
TEMPLETON INCOME TRUST
By: _______________________________
John R. Kay
Vice President
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
TEMPLETON INCOME FUND ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> TEMPLETON INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-END> AUG-31-1994
<INVESTMENTS-AT-COST> 221844433
<INVESTMENTS-AT-VALUE> 202263559
<RECEIVABLES> 9558015
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1222833
<TOTAL-ASSETS> 213044407
<PAYABLE-FOR-SECURITIES> 5758386
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1803527
<TOTAL-LIABILITIES> 7561913
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 227447437
<SHARES-COMMON-STOCK> 22716077
<SHARES-COMMON-PRIOR> 20759764
<ACCUMULATED-NII-CURRENT> 4451<F1>
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2972949)<F1>
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (18996445)
<NET-ASSETS> 205482494
<DIVIDEND-INCOME> 454240
<INTEREST-INCOME> 17690059
<OTHER-INCOME> 0
<EXPENSES-NET> 2470285
<NET-INVESTMENT-INCOME> 15674014
<REALIZED-GAINS-CURRENT> (9687143)
<APPREC-INCREASE-CURRENT> (10250363)
<NET-CHANGE-FROM-OPS> (4263492)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11711485)
<DISTRIBUTIONS-OF-GAINS> (1432822)
<DISTRIBUTIONS-OTHER> (2602410)<F2>
<NUMBER-OF-SHARES-SOLD> 8882250
<NUMBER-OF-SHARES-REDEEMED> (8055682)
<SHARES-REINVESTED> 1129745
<NET-CHANGE-IN-ASSETS> (1184400)
<ACCUMULATED-NII-PRIOR> 1215232
<ACCUMULATED-GAINS-PRIOR> 2973706
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1040324
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2470285
<AVERAGE-NET-ASSETS> 208960914
<PER-SHARE-NAV-BEGIN> 9.96
<PER-SHARE-NII> 0.72
<PER-SHARE-GAIN-APPREC> (0.91)
<PER-SHARE-DIVIDEND> (0.53)
<PER-SHARE-DISTRIBUTIONS> (0.07)
<RETURNS-OF-CAPITAL> (0.12)
<PER-SHARE-NAV-END> 9.05
<EXPENSE-RATIO> 1<F3>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>As a result of differing book and tax treatment for foreign currency
transactions, $5,173,310 has been reclassified from undistributed net
investment income to accumulated net realized gain(loss) as of August 31, 1994.
<F2>Tax basis return of capital.
<F3>The expense ratio per the Templeton Income Fund Annual Report
August 31, 1994 is 1.18%
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
TEMPLETON MONEY FUND AUGUST 31, 1994 ANNUAL REPORT AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> TEMPLETON MONEY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-END> AUG-31-1994
<INVESTMENTS-AT-COST> 145227117
<INVESTMENTS-AT-VALUE> 145227117
<RECEIVABLES> 1241332
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 230571
<TOTAL-ASSETS> 146699020
<PAYABLE-FOR-SECURITIES> 2074391
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 209728
<TOTAL-LIABILITIES> 2284119
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 144414901
<SHARES-COMMON-STOCK> 144414901
<SHARES-COMMON-PRIOR> 81874348
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 144414901
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5111898
<OTHER-INCOME> 0
<EXPENSES-NET> 1257563
<NET-INVESTMENT-INCOME> 3854335
<REALIZED-GAINS-CURRENT> (94751)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3759584
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3759584)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 761269070
<NUMBER-OF-SHARES-REDEEMED> (702032225)
<SHARES-REINVESTED> 3303708
<NET-CHANGE-IN-ASSETS> 62540553
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 486625
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1257563
<AVERAGE-NET-ASSETS> 139035495
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.26)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 1<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F5>
<F1>The expense ratio per the Templeton Money Fund Annual Report
August 31, 1994 is 0.90%.
</FN>
</TABLE>
