Registration No. 33-6510
As filed with the Securities and Exchange Commission on December 31, 1996
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. 19 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 20 X
(Check appropriate box or boxes)
TEMPLETON INCOME TRUST
(Exact Name of Registrant as Specified in Charter)
700 CENTRAL AVENUE, P.O. BOX 33030, ST. PETERSBURG, FLORIDA 33733-8030
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (813) 823-8712
Ellen F. Stoutamire
700 Central Avenue
P.O. Box 33030
ST. PETERSBURG, FLORIDA 33733-8030
(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) of Rule 485
X on JANUARY 1, 1997 pursuant to paragraph (b) of Rule 485
60 days after filing pursuant to paragraph (a)(1) of Rule 485
on (date) pursuant to paragraph (a)(1) of Rule 485
75 days after filing pursuant to paragraph (a)(2) of Rule 485
on (DATE) pursuant to paragraph (a)(2) of Rule 485
this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
- ---------------------------------------------------------------------------
The Registrant has registered an indefinite number of shares of beneficial
interest under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940, and filed its Rule 24f-2 Notice for the fiscal
year ended August 31, 1996 on October 30, 1996.
PAGE
TEMPLETON INCOME TRUST
CROSS-REFERENCE SHEET
FORM N-1A
PART A
<TABLE>
<CAPTION>
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
<S> <C> <C>
1 Cover page Cover Page
2 Synopsis Expense Summary
3 Condensed Financial "Financial Highlights";
Information "How Does the Fund
Measure Performance?"
4 General Description "How Is the Trust Organized?";
of Registrant "How Does the Fund Invest Its
Assets?"; "What Are the Fund's
Potential Risks?"
5 Management of the Fund "Who Manages the Fund?"
5A Management's Discussion Contained in Registrant's Annual
of Fund Performance Report to Shareholders
6 Capital Stock and Other "How Is the Fund Organized?";
Securities "Services to Help You Manage Your
I Received From the Fund?"; "How
Taxation Affects You and the
Fund?"
7 Purchase of Securities "How Do I Buy Shares?"; "May I
Being Offered Exchange Shares for Shares of
Another Fund?"; "Transaction
Procedures and Special
Requirements"; "Services to Help
You Manage Your Account"; "Who
Manages the Fund?" "Useful Terms
and Definitions"
8 Redemption or Repurchase "May I Exchange Shares for Shares of
Another Fund?"; "How Do I Sell
Shares?"; "Transaction Procedures
and Special Requirements"; Services
to Help You Manage Your Account"
9 Pending Legal Procedures Not Applicable
</TABLE>
PAGE
TEMPLETON INCOME TRUST
CROSS-REFERENCE SHEET
FORM N-1A
PART B
<TABLE>
<CAPTION>
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
<S> <C> <C>
10 Cover Page Cover Page
11 Table of Contents Table of Contents
12 General Information and Not Applicable
History
13 Investment Objectives and "How Does the Fund Invest Its
Policies Assets?";"Investment Restrictions";
"What Are the Fund's Potential
Risks?"
14 Management of the "Officers and Trustees"; "Investment
Registrant Advisory and Other Services"
15 Control Persons and "Officers and Trustees"; "Investment
Principal Holders of Advisory and Other Services";
Securities "Miscellaneous Information?"
16 Investment Advisory and "Investment Advisory and Other
Other Services Services";"The Fund's Underwriter"
17 Brokerage Allocation and "How Does the Fund Buy Securities
Other Practices For Its Portfolio?"
18 Capital Stock and Other "Miscellaneous Information"; See
Securities Prospectus "How Is The Trust
Organized?"
19 Purchase, Redemption and "How Do I Buy, Sell and Exchange
Pricing of Securities Shares?"; "How Are Fund Shares
Being Offered Valued?"; "Financial Statements"
20 Tax Status "Additional Information on
Distributions and Taxes"
21 Underwriters "The Fund's Underwriter"
22 Calculation of Performance "How Does the Fund Measure
Data Performance?"
23 Financial Statements Financial Statements
</TABLE>
PAGE
PART A
PROSPECTUS
PAGE
PROSPECTUS
& APPLICATION
LOGO
TEMPLETON
GLOBAL BOND FUND
--------------------------------------------------
JANUARY 1, 1997
INVESTMENT STRATEGY
GLOBAL GROWTH
AND INCOME
LOGO
- --------------------------------------------------------------------------------
This prospectus describes the Advisor Class shares of Templeton Global
Bond Fund (the "Fund"). It contains information you should know before
investing in the Fund. Please keep it for future reference.
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 (the "Trust").
The Fund's SAI for the Advisor Class, dated January 1, 1997, as may be
amended from time to time, includes more information about the Fund's
procedures and policies. It has been filed with the SEC and is
incorporated by reference into this prospectus. For a free copy or a
larger print version of this prospectus, call 1-800/DIAL BEN or write the
Fund at the address shown.
Advisor Class shares are only available for purchase by certain persons,
including, among others, certain financial institutions (such as banks,
trust companies, savings institutions and credit unions); government and
tax-exempt entities; certain pension, profit sharing and employee benefit
plans; certain qualified groups, including family trusts, endowments,
foundations and corporations; Franklin Templeton Fund Allocator Series;
and directors, trustees, officers and full time employees (and their
family members) of Franklin Templeton Group and the Franklin Templeton
Group of Funds. See "About Your Account."
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY OF THE U.S. GOVERNMENT. SHARES OF THE FUND INVOLVE INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PAGE
TEMPLETON GLOBAL
BOND FUND
This prospectus is not an offering of the securities herein
described in any state in which the offering is not authorized.
No sales representative, dealer, or other person is
authorized to give any information or make any representations
other than those contained in this prospectus. Further
information may be obtained from Distributors.
-----------------------------------------------------------------
When reading this prospectus, you will see
certain terms beginning with capital letters.
This means the term is explained
in our glossary section.
PAGE
<TABLE>
<S> <C> <C>
TABLE OF CONTENTS
ABOUT THE FUND
Expense Summary .................... 2
How Does the Fund Invest Its
Assets? ............................ 3
What Are the Fund's Potential
Risks? ............................. 9
Who Manages the Fund? .............. 13
How Does the Fund Measure
Performance? ....................... 14
How Is the Fund Organized? ......... 15
How Taxation Affects You and the
Fund ............................... 16
ABOUT YOUR ACCOUNT
How Do I Buy Shares? ............... 17
May I Exchange Shares for Shares of
Another Fund? ...................... 19
How Do I Sell Shares................ 22
TEMPLETON What Distributions Might I Receive
GLOBAL From the Fund? ..................... 23
BOND Transaction Procedures and Special
FUND Requirements ....................... 24
- ------------------------ Services to Help You Manage Your
January 1, 1997 Account ............................ 29
700 Central Avenue GLOSSARY
St. Petersburg, FL 33701
1-800/DIAL BEN Useful Terms and Definitions ....... 32
</TABLE>
PAGE
ABOUT THE FUND
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in the
Advisor Class shares of the Fund. Because Advisor Class shares were not offered
to the public before January 1, 1997, the table is based on the historical
expenses of the Class I shares of the Fund for the fiscal year ended August 31,
1996.+ Your actual expenses may vary.
<TABLE>
<S> <C> <C>
A. Shareholder Transaction Expenses(++)
Maximum Sales Charge Imposed on Purchases NONE
Exchange Fee (per transaction) $5.00(+++)
B. Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.50%
Rule 12b-1 Fees NONE
Other Expenses 0.41%
-----
Total Fund Operating Expenses 0.91%
-----
C. Example
</TABLE>
Assume the annual return for Advisor Class shares is 5% and operating
expenses are as described above. For each $1,000 investment, you would pay
the following projected expenses if you sold your shares after the number of
years shown.
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
------------------------------------------------------
<S> <C> <C> <C>
$9 $29 $50 $112
</TABLE>
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
The Fund pays its operating expenses. The effects of these expenses are
reflected in the Net Asset Value or dividends of the Advisor Class and are
not directly charged to your account.
(+)Unlike Advisor Class shares, the Class I shares of the Fund have a front-end
sales charge and Rule 12b-1 fees.
(++)If your transaction is processed through your Securities Dealer you may be
charged a fee by your Securities Dealer for this service.
(+++)$5.00 fee is only for Market Timers. We process all other exchanges
without a fee.
- Templeton Global Bond Fund
2
PAGE
HOW DOES THE FUND INVEST ITS ASSETS?
The Fund's Investment Objective
The Fund's investment objective 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, income-producing securities
which are convertible into common stock of such companies and sponsored and
unsponsored American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), and Global Depositary Receipts ("GDRs") (collectively, "depositary
receipts"). The objective is a fundamental policy of the Fund and may not be
changed without shareholder approval. Under normal circumstances, the Fund will
invest at least 65% of its total assets in issuers domiciled in at least three
different nations (one of which may be the U.S.). 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. Of course, there is no assurance that the
Fund's objective will be achieved.
The Fund may invest in any debt security (which may include structured
investments, as described in the SAI under "How Does the Fund Invest Its
Assets? - Structured Investments"), 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, 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 TGBM's judgment as to future interest rate changes. In addition, when TGBM
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. See "How Does the Fund Invest Its
Assets? - Debt Securities" in the SAI for descriptions of debt securities rated
BBB by S&P and Baa by Moody's.
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). The Fund may also invest in repurchase agreements. These investment
Templeton Global Bond Fund -
3
PAGE
techniques are described below and under the heading "How Does the Fund Invest
Its Assets?" 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, TGBM 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%.
Types of Securities in which the Fund May Invest
The Fund is authorized to use the various securities and investment techniques
described below. Although these strategies are regularly used by some investment
companies and other institutional investors in various markets, some of these
strategies cannot at the present time be used to a significant extent by the
Fund in some of the markets in which the Fund will invest and may not be
available for extensive use in the future.
Repurchase Agreements. When the Fund acquires a security from a U.S. bank or a
registered broker-dealer, it may simultaneously enter into a repurchase
agreement, wherein the seller agrees to repurchase the security at a specified
time and price. The repurchase price is in excess of the purchase price by an
amount which reflects an agreed-upon rate of return, which is not tied to the
coupon rate of the underlying security. Under the 1940 Act, repurchase
agreements are considered to be loans collateralized by the underlying security
and therefore will be fully collateralized. However, if the seller should
default on its obligation to repurchase the underlying security, the Fund may
experience delay or difficulty in exercising its rights to realize upon the
security and might incur a loss if the value of the security declines, as well
as incur disposition costs in liquidating the security.
- Templeton Global Bond Fund
4
PAGE
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 U.S. 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 Exchange 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 TGBM 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
Templeton Global Bond Fund -
5
PAGE
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 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
- Templeton Global Bond Fund
6
PAGE
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
"How Does the Fund Invest Its Assets - 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 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
or gains 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.
Depositary Receipts. ADRs are depositary receipts typically used by a U.S. bank
or trust company which evidence ownership of underlying securities issued by a
Templeton Global Bond Fund -
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PAGE
foreign corporation. EDRs and GDRs are typically issued by foreign banks or
trust companies, although they also may be issued by U.S. banks or trust
companies, and evidence ownership of underlying securities issued by either a
foreign or a U.S. corporation. Generally, depositary receipts in registered form
are designed for use in the U.S. securities market and depositary receipts in
bearer form are designed for use in securities markets outside the U.S.
Depositary receipts may not necessarily be denominated in the same currency as
the underlying securities into which they may be converted. Depositary receipts
may be issued pursuant to sponsored or unsponsored programs. In sponsored
programs, an issuer has made arrangements to have its securities traded in the
form of depositary receipts. In unsponsored programs, the issuer may not be
directly involved in the creation of the program. Although regulatory
requirements with respect to sponsored and unsponsored programs are generally
similar, in some cases it may be easier to obtain financial information from an
issuer that has participated in the creation of a sponsored program.
Accordingly, there may be less information available regarding issuers of
securities underlying unsponsored programs and there may not be a correlation
between such information and the market value of the depositary receipts.
Depositary receipts also involve the risks of other investments in foreign
securities, as discussed below. For purposes of the Fund's investment policies,
the Fund's investments in depositary receipts will be deemed to be investments
in the underlying 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 TGBM, 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
- Templeton Global Bond Fund
8
PAGE
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.
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.
WHAT ARE THE FUND'S POTENTIAL RISKS?
You 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. 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 the prevailing rates of interest
in any of the countries in which the Fund is invested in fixed income
securities will likely affect the value of such holdings and thus the value of
Fund shares. Increased rates of interest, which frequently accompany inflation
and/or a growing economy, are likely to have a negative effect on the value of
Fund shares. The value of debt securities held by the Fund generally will vary
inversely with changes in prevailing interest rates. In addition, changes in
currency valuations will affect the price of shares of the Fund. History
reflects both decreases and increases in stock markets and currency valuations,
and these may occur unpredictably in the future. Additionally, investment
decisions made by TGBM 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
Templeton Global Bond Fund -
9
PAGE
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 "How Taxation Affects You and the Fund." 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 developing. 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), foreign investment controls on daily stock market movements, default
in foreign government securities, political or social instability, or
diplomatic developments which could affect investments in securities of issuers
in foreign nations. In addition, in many countries there is less publicly
available information about issuers than is available in reports about
companies in the U.S. Foreign companies are not generally subject to uniform
accounting or financial reporting standards, and auditing practices and
requirements may not be comparable to those applicable to U.S. companies. The
Fund may encounter difficulties or be unable to vote proxies, exercise
shareholder rights, pursue legal remedies, and obtain judgments in foreign
courts. Also, some countries may withhold portions of income and dividends at
the source. These considerations generally are more of a concern in developing
countries, where the possibility of political instability (including
revolution) and dependence on foreign economic assistance may be greater than
in developed countries. Investments in companies domiciled in developing
countries therefore may be subject to potentially higher risks than in
developed countries.
- Templeton Global Bond Fund
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Brokerage commissions, custodial services, and other costs relating to
investments in foreign countries are generally more expensive than in the U.S.
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 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 U.S. There is an increased risk, therefore, of uninsured
loss due to lost, stolen, or counterfeit stock certificates. In addition, 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 U.S. The Fund may invest in Eastern European
countries, which involves special risks that are described under "What Are the
Fund's Potential Risks?" in the SAI.
Prior governmental approval of non-domestic investments may be required under
certain circumstances in some developing countries, and the extent of foreign
investment in domestic companies may be subject to limitation in other
developing countries. Foreign ownership limitations also may be imposed by the
charters of individual companies in developing countries to prevent, among
other concerns, violation of foreign investment limitations.
Repatriation of investment income, capital and proceeds of sales by foreign
investors may require governmental registration and/or approval in some
developing countries. The Fund could be adversely affected by delays in or a
refusal to grant any required governmental registration or approval for such
repatriation.
Further, the economies of developing countries generally are heavily dependent
upon international trade and, accordingly, have been and may continue to be
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. These economies also have been and
Templeton Global Bond Fund -
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may continue to be adversely affected by economic conditions in the countries
with which they trade.
As a non-fundamental policy, the Fund will limit its investments in Russian
securities to 5% of its total assets. Russian securities involve additional
significant risks, including political and social uncertainty (for example,
regional conflicts and risk of war), currency exchange rate volatility,
pervasiveness of corruption and crime in the Russian economic system, delays in
settling portfolio transactions and risk of loss arising out of Russia's system
of share registration and custody. For more information on these risks and
other risks associated with Russian securities, please see "What Are the Fund's
Potential Risks?" 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
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 known
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 TGBM 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 TGBM, 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
- Templeton Global Bond Fund
12
PAGE
and movements in the securities or currency in the Fund's portfolio. Successful
use of futures or option contracts is further dependent on TGBM'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 securities 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.
WHO MANAGES THE FUND?
The Board. The Board oversees the management of the Fund and elects its
officers. The officers are responsible for the Fund's day-to-day operations. The
Board also monitors the Fund to ensure no material conflicts exist among the
three classes of shares. While none is expected, the Board will act
appropriately to resolve any material conflict that may arise.
Investment Manager. TGBM manages the Fund's assets and makes its investment
decisions. TGBM also performs similar services for other funds. It is wholly
owned by Resources, a publicly owned company engaged in the financial services
industry through its subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr.
are the principal shareholders of Resources. Together, TGBM and its affiliates
manage over $172 billion in assets. The Templeton organization has been
investing globally since 1940. TGBM and its affiliates have offices in
Argentina, Australia, Bahamas, Canada, France, Germany, Hong Kong, India, Italy,
Luxembourg, Poland, Russia, Scotland, Singapore, South Africa, U.S., and
Vietnam. Please see "Investment Management and Other Services" and
"Miscellaneous Information" in the SAI for information on securities
transactions and a summary of the Fund's Code of Ethics.
Portfolio Management. The lead portfolio manager of the Fund since 1993 is
Thomas Latta. Mr. Latta is a vice president of TGBM. He attended the University
of Missouri and New York University. Before joining the Templeton organization
in 1991, Mr. Latta worked as a portfolio manager with Forester & Hairston, a
Houston based global fixed income investment management firm. Prior to that, Mr.
Latta spent seven years with Merrill Lynch, Pierce, Fenner & Smith
Incorporated, first as part of an investment advisory team to the Saudi Arabian
Monetary Authority and then working in the structured products group in New
York. In that position he developed asset-liability management strategies for
large Employee Retirement Income Security Act of 1974 (ERISA) plans. Mr.
Latta's current research responsibilities include the core European markets.
Templeton Global Bond Fund -
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Neil S. Devlin and Thomas J. Dickson exercise secondary portfolio management
responsibilities for the Fund. Mr. Devlin is the chief investment officer and
executive vice president of TGBM. He holds a BA in economics and philosophy
from Brandeis University and is a Chartered Financial Analyst. Before joining
the Templeton organization in 1987, he was a portfolio manager and bond analyst
with 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. Prior to that, Mr. Devlin was a bond trader and research
analyst for the Bank of New England. Mr. Dickson holds a BS in managerial
economics from the University of California at Davis. He joined the Templeton
organization in 1994 as a fixed income analyst. Prior to joining Templeton, Mr.
Dickson worked as a money market trader and securities analyst at Resources.
His current research responsibilities include non-dollar money market and
currency analysis, and country coverage of Japan, Denmark, Sweden, Greece and
Korea.
Management Fees. For the fiscal year ended August 31, 1996, the Fund paid 0.50%
of its average daily net assets in management fees.
Portfolio Transactions. TGBM tries to obtain the best execution on all
transactions. If TGBM believes more than one broker or dealer can provide the
best execution, consistent with internal policies it may consider research and
related services and the sale of Fund shares, as well as shares of other funds
in the Franklin Templeton Group of Funds, when selecting a broker or dealer.
Please see "How Does the Fund Buy Securities For Its Portfolio?" in the SAI for
more information.
Administrative Services. FT Services (and, prior to October 1, 1996, Templeton
Global Investors, Inc.) provides certain administrative services and facilities
for the Fund. During the fiscal year ended August 31, 1996, administration fees
totaling 0.14% of the average daily net assets of the Fund were paid to
Templeton Global Investors, Inc. Please see "Investment Management and Other
Services" in the SAI for more information.
HOW DOES THE FUND MEASURE PERFORMANCE?
From time to time, each class of the Fund advertises its performance. The more
commonly used measures of performance are total return, current yield and
current distribution rate. Performance figures are usually calculated using the
maximum sales charge, if applicable. Certain performance figures may not
include any applicable sales charge or Rule 12b-1 fees.
- Templeton Global Bond Fund
14
PAGE
Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested. Current yield for each
class shows the income per share earned by that class. The current distribution
rate shows the dividends or distributions paid to shareholders of a class. This
rate is usually computed by annualizing the dividends paid per share during a
certain period and dividing that amount by the current Offering Price of the
class or, in the case of Advisor Class shares, the Net Asset Value of the class.
Unlike current yield, the current distribution rate may include income
distributions from sources other than dividends and interest received by the
Fund.
The investment results of each class will vary. Performance figures are always
based on past performance and do not guarantee future results. For a more
detailed description of how the Fund calculates its performance figures, please
see "How Does the Fund Measure Performance?" in the SAI.
HOW IS THE FUND ORGANIZED?
The Fund is a non-diversified series of the Trust, an open-end management
investment company, commonly called a mutual fund. It was organized as a
Massachusetts business trust on June 16, 1986, and is registered with the SEC
under the 1940 Act. Prior to May 15, 1996, the Fund's name was Templeton Income
Fund. The Fund began offering two classes of shares on May 1, 1995: Templeton
Global Bond Fund - Class I and Templeton Global Bond Fund - Class II. All
shares purchased before that time are considered Class I shares. The Fund began
offering a third class of shares on January 1, 1997: Templeton Global Bond
Fund - Advisor Class. Class I, Class II and Advisor Class shares differ as to
sales charges, expenses and services. Different fees and expenses will affect
performance. In the future, additional series or classes of shares may be
offered. A further description of Class I and Class II is set forth below.
Shares of each class represent proportionate interests in the assets of the Fund
and have the same voting and other rights and preferences as any other class of
the Fund for matters that affect the Fund as a whole. For matters that only
affect one class, however, only shareholders of that class may vote. Each class
will vote separately on matters (1) affecting only that class, (2) expressly
required to be voted on separately by state law, or (3) required to be voted
on separately by the 1940 Act. Shares of each class of a series have the same
voting and other rights and preferences as the other classes and series of the
Trust for matters that affect the Trust as a whole.
The Trust has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this
Templeton Global Bond Fund -
15
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happens, holders of the remaining shares voting will not be able to elect anyone
to the Board.
The Trust does not intend to hold annual shareholder meetings. It may hold a
special meeting of a series, however, for matters requiring shareholder approval
under the 1940 Act. The Trust will call a special meeting of shareholders for
the purpose of considering the removal of a Board member if requested in writing
to do so by shareholders holding at least 10% of the outstanding shares. The
1940 Act requires that we help you communicate with other shareholders in
connection with removing members of the Board.
Class I and Class II. Class I and Class II shares of the Fund are described in a
separate prospectus relating only to those classes. You may buy Class I and
Class II shares through your investment representative or directly by contacting
the Trust. If you would like a prospectus relating to the Fund's Class I and
Class II shares, contact your investment representative or Distributors.
Class I and Class II shares of the Fund have sales charges and Rule 12b-1
charges that may affect performance. Class I shares have a front-end sales
charge of 4.25% (4.44% of the net amount invested) which is reduced on certain
transactions of $100,000 or more. Class I shares are subject to Rule 12b-1 fees
up to a maximum of 0.35% per year of Class I's average daily net assets. Class
II shares have a front-end sales charge of 1.00% (1.01% of the net amount
invested) and are subject to Rule 12b-1 fees up to a maximum of 0.75% per year
of Class II's average daily net assets. Shares of Class I may be subject to, and
shares of Class II are generally subject to, a Contingent Deferred Sales Charge
upon redemption.
HOW TAXATION AFFECTS YOU AND THE FUND
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For more information on tax matters
relating to the Fund and its shareholders, see "Additional Information on
Distributions and Taxes" in the SAI.
The Fund intends to elect to be treated and to qualify each year as a regulated
investment company under Subchapter M of the Code. 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
net 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
- Templeton Global Bond Fund
16
PAGE
January will be treated as having been received by shareholders on December 31
in the year such distributions were declared. The Fund will inform you each year
of the amount and nature of such income or gains. Sales or other dispositions of
Fund shares generally will give rise to taxable gain or loss.
Templeton Global Bond Fund -
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ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
Opening Your Account
You may buy Advisor Class shares if you are making a minimum initial investment
of $5 million (in the aggregate) in one or more Advisor Class shares of the
Franklin Templeton Funds ($25 for subsequent investments) or if you are an
investor in one of the following categories:
(a) Broker-dealers, qualified registered investment advisors or certified
financial planners, who have entered into a supplemental agreement with
Distributors for clients participating in comprehensive fee programs;
(b) Qualified registered investment advisors or registered certified financial
planners who have clients invested in Mutual Series on October 31, 1996;
(c) Qualified registered investment advisors or registered certified financial
planners who did not have clients invested in Mutual Series on October 31,
1996 may buy through a broker-dealer or service agent who has entered into
an agreement with Distributors;
(d) Employer stock, bonus, pension or profit-sharing plans that meet the
requirements for qualification under Section 401 of the Code, including
salary reduction plans qualified under Section 401(k) of the Code, if the
number of employees is 5,000 or more or the plan has assets of $50 million
or more;
(e) Effective on or about February 1, 1997, participants in Franklin
Templeton's 401(k) and any Franklin Templeton Group Company Profit Sharing
Plans;
(f) Trust companies and bank trust departments initially investing in any of
the Franklin Templeton Funds at least $1 million of assets held in a
fiduciary, agency, advisory, custodial or similar capacity and over which
the trust companies, bank trust departments or other plan fiduciaries or
participants, in the case of certain retirement plans, have full or shared
investment discretion;
(g) Governments, municipalities and tax-exempt entities that meet the
requirements for qualification under Section 501 of the Code (subject to
an initial investment in Advisor Class shares of $1 million);
- Templeton Global Bond Fund
18
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(h) Any other investor, including a private investment vehicle such as a family
trust or foundation, who is a member of a qualified group may also
purchase Advisor Class shares of the Fund if the group as a whole meets
the required minimum initial investment of $5 million;
(i) Directors, trustees, officers and full-time employees (and members of
their immediate family) of Franklin Templeton Group and Franklin Templeton
Group of Funds who invest $100 or more;
(j) Accounts managed by the Franklin Templeton Group; and
(k) Class I shareholders of the Fund who qualify under one of the above
categories, may have their existing Class I shares invested into the Fund's
Advisor Class by sending written instructions indicating that they wish to
do so, by June 30, 1997. Instructions should be addressed to Investor
Services. Generally, for federal income tax purposes, there will be no
recognition of gain or loss associated with such a transaction. You may
wish to consult with your tax advisor to determine whether there are any
state income tax consequences to such a transaction.
(l) Each series of Franklin Templeton Fund Allocator Series that invests
$1,000 or more.
The qualified group referred to in Item (h) above, is one that:
- - Was formed at least six months ago,
- - Has a purpose other than buying Fund shares at a discount,
- - Has more than 10 members,
- - Can arrange for meetings between our representatives and group members,
- - Agrees to include sales and other Franklin Templeton Fund materials in
publications and mailings to its members at reduced or no cost to
Distributors,
- - Agrees to arrange for payroll deduction or other bulk transmission of
investments to the Fund, and
- - Meets other uniform criteria that allow Distributors to achieve cost savings
in distributing shares.
If you are subject to the $5 million minimum investment requirement, the cost
or current value (whichever is higher) of your investment in other funds in the
Franklin Templeton Funds will be included for purposes of determining
compliance with the required minimum investment amount, provided that at
Templeton Global Bond Fund -
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least $1 million is invested in Advisor Class shares of the Franklin Templeton
Funds.
The minimum for subsequent investments in Advisor Class shares is $25 for most
purchases of Advisor Class shares of the Fund and for purchases by directors,
trustees, officers and full-time employees (and members of their immediate
family) of Franklin Templeton Group and Franklin Templeton Funds; and $1,000
for each series of Franklin Templeton Fund Allocator Series.
Purchase Price of Fund Shares
Advisor Class shares are purchased at Net Asset Value without a sales charge.
Securities Dealers may receive compensation up to 0.25% of the amount invested
from Distributors or an affiliated company.
How Do I Buy Shares in Connection with Retirement Plans?
Your individual or employer-sponsored retirement plan may invest in the Fund.
Plan documents are required for all retirement plans. Trust Company can provide
the plan documents for you and serve as custodian or trustee.
Trust Company can provide you with brochures containing important information
about its plans. To establish a Trust Company retirement plan, you will need an
application other than the one included in this prospectus. For a retirement
plan brochure or application, please call our Retirement Plans Department.
Please consult your legal, tax or retirement plan specialist before choosing a
retirement plan. Your investment representative or advisor can help you make
investment decisions within your plan.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund and its rules and
requirements for exchanges. For example, some Franklin Templeton Funds do not
accept exchanges and others may have different investment minimums. Some
Franklin Templeton Funds do not offer Advisor Class shares.
- Templeton Global Bond Fund
20
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<TABLE>
<CAPTION>
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------
<S> <C>
BY MAIL 1. Send us written instructions signed by all
account owners
2. Include any outstanding share certificates for
the shares you're exchanging
- --------------------------------------------------------------------------
BY PHONE Call Shareholder Services
If you do not want the ability to exchange by
phone to apply to your account, please let us
know.
- --------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- --------------------------------------------------------------------------
</TABLE>
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
How We Process Your Exchange
If you are exchanging your Advisor Class shares of the Fund you may:
- - exchange into any of our money funds except Franklin Templeton Money Fund II.
- - exchange into the other Advisor Class shares of the Franklin Templeton Funds
(excluding Templeton Developing Markets Trust, Templeton Foreign Fund and
Templeton Growth Fund, Inc., except as described below), Mutual Series Class
Z shares and Templeton Institutional Funds, Inc., if you meet the investment
requirements of the fund to be acquired.
- - exchange into the Advisor Class shares of Templeton Developing Markets Trust,
Templeton Foreign Fund and Templeton Growth Fund, Inc. only if you fall into
one of the following categories: (i) you are a broker-dealer or a qualified
registered investment advisor who has entered into a special agreement with
Distributors for your clients who are participating in comprehensive fee
programs; (ii) you are a qualified registered investment advisor or registered
certified financial planner who has clients invested in Mutual Series on
October 31, 1996; (iii) you are a qualified registered investment advisor or
registered certified financial planner who did not have clients invested in
Mutual Series on October 31, 1996 and are buying through a broker-dealer or
service agent who has entered into an agreement with Distributors; (iv) you
are a director, trustee, officer or full-time employee (or a family member)
of the Franklin Templeton Group or the Franklin Templeton Funds; (v) you are a
participant in Franklin Templeton's 401(k) Plan or Franklin Templeton's Profit
Sharing Plan; (vi) the exchanging shareholder is an account managed by the
Templeton Global Bond Fund -
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Franklin Templeton Group; or (vii) the exchanging shareholder is a series of
the Franklin Templeton Fund Allocator Series.
- - If the fund you are exchanging into does not offer Advisor Class shares, you
may exchange into the Class I shares of the fund at Net Asset Value.
Please be aware that the following restrictions may apply to exchanges:
- - The accounts must be identically registered. You may exchange shares from a
Fund account requiring two or more signatures into an identically registered
money fund account requiring only one signature for all transactions. Please
notify us in writing if you do not want this option to be available on your
account(s). Additional procedures may apply. Please see "Transaction
Procedures and Special Requirements."
- - Trust Company IRA or 403(b) retirement plan accounts may exchange shares as
described above. Restrictions may apply to other types of retirement plans.
Please contact our Retirement Plans Department for information on exchanges
within these plans.
- - The fund you are exchanging into must be eligible for sale in your state.
- - We may modify or discontinue our exchange policy upon 60 days' written notice.
- - Your exchange may be restricted or refused if you: (i) request an exchange out
of the Fund within two weeks of an earlier exchange request, (ii) exchange
shares out of the Fund more than twice in a calendar quarter, or (iii)
exchange shares equal to at least $5 million, or more than 1/4 of 1% of the
Fund's net assets. Shares under common ownership or control are combined for
these limits. If you exchange shares as described in this paragraph, you will
be considered a Market Timer. Each exchange by a Market Timer, if accepted,
will be charged $5.00. Some of our funds do not allow investments by Market
Timers.
Because excessive trading can hurt Fund performance and shareholders, we may
refuse any exchange purchase if (i) we believe the Fund would be harmed or
unable to invest effectively, or (ii) the Fund receives or anticipates
simultaneous orders that may significantly affect the Fund.
- Templeton Global Bond Fund
22
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HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
<TABLE>
<CAPTION>
METHOD STEPS TO FOLLOW
- ----------------------------------------------------------------------
<S> <C>
BY MAIL 1. Send us written instructions signed by all
account owners
2. Include any outstanding share certificates
for the shares you are selling
3. Provide a signature guarantee if required
4. Corporate, partnership and trust accounts
may need to send additional documents.
Accounts under court jurisdiction may have
additional requirements
- ----------------------------------------------------------------------
BY PHONE
(Only available if you have completed and sent to us the telephone
redemption agreement included with this prospectus)
Telephone requests will be accepted:
- If the request is $50,000 or less.
Institutional accounts may exceed $50,000 by
completing a separate agreement. Call
Institutional Services to receive a copy.
- If there are no share certificates issued
for the shares you want to sell or have
already returned to the Fund.
- Unless you are selling shares in a Trust
Company retirement plan account.
- Unless the address on your account was
changed by phone within the last 30 days.
Beginning on or about May 1, 1997, you will
automatically be able to redeem shares by
telephone without completing a telephone
redemption agreement. Please notify us if you
do not want this option to be available on
your account. If you later decide you would
like this option, send us written instructions
signed by all account owners.
- ----------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- ----------------------------------------------------------------------
</TABLE>
Templeton Global Bond Fund -
23
PAGE
We will send your redemption check within seven days after we receive your
request in proper form. If you sell your shares by phone, the check may only be
made payable to all registered owners on the account and sent to the address of
record. We are not able to receive or pay out cash in the form of currency.
If you sell shares you just purchased with a check or draft, we may delay
sending you the proceeds for up to 15 days or more to allow the check or draft
to clear. A certified or cashier's check may clear in less time.
Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
Trust Company Retirement Plan Accounts
To comply with IRS regulations, you need to complete additional forms before
selling shares in a Trust Company retirement plan account. Tax penalties
generally apply to any distribution from these plans to a participant under age
59 1/2, unless the distribution meets an exception stated in the Code. To obtain
the necessary forms, please call our Retirement Plans Department.
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
Dividends and capital gains are calculated and distributed the same way for each
class of the Fund. The amount of any income dividends per share will differ,
however, generally due to the difference in the applicable Rule 12b-1 fees of
any class. Advisor Class shares are not subject to Rule 12b-1 fees.
The Fund intends to pay a monthly dividend representing substantially all of its
net investment income and to distribute annually any net realized capital gains.
Dividend payments are not guaranteed, are subject to the Board's discretion and
may vary with each payment. THE FUND DOES NOT PAY "INTEREST" OR GUARANTEE ANY
FIXED RATE OF RETURN ON AN INVESTMENT IN ITS SHARES.
If you buy shares shortly before the record date, please keep in mind that any
distribution will lower the value of the Fund's shares by the amount of the
distribution.
Distribution Options
You may receive your distributions from the Fund in any of these ways:
1. Buy additional shares of the Fund - You may buy additional shares of the same
class of the Fund by reinvesting capital gain distributions, dividend
distributions,
- Templeton Global Bond Fund
24
PAGE
or both. This is a convenient way to accumulate additional shares and maintain
or increase your earnings base.
2. Buy shares of other Franklin Templeton Funds - You may direct your
distributions to buy Advisor Class shares or Class I shares of another Franklin
Templeton Fund. Many shareholders find this a convenient way to diversify their
investments.
3. Receive distributions in cash - You may receive capital gains distributions,
dividend distributions, or both in cash. If you have the money sent to another
person or to a checking account, you may need a signature guarantee.
TO SELECT ONE OF THESE OPTIONS, PLEASE COMPLETE THE SHAREHOLDER APPLICATION
INCLUDED WITH THIS PROSPECTUS OR TELL YOUR INVESTMENT REPRESENTATIVE WHICH
OPTION YOU PREFER. IF YOU DO NOT SELECT AN OPTION, WE WILL AUTOMATICALLY
REINVEST DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS IN THE ADVISOR CLASS SHARES OF
THE FUND. For Trust Company retirement plans, special forms are required to
receive distributions in cash. You may change your distribution option at any
time by notifying us by mail or phone. Please allow at least seven days prior to
the record date for us to process the new option.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
How and When Shares Are Priced
The Fund is open for business each day the NYSE is open. We determine the Net
Asset Value per share as of the scheduled close of the NYSE, generally 4:00
p.m. Eastern time. You can find the prior day's closing Net Asset Value and
Offering Price of the Fund in many newspapers.
The Net Asset Value of all outstanding shares of each class is calculated on a
pro rata basis. It is based on each class' proportionate participation in the
Fund, determined by the value of the shares of each class. To calculate Net
Asset Value per share of each class, the assets of each class are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares of the class outstanding. The Fund's assets are
valued as described under "How Are Fund Shares Valued?" in the SAI.
The Price We Use When You Buy or Sell Shares
You buy shares of Advisor Class at the Net Asset Value per share. We calculate
it to two decimal places using standard rounding criteria. You also sell shares
at Net Asset Value.
Templeton Global Bond Fund -
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We will use the Net Asset Value next calculated after we receive your
transaction request in proper form. If you buy or sell shares through your
Securities Dealer, however, we will use the Net Asset Value next calculated
after your Securities Dealer receives your request, which is promptly
transmitted to the Fund. Your redemption proceeds will not earn interest
between the time we receive the order from your dealer and the time we receive
any required documents.
Proper Form
An order to buy shares is in proper form when we receive your signed
shareholder application and check. Written requests to sell or exchange shares
are in proper form when we receive written instructions signed by all registered
owners, with a signature guarantee if necessary. We must also receive any
outstanding share certificates for those shares.
Written Instructions
Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:
- - Your name,
- - The Fund's name,
- - The class of shares,
- - A description of the request,
- - For exchanges, the name of the fund you're exchanging into,
- - Your account number,
- - The dollar amount or number of shares, and
- - A telephone number where we may reach you during the day, or in the evening
if preferred.
Signature Guarantees
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered owners,
- Templeton Global Bond Fund
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3) The proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature and may be
obtained from certain banks, brokers or other eligible guarantors. YOU SHOULD
VERIFY THAT THE INSTITUTION IS AN ELIGIBLE GUARANTOR PRIOR TO SIGNING. A
NOTARIZED SIGNATURE IS NOT SUFFICIENT.
Share Certificates
We will credit your shares to your Fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate
is lost, stolen or destroyed, you may have to pay an insurance premium of up to
2% of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the Fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form. In this case, you should send the certificate and assignment
form in separate envelopes.
Telephone Transactions
You may initiate many transactions by phone. Please refer to the sections of
this prospectus that discuss the transaction you would like to make or call
Shareholder Services.
When you call, we will request personal or other identifying information to
confirm that instructions are genuine. We will also record calls. We will not be
liable for following instructions communicated by telephone if we reasonably
believe they are genuine. For your protection, we may delay a transaction or not
implement one if we are not reasonably satisfied that the instructions are
genuine. If this occurs, we will not be liable for any loss.
Trust Company Retirement Plan Accounts. You may not sell shares or change
distribution options on Trust Company retirement plans by phone. While you
Templeton Global Bond Fund -
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may exchange shares of Trust Company IRA and 403(b) retirement accounts by
phone, certain restrictions may be imposed on other retirement plans.
To obtain any required forms or more information about distribution or transfer
procedures, please call our Retirement Plans Department.
Account Registrations and Required Documents
When you open an account, you need to tell us how you want your shares
registered. How you register your account will affect your ownership rights and
ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
Joint Ownership. If you open an account with two or more owners, we register
the account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or
more owners, all owners must sign instructions to process transactions and
changes to the account. Even if the law in your state says otherwise, you will
not be able to change owners on the account unless all owners agree in writing.
If you would like another person or owner to sign for you, please send us a
current power of attorney.
Gifts and Transfers to Minors. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this form
of registration, a minor may not be named as an account owner.
Trusts. If you register your account as a trust, you should have a valid written
trust document to avoid future disputes or possible court action over who owns
the account.
Required Documents. For corporate, partnership and trust accounts, please send
us the following documents when you open your account. This will help avoid
delays in processing your transactions while we verify who may sign on the
account.
- Templeton Global Bond Fund
28
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<TABLE>
<CAPTION>
TYPE OF ACCOUNT DOCUMENTS REQUIRED
- -----------------------------------------------------------------------
<S> <C>
CORPORATION Corporate Resolution
- -----------------------------------------------------------------------
PARTNERSHIP 1. The pages from the partnership agreement that
identify the general partners, or
2. A certification for a partnership agreement
- -----------------------------------------------------------------------
TRUST 1. The pages from the trust document that
identify the trustees, or
2. A certification for trust
- -----------------------------------------------------------------------
</TABLE>
Street or Nominee Accounts. If you have Fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the shares
to the street or nominee name account of another Securities Dealer. Both
dealers must have an agreement with Distributors or we will not process the
transfer. Contact your Securities Dealer to initiate the transfer. We will
process the transfer after we receive authorization in proper form from your
delivering Securities Dealer. Accounts may be transferred electronically
through the NSCC. For accounts registered in street or nominee name, we may
take instructions directly from the Securities Dealer or your nominee.
Electronic Instructions. If there is a Securities Dealer or other
representative of record on your account, we are authorized to use and execute
electronic instructions. We can accept electronic instructions directly from
your dealer or representative without further inquiry. Electronic instructions
may be processed through the services of the NSCC, which currently include the
NSCC's "Networking," "Fund/SERV," and "ACATS" systems, or through Franklin/
Templeton's PCTrades II(TM) System.
Tax Identification Number
For tax reasons, we must have your correct Social Security or tax identification
number on a signed shareholder application or applicable tax form. Federal law
requires us to withhold 31% of your taxable distributions and sale proceeds if
(i) you have not furnished a certified correct taxpayer identification number,
(ii) you have not certified that withholding does not apply, (iii) the IRS or a
Securities Dealer notifies the Fund that the number you gave us is incorrect, or
(iv) you are subject to backup withholding.
We may refuse to open an account if you fail to provide the required tax
identification number and certifications. We may also close your account if the
IRS notifies us that your tax identification number is incorrect. If you
complete
Templeton Global Bond Fund -
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an "awaiting TIN" certification, we must receive a correct tax identification
number within 60 days of your initial purchase to keep your account open.
Keeping Your Account Open
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is $50 or less, except for investors in
categories (d), (e), (j) and (l) under "Opening Your Account." We will only do
this if the value of your account falls below this minimum because you
voluntarily sold your shares and your account has been inactive (except for the
reinvestment of distributions) for at least six months. Before we close your
account, we will notify you and give you 30 days to increase the value of your
account to the required minimum amount of at least $100.
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
Automatic Investment Plan
Our automatic investment plan offers a convenient way to invest in the Fund.
Under the plan, you can have money transferred automatically from your checking
account to the Fund each month to buy additional shares. If you are interested
in this program, please refer to the account application included with this
prospectus or contact your investment representative. The market value of the
Fund's shares may fluctuate and a systematic investment plan such as this will
not assure a profit or protect against a loss. You may discontinue the program
at any time by notifying Investor Services by mail or phone.
Systematic Withdrawal Plan
Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or annual
basis. The value of your account must be at least $5,000 and the minimum
payment amount for each withdrawal must be at least $50. For retirement plans
subject to mandatory distribution requirements, the $50 minimum will not apply.
If you would like to establish a systematic withdrawal plan, please complete the
systematic withdrawal plan section of the shareholder application included with
this prospectus and indicate how you would like to receive your payments. You
may choose to direct your payments to buy the same class of shares of another
Franklin Templeton Fund or have the money sent directly to you, to another
person, or to a checking account. You will generally receive your payment by the
- Templeton Global Bond Fund
30
PAGE
end of the month in which a payment is scheduled. When you sell your shares
under a systematic withdrawal plan, it is a taxable transaction.
You may discontinue a systematic withdrawal plan, change the amount and
schedule of withdrawal payments, or suspend one payment by notifying us in
writing at least seven business days before the end of the month preceding a
scheduled payment. Please see "How Do I Buy, Sell and Exchange Shares? -
Systematic Withdrawal Plan" in the SAI for more information.
Statements and Reports to Shareholders
We will send you the following statements and reports on a regular basis:
- - Confirmation and account statements reflecting transactions in your account,
including additional purchases and dividend reinvestments. PLEASE VERIFY THE
ACCURACY OF YOUR STATEMENTS WHEN YOU RECEIVE THEM.
- - Financial reports of the Fund will be sent every six months. To reduce Fund
expenses, we attempt to identify related shareholders within a household and
send only one copy of a report. Call Fund Information if you would like an
additional free copy of the Fund's financial reports or an interim quarterly
report.
Brokers and Dealers and Plan Administrators
You may buy and sell Fund shares through registered broker-dealers. The Fund
does not impose a sales or service charge but your broker-dealer may charge you
a transaction fee. Transaction fees and services may vary among broker-dealers,
and your broker-dealer may impose higher initial or subsequent investment
requirements than those established by the Fund. Services provided by broker-
dealers may include allowing you to establish a margin account and borrow on
the value of the Fund's shares in that account. If your broker-dealer receives
your order before pricing on a given day, the broker-dealer is required to
forward the order to the Fund before pricing closes on that day. A broker-
dealer's failure to timely forward an order may give rise to a claim by the
investor against the broker.
Third party plan administrators of tax-qualified retirement plans and other
entities may provide sub-transfer agent services to the Fund. In such cases, the
Fund may pay the third party an annual sub-transfer agency fee that is not
greater than the Fund otherwise would have paid for such services.
Templeton Global Bond Fund -
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Institutional Accounts
Institutional investors will likely be required to complete an institutional
account application. There may be additional methods of opening accounts and
purchasing, redeeming or exchanging shares of the Fund available for
institutional accounts. To obtain an institutional application or additional
information regarding institutional accounts, contact Franklin Templeton
Institutional Services at 1-800/321-8563 Monday through Friday, from 9:00 a.m.
to 5:00 p.m. Eastern time.
Availability of These Services
The services above are available to most shareholders. If, however, your shares
are held by a financial institution, in a street name account, or networked
through the NSCC, the Fund may not be able to offer these services directly to
you. Please contact your investment representative.
What If I Have Questions About My Account?
If you have any questions about your account, you may write to Investor
Services, P.O. Box 33030, St. Petersburg, FL 33733-8030. The Fund and
Distributors are also located at this address. You may also contact us by phone
at one of the numbers listed below.
<TABLE>
<CAPTION>
HOURS OF OPERATION (EASTERN
TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
- ------------------------------------------------------------------------
<S> <C> <C>
Shareholder Services 1-800/632-2301 8:30 a.m. to 8:00 p.m.
Dealer Services 1-800/524-4040 8:30 a.m. to 8:00 p.m.
Fund Information 1-800/DIAL BEN 8:30 a.m. to 11:00 p.m.
(1-800/342-5236) 9:30 a.m. to 5:30 p.m. (Saturday)
Retirement Plans 1-800/527-2020 8:30 a.m. to 8:00 p.m.
Institutional Services 1-800/321-8563 9:00 a.m. to 8:00 p.m.
TDD (hearing impaired) 1-800/851-0637 8:30 a.m. to 8:00 p.m.
</TABLE>
Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.
- Templeton Global Bond Fund
32
PAGE
GLOSSARY
USEFUL TERMS AND DEFINITIONS
1940 Act - Investment Company Act of 1940, as amended.
Board - The Board of Trustees of the Trust.
Class I, Class II and Advisor Class - The Fund offers three classes of shares,
designated "Class I," "Class II," and "Advisor Class." The three classes have
proportionate interests in the Fund's portfolio. Class I and Class II shares are
subject to a sales charge structure and a Rule 12b-1 plan. Advisor Class shares
are purchased without a sales charge and do not have a Rule 12b-1 plan.
Code - Internal Revenue Code of 1986, as amended.
Contingency Period - For Class I shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. For Class II shares, the
contingency period is 18 months. Regardless of when during the month you
purchased shares, they will age one month on the last day of that month and
each following month.
Contingent Deferred Sales Charge (CDSC) - A sales charge of 1% that may apply
if you sell your shares within the Contingency Period.
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Trustees."
Franklin Funds - the mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin Government Securities Trust.
Franklin Templeton Funds - The Franklin Funds and the Templeton Funds.
Franklin Templeton Group - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries.
Franklin Templeton Group of Funds - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds.
FT Services - Franklin Templeton Services, Inc., the Fund's administrator.
Investor Services - Franklin/Templeton Investor Services, Inc., the Fund's
transfer agent and shareholder servicing agent.
IRS - Internal Revenue Service.
Templeton Global Bond Fund -
33
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Market Timer(s) - Market Timers generally include market timing or allocation
services, accounts administered so as to buy, sell or exchange shares based on
predetermined market indicators, or any person or group whose transactions seem
to follow a timing pattern.
Moody's - Moody's Investors Service, Inc.
Mutual Series - Franklin Mutual Series Fund Inc., a member of the Franklin
Group of Funds, formerly the Mutual Series Fund Inc. Each series of Mutual
Series began offering three classes of shares on November 1, 1996, Class I,
Class II and Class Z. All shares sold before that time are designated Class Z
shares.
NASD - National Association of Securities Dealers, Inc.
Net Asset Value (NAV) - the value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by
the number of shares outstanding.
NSCC - National Securities Clearing Corporation.
NYSE - New York Stock Exchange, Inc.
Offering Price - The public offering price is based on the Net Asset Value per
share and includes the front-end sales charge, if applicable. The maximum front-
end sales charge is 5.75% for Class I. Advisor Class has no front-end sales
charge.
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information.
S&P - Standard and Poor's Corporation.
SEC - U.S. Securities and Exchange Commission.
Securities Dealer - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
Templeton Funds - The U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund.
- Templeton Global Bond Fund
34
PAGE
TGBM - Templeton Global Bond Managers, a division of Templeton Investment
Counsel, Inc., the Fund's investment manager, is located at Broward Financial
Centre, Fort Lauderdale, FL 33394-3091.
Trust Company - Franklin Templeton Trust Company. Trust Company is an affiliate
of Distributors and both are wholly owned subsidiaries of Resources.
U.S. - United States.
We/Our/Us - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Investor Services, Distributors, or other wholly-owned
subsidiaries of Resources.
Templeton Global Bond Fund -
35
PAGE
PART B
STATEMENT OF ADDITIONAL INFORMATION
PAGE
TEMPLETON INCOME TRUST
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 1, 1997
700 CENTRAL AVENUE
ST. PETERSBURG, FL 33701 1-800/DIAL BEN
TABLE OF CONTENTS
How does the Fund Invest its Assets?........................................
What are the Fund's Potential Risks?........................................
Investment Restrictions.....................................................
Officers and Trustees.......................................................
Investment Management and Other Services....................................
How does the Fund Buy Securities for its Portfolio?.........................
How Do I Buy, Sell and Exchange Shares?.....................................
How are Fund Shares Valued?.................................................
Additional Information on Distributions and Taxes...........................
The Fund's Underwriter......................................................
How does the Fund Measure Performance?......................................
Miscellaneous Information...................................................
Financial Statements........................................................
Useful Terms and Definitions................................................
Appendices..................................................................
When reading this SAI, you will see certain terms beginning with
capital letters. This means the term is explained under "Useful Terms
and Definitions."
The Templeton Global Bond Fund (the "Fund") is a non-diversified series of
Templeton Income Trust (the "Trust"), an open-end management investment company.
The Fund's investment objective 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, income-producing securities
which are convertible into common stock of such companies and sponsored and
unsponsored American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), and Global Depositary Receipts ("GDRs") (collectively, "depositary
receipts").
Advisor Class shares are only available for purchase by certain persons,
including, among others, certain financial institutions (such as banks, trust
companies, savings institutions and credit unions); government and tax-exempt
entities; certain pension, profit sharing and employee benefit plans; certain
qualified groups, including family trusts, endowments, foundations and
corporations; Franklin Templeton Fund Allocator Series; and directors, trustees,
officers and full time employees (and their family members) of Franklin
Templeton Group and the Franklin Templeton Group of Funds.
The Advisor Class Prospectus, dated January 1, 1997, as may be amended from time
to time, contains the basic information you should know before investing in the
Fund. For a free copy, call 1-800/DIAL BEN or write the Fund at the address
shown.
PAGE
THIS SAI IS NOT A PROSPECTUS. IT CONTAINS INFORMATION IN ADDITION TO AND IN MORE
DETAIL THAN SET FORTH IN THE PROSPECTUS. THIS SAI IS INTENDED TO PROVIDE YOU
WITH ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF THE FUND,
AND SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS.
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
- - ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
- - ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK;
- - ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
HOW DOES THE FUND INVEST ITS ASSETS?
The following provides more detailed information about some of the securities
the Fund may buy and its investment policies. You should read it together with
the section in the Prospectus entitled "How does the Fund Invest its Assets?"
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. TGBM 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 the
Fund's ability to dispose of the underlying securities. The Fund will enter into
repurchase agreements only with parties who meet creditworthiness standards
approved by the Board, i.e., banks or broker-dealers which have been determined
by TGBM to present no serious risk of becoming involved in bankruptcy
proceedings within the time frame contemplated by the repurchase transaction.
Debt Securities. The Fund may invest in debt securities which are rated in any
category by S&P or Moody's. See "Appendices - Corporate Bond Ratings" for a
description of the S&P and Moody's ratings. As an operating policy, the 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 the Fund's Net Asset Value.
Although they may offer higher yields than do higher rated securities, high
risk, low rated debt securities (commonly known 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
-2-
PAGE
existence of limited markets for particular securities may diminish the 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 the
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 the 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 the 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, the Fund may incur additional expenses seeking
recovery.
The 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, the Fund must distribute substantially all
of its net income and gains to shareholders (see "Additional Information on
Distributions and Taxes") generally on an annual basis. The 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.
Structured Investments. Included among the issuers of debt securities in which
the Fund may invest are entities organized and operated solely for the purpose
of restructuring the investment characteristics of various securities. These
entities are typically organized by investment banking firms which receive fees
in connection with establishing each entity and arranging for the placement of
its securities. This type of restructuring involves the deposit with or purchase
by an entity, such as a corporation or trust, of specified instruments and the
issuance by that entity of one or more classes of securities ("structured
investments") backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be apportioned
among the newly issued structured investments to create securities with
different investment characteristics such as varying maturities, payment
priorities or interest rate provisions; the extent of the payments made with
respect to structured investments is dependent on the extent of the cash flow on
the underlying instruments. Because structured investments of the type in which
the Fund anticipates investing typically involve no credit enhancement, their
credit risk will generally be equivalent to that of the underlying instruments.
-3-
PAGE
The Fund is permitted to invest in a class of structured investments that is
either subordinated or unsubordinated to the right of payment of another class.
Subordinated structured investments typically have higher yields and present
greater risks than unsubordinated structured investments. Although the Fund's
purchase of subordinated structured investments would have a similar economic
effect to that of borrowing against the underlying securities, the purchase will
not be deemed to be leverage for purposes of the limitations placed on the
extent of the Fund's assets that may be used for borrowing activities.
Certain issuers of structured investments may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, the Fund's investment in
these structured investments may be limited by the restrictions contained in the
1940 Act. Structured investments are typically sold in private placement
transactions, and there currently is no active trading market for structured
investments. To the extent such investments are illiquid, they will be subject
to the Fund's restrictions on investments in illiquid securities.
Futures Contracts. The 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.
The 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 the 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 the
Fund's custodian. When selling a stock index futures contract, the 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, the
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 the Fund to purchase the
same futures contract at a price no higher than the price of the contract
written by the Fund (or at a higher price if the difference is maintained in
liquid assets with the Fund's custodian).
Options on Securities, Indices and Futures. The 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 U.S. and foreign exchanges and in the
over-the-counter markets.
-4-
PAGE
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.
The 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 the Fund is "covered" if the
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
the 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 the 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 the Fund is "covered" if the 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.
The Fund will cover call options on securities indices that it writes by owning
securities whose price changes, in the opinion of TGBM, 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 the 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, the 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. The 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.
The 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 the Fund has written a call option falls or remains the same, the 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, the 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, the 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 the 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.
-5-
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The Fund may also purchase put options to hedge its investments against a
decline in value. By purchasing a put option, the 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 the 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 the Fund's security holdings being
hedged.
The 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, the 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 the Fund holds uninvested cash or short-term debt securities awaiting
investment. When purchasing call options, the 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 the 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 the 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 the Fund, as well
as the cover for options written by the 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 Restrictions."
Foreign Currency Hedging Transactions. In order to hedge against foreign
currency exchange rate risks, the 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. The 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.
The Fund may enter into forward foreign currency exchange contracts ("forward
contracts") to attempt to minimize the risk to the 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. The 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 the 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 the
Fund's forward contracts, 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,
the 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 CFTC,
the CFTC may in
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the future assert authority to regulate forward contracts. In such event, the
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 the Fund
than if it had not engaged in such contracts.
The 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 the 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, the Fund may forfeit the
entire amount of the premium plus related transaction costs. Options on foreign
currencies to be written or purchased by the Fund will be traded on U.S. and
foreign exchanges or over-the-counter.
The 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
the Fund's portfolio securities or adversely affect the prices of securities
that the Fund intends to purchase at a later date. The successful use of foreign
currency futures will usually depend on TGBM's ability to forecast currency
exchange rate movements correctly. Should exchange rates move in an unexpected
manner, the Fund may not achieve the anticipated benefits of foreign currency
futures or may realize losses.
WHAT ARE THE FUND'S POTENTIAL RISKS?
The Fund has an unlimited right to purchase securities in any foreign country,
developed or developing, 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 U.S. Foreign companies are not generally
subject to uniform accounting or financial reporting standards, and auditing
practices and requirements may not be comparable to those applicable to U.S.
companies. The Fund, therefore, may encounter difficulty in obtaining market
quotations for purposes of valuing its portfolio and calculating its Net Asset
Value. Foreign markets have substantially less volume than the NYSE and
securities of some foreign companies are less liquid and more volatile than
securities of comparable U.S. companies. Commission rates in foreign countries,
which are generally fixed rather than subject to negotiation as in the U.S., 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 U.S.
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
-7-
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nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict the
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.
In addition, many countries in which the Fund may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some developing countries may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross domestic product, rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency and balance of payments position.
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, the 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 the Fund
shareholders.
Investing in Russian companies involves a high degree of risk and special
considerations not typically associated with investing in the U.S. securities
markets, and should be considered highly speculative. Such risks include: (a)
delays in settling portfolio transactions and risk of loss arising out of
Russia's system of share registration and custody; (b) the risk that it may be
impossible or more difficult than in other countries to obtain and/or enforce a
judgment; (c) pervasiveness of corruption and crime in the Russian economic
system; (d) currency exchange rate volatility and the lack of available currency
hedging instruments; (e) higher rates of inflation (including the risk of social
unrest associated with periods of hyper-inflation); (f) controls on foreign
investment and local practices disfavoring foreign investors and limitations on
repatriation of invested capital, profits and dividends, and on the Fund's
ability to exchange local currencies for U.S. dollars; (g) the risk that the
government of Russia or other executive or legislative bodies may decide not to
continue to support the economic reform programs implemented since the
dissolution of the Soviet Union and could follow radically different political
and/or economic policies to the detriment of investors, including
non-market-oriented policies such as the support of certain industries at the
expense of other sectors or investors, or a return to the centrally planned
economy that existed prior to the dissolution of the Soviet Union; (h) the
financial condition of Russian companies, including large amounts of
inter-company debt which may create a payments crisis on a national scale; (i)
dependency on exports and the corresponding importance of international trade;
(j) the risk that the Russian tax system will not be reformed to prevent
inconsistent, retroactive and/or exorbitant taxation; and (k) possible
difficulty in identifying a purchaser of securities held by the Fund due to the
underdeveloped nature of the securities markets.
-8-
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There is little historical data on Russian securities markets because they are
relatively new and a substantial proportion of securities transactions in Russia
are privately negotiated outside of stock exchanges. Because of the recent
formation of the securities markets as well as the underdeveloped state of the
banking and telecommunications systems, settlement, clearing and registration of
securities transactions are subject to significant risks. Ownership of shares
(except where shares are held through depositories that meet the requirements of
the 1940 Act) is defined according to entries in the company's share register
and normally evidenced by extracts from the register or by formal share
certificates. However, there is no central registration system for shareholders
and these services are carried out by the companies themselves or by registrars
located throughout Russia. These registrars are not necessarily subject to
effective state supervision and it is possible for the Fund to lose its
registration through fraud, negligence or even mere oversight. While the Fund
will endeavor to ensure that its interest continues to be appropriately recorded
either itself or through a custodian or other agent inspecting the share
register and by obtaining extracts of share registers through regular
confirmations, these extracts have no legal enforceability and it is possible
that subsequent illegal amendment or other fraudulent act may deprive the Fund
of its ownership rights or improperly dilute its interests. In addition, while
applicable Russian regulations impose liability on registrars for losses
resulting from their errors, it may be difficult for the Fund to enforce any
rights it may have against the registrar or issuer of the securities in the
event of loss of share registration. Furthermore, although a Russian public
enterprise with more than 1,000 shareholders is required by law to contract out
the maintenance of its shareholder register to an independent entity that meets
certain criteria, in practice this regulation has not always been strictly
enforced. Because of this lack of independence, management of a company may be
able to exert considerable influence over who can purchase and sell the
company's shares by illegally instructing the registrar to refuse to record
transactions in the share register. This practice may prevent the Fund from
investing in the securities of certain Russian companies deemed suitable by
TGBM. Further, this also could cause a delay in the sale of Russian company
securities by the Fund if a potential purchaser is deemed unsuitable, which may
expose the Fund to potential loss on the investment.
The 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 the Fund from transferring cash out of the country
or withhold portions of interest and dividends at the source. There is the
possibility of cessation of trading on national exchanges, 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.
The 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. Some countries in which the Fund may invest may also have fixed or
managed currencies that are not free-floating against the U.S. dollar. Further,
certain currencies have experienced a steady devaluation relative to the U.S.
dollar. Any devaluations in the currencies in which the Fund's portfolio
securities are denominated may have a detrimental impact on the Fund. Through
the Fund's flexible policy, management endeavors to avoid unfavorable
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consequences and to take advantage of favorable developments in particular
nations where from time to time it places the 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 Board considers at least annually the likelihood of the imposition by any
foreign government of exchange control restrictions which would affect the
liquidity of the 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. The Board also considers the degree of risk
involved through the holding of portfolio securities in domestic and foreign
securities depositories (see "Investment Management and Other Services -
Shareholder Servicing Agent and Custodian"). However, in the absence of willful
misfeasance, bad faith or gross negligence on the part of TGBM, any losses
resulting from the holding of the 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 Board's appraisal of the risks
will always be correct or that such exchange control restrictions or political
acts of foreign governments might not occur.
The 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. The 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
the Fund for hedging purposes also depends upon TGBM'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 the Fund's special investment techniques,
including loans of portfolio securities and borrowing for investment purposes.
These risks are described under the heading "How does the Fund Invest its
Assets? - Types of Securities in which the Fund May Invest" in the Prospectus.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions as fundamental policies. These
restrictions may not be changed without the approval of a majority of the
outstanding voting securities of the Fund. Under the 1940 Act, this means the
approval of (i) more than 50% of the outstanding shares of the Fund or (ii) 67%
or more of the shares of the Fund present at a shareholder meeting if more than
50% of the outstanding shares of the Fund are represented at the meeting in
person or by proxy, whichever is less.
The Fund MAY NOT:
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1. Invest in real estate or mortgages on real estate (although
the Fund 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 the Fund's
Prospectus).
2. Purchase or retain securities of any company in which trustees
or officers of the Trust or of TGBM, 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 the Fund may make margin
payments in connection with futures, options and currency
transactions.
5. Loan money, except that the 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 U.S. 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.
9. Borrow money, except that the Fund may borrow money in amounts
up to 30% of the value of the Fund's net assets. In addition,
the Fund may not pledge, mortgage or hypothecate its assets
for any purpose, except that the 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.
10. Participate on a joint or a joint and several basis in any
trading account in securities. (See "How does the Fund Buy
Securities for its Portfolio?" as to transactions in the same
securities for the Fund, other clients and/or other mutual
funds within the Franklin Templeton Group of Funds.)
11. Invest more than 5% of its net assets in warrants whether or
not listed on the NYSE or AMEX, and more than 2% of its net
assets in warrants that are not listed on those
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exchanges. Warrants acquired in units or attached to
securities are not included in this restriction.
The investment restrictions do not preclude the Fund from purchasing the
securities of any issuer pursuant to the exercise of subscription rights
distributed to the Fund by the issuer, unless such purchase would result in a
violation of restrictions 7 or 8.
If a percentage restriction is met at the time of investment, a later increase
or decrease in the percentage due to a change in value of portfolio securities
or the amount of assets will not be considered a violation of any of the
foregoing restrictions.
OFFICERS AND TRUSTEES
The Board has the responsibility for the overall management of the Fund,
including general supervision and review of its investment activities. The
Board, in turn, elects the officers of the Fund who are responsible for
administering the Fund's day-to-day operations. The affiliations of the officers
and Board members and their principal occupations for the past five years are
shown below. Members of the Board who are considered "interested persons" of the
Trust under the 1940 Act are indicated by an asterisk ("*").
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITIONS AND OFFICES DURING THE PAST
NAME, ADDRESS AND AGE WITH THE TRUST FIVE YEARS
- --------------------- --------------------- --------------------
<S> <C> <C>
HARRIS J. ASHTON Trustee Chairman of the board, president and chief executive officer of
Metro Center General Host Corporation (nursery and craft centers); director of RBC
1 Station Place Holdings (U.S.A.) Inc. (a bank holding company) and Bar-S Foods; and
Stamford, Connecticut director or trustee of 55 of the investment companies in the Franklin
Age 64 Templeton Group of Funds.
NICHOLAS F. BRADY* Trustee Chairman of Templeton Emerging Markets Investment Trust PLC; chairman of
The Bullitt House Templeton Latin America Investment Trust PLC; chairman of Darby Overseas
102 East Dover Street Investments, Ltd. (an investment firm) (1994-present); chairman and
Easton, Maryland director of Templeton Central and Eastern European Fund; director of the
Age 66 Amerada Hess Corporation, Christiana Companies, and the H.J. Heinz
Company; formerly, Secretary of the United States Department of the
Treasury (1988-1993) and chairman of the board of Dillon, Read & Co.,
Inc. (investment banking) prior to 1988; and director or trustee of 23 of
the investment companies in the Franklin Templeton Group of Funds.
</TABLE>
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<TABLE>
<S> <C> <C>
S. JOSEPH PORTUNATO Trustee Member of the law firm of
200 Campus Drive Pitney, Hardin, Kipp & Szuch;
Florham Park, New Jersey director of General Host
Age 64 Corporation (nursery and
craft centers); and director
or trustee of 57 of the
investment companies in the
Franklin Templeton Group of
Funds.
JOHN Wm. GALBRAITH Trustee President of Galbraith
360 Central Avenue Properties, Inc. (personal
Suite 1300 investment company); director
St. Petersburg, Florida of Gulf West Banks, Inc.
Age 75 (bank holding company) (1995-
present); formerly, director
of Mercantile Bank (1991-
1995), vice chairman of
Templeton, Galbraith &
Hansberger Ltd. (1986-1992)
and chairman of Templeton
Funds Management, Inc. (1974-
1991); and director or
trustee of 22 of the
investment companies in the
Franklin Templeton Group of
Funds.
ANDREW H. HINES, JR. Trustee Consultant for the Triangle
150 2nd Avenue N. Consulting Group; chairman
St. Petersburg, Florida and director of Precise Power
Age 73 Corporation; executive-in-
residence of Eckerd College
(1991-present); director of
Checkers Drive-In
Restaurants, Inc.; formerly,
chairman of the board and
chief executive officer of
Florida Progress Corporation
(1982-1990) and director of
various of its subsidiaries;
and director or trustee of 24
of the investment companies
in the Franklin Templeton
Group of Funds.
CHARLES B. JOHNSON* Chairman of the Board President, chief executive
777 Mariners Island Blvd. and Vice President officer, and director of
San Mateo, California Franklin Resources, Inc.;
Age 63 chairman of the board and
director of Franklin
Advisers, Inc. and Franklin
Templeton Distributors, Inc.;
director of General Host
Corporation (nursery and
craft centers) and Franklin
Templeton Investor Services,
Inc.; and officer and/or
</TABLE>
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<TABLE>
<S> <C> <C>
director, trustee or managing general partner, as the case may be, of
most other subsidiaries of Franklin Resources, Inc. and 56 of the
investment companies in the Franklin Templeton Group of Funds.
BETTY P. KRAHMER Trustee Director or trustee of various civic associations; formerly, economic
2201 Kentmere Parkway analyst, U.S. government; and director or trustee of 23 of the investment
Wilmington, Delaware companies in the Franklin Templeton Group of Funds.
Age 67
GORDON S. MACKLIN Trustee Chairman of White River Corporation (information services); director of
8212 Burning Tree Road Fund America Enterprises Holdings, Inc., MCI Communications Corporation,
Bethesda, Maryland Fusion Systems Corporation, Infovest Corporation, MedImmune, Inc., Source
Age 68 One Mortgage Services Corporation, and Shoppers Express, Inc. (on-line
shopping service); formerly, chairman of Hambrecht and Quist Group,
director of H&Q Healthcare Investors and Lockheed Martin Corporation, and
president of the National Association of Securities Dealers, Inc.; and
director or trustee of 52 of the investment companies in the Franklin
Templeton Group of Funds.
FRED R. MILLSAPS Trustee Manager of personal investments (1978-present); director of various
2665 N.E. 37th Drive business and nonprofit organizations; formerly, chairman and chief
Fort Laurderdale, executive officer of Landmark Banking Corporation (1969-1978), financial
Florida vice president of Florida Power and Light (1965-1969), and vice president
Age 67 of The Federal Reserve Bank of Atlanta (1958-1965); and director or
trustee of 24 of the investment companies in the
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
Franklin Templeton Group of Funds.
GREG MCGOWAN President Director and executive vice president of Templeton Investment
500 East Broward Blvd. Counsel, Inc.; executive vice president-international development
Fort Lauderdale and chief international general counsel of Templeton Worldwide, Inc.,
Age 47 executive vice president; director and general counsel of Templeton
International, Inc.; executive vice president and secretary of
Templeton Global Advisors Limited; president of other Templeton
Funds; formerly, senior attorney for the U.S. Securities and
Exchange Commission; and an officer of 4 of the investment
companies in the Franklin Templeton Group of Funds.
SAMUEL J. FORESTER, JR. Vice President President of the Templeton Global Bond Managers Division of
500 East Broward Blvd., Templeton Investment Counsel, Inc.; formerly, partner (and
Fort Lauderdale founder) of Forester, Hairston Investment Management (1989-1990),
Age 48 managing director (Mid-East Region) of Merrill Lynch, Pierce,
Fenner & Smith Inc. (1987-1988) and advisor for Saudi Arabian
Monetary Agency (1982-1987); and officer of 10 of the investment
companies in the Franklin Templeton Group of Funds.
RUPERT H. JOHNSON, JR. Vice President Executive vice president and director of Franklin Resources, Inc.
777 Mariners Island Blvd. and Franklin Templeton Distributors, Inc.; president and director of
San Mateo, California Franklin Advisers, Inc.; director of Franklin Templeton Investor
Age 56 Services, Inc., and officer and/or director, trustee or managing
general partner, as the case may be, of most other subsidiaries
of Franklin Resources, Inc. and 60 of the
</TABLE>
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<TABLE>
<S> <C> <C>
investment companies in
the Franklin Templeton
Group of Funds.
HARMON E. BURNS Vice President Executive vice president,
777 Mariners Island secretary and director of
Blvd. Franklin Resources, Inc.;
San Mateo, California executive vice president
Age 51 and director of Franklin
Templeton Distributors,
Inc.; executive vice
president of Franklin
Advisers, Inc., officer
and/or director, as the
case may be, of other
subsidiaries of Franklin
Resources, Inc.; and
officer and/or director
or trustee of 60 of the
investment companies in
the Franklin Templeton
Group of Funds.
CHARLES E. JOHNSON Vice President Senior vice president and
500 E. Broward Blvd. director of Franklin
Fort Lauderdale, Florida Resources, Inc.; senior
Age 40 vice president of
Franklin Templeton
Distributors, Inc.;
president and chief
executive officer of
Templeton Worldwide,
Inc.; president and
director of Franklin
Institutional Services
Corporation; chairman of
the board of Templeton
Investment Counsel, Inc.;
officer and/or director,
as the case may be, of
other subsidiaries of
Franklin Resources, Inc.;
and officer and/or
director or trustee of 39
of the investment
companies in the Franklin
Templeton Group of Funds.
DEBORAH R. GATZEK Vice President Senior vice president and
777 Mariners Island general counsel of
Blvd. Franklin Resources, Inc.;
San Mateo, California senior vice president of
Age 47 Franklin Templeton
Distributors, Inc.; vice
president of Franklin
Advisers, Inc.; and
officer of 60 of the
investment companies in
the Franklin Templeton
Group of Funds.
MARK G. HOLOWESKO Vice President President and director of
Lyford Cay Templeton Global Advisors
Nassau, Bahamas Limited; chief investment
Age 36 officer of global equity
</TABLE>
-16-
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research for Templeton Worldwide,
Inc.; president or vice president
of the Templeton Funds; formerly,
investment administrator with Roy
West Trust Corporation (Bahamas)
Limited (1984-1985); and officer of
23 of the investment companies in
the Franklin Templeton Group of
Funds
MARTIN L. FLANAGAN Vice President Senior vice president, treasurer
777 Mariners Island Blvd. and chief financial officer of
San Mateo, California Franklin Resources, Inc.; director
Age 36 and executive vice president of
Templeton Investment Counsel, Inc.;
a member of the International
Society of Financial Analysts and
the American Institute of Certified
Public Accountants; formerly, with
Arthur Andersen & Company
(1982-1983); officer and/or
director, as the case may be, of
other subsidiaries of Franklin
Resources, Inc.; and officer and/or
director or trustee of 60 of the
investment companies in the
Franklin Templeton Group of Funds.
JOHN R. KAY Vice President Vice president and treasurer of
500 East Broward Blvd. Templeton Global Investors, Inc.
Fort Lauderdale, and Templeton Worldwide, Inc.;
Florida assistant vice president of
Age 56 Franklin Templeton Distributors,
Inc.; formerly, vice president and
controller of the Keystone Group,
Inc.; and officer of 27 of the
investment companies in the
Franklin Templeton Group of Funds.
NEIL S. DEVLIN Vice President
500 East Broward Blvd. Senior vice president, Portfolio
Fort Lauderdale, Management/Research, of the
Florida Templeton Global Bond Managers
Age 39 division of Templeton Investment
Counsel, Inc.; formerly, portfolio
manager and bond analyst for
Constitutional Capital
-17-
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Management (1985-1987), and a
bond trader and research
analyst for Bank of New
England (1982-1985); and
officer of 4 of the
investment companies in the
Franklin Templeton Group of
Funds.
THOMAS LATTA Vice President Vice President of the
500 East Broward Blvd. Templeton Global Bond
Fort Lauderdale, Managers division of
Florida Templeton Investment Counsel,
Age 36 Inc., formerly, portfolio
manager at Forester &
Bairston (1988-1991) and
investment advisor at
Merrill, Lynch, Pierce,
Fenner & Smith, Inc. (1981-
1988).
ELIZABETH M. KNOBLOCK Vice President - General counsel, secretary
500 East Broward Blvd. Compliance and a senior vice president
Fort Lauderdale, of Templeton Investment
Florida Counsel, Inc.; formerly, vice
Age 41 president and associate
general counsel of Kidder
Peabody & Co. Inc. (1989-
1990), assistant general
counsel of Gruntal & Co.,
Inc. (1988), vice president
and associate general
counsel of Shearson Lehman
Hutton Inc. (1988), vice
president and assistant
general counsel of E.F.
Hutton & Co. Inc. (1986-
1988), and special counsel
of the division of investment
management of the Securities
and Exchange Commission
(1984-1986); and officer of
23 of the investment
companies in the Franklin
Templeton Group of Funds.
JAMES R. BAIO Treasurer Certified public accountant;
500 East Broward Blvd. senior vice president of
Fort Lauderdale, Templeton Worldwide, Inc.,
Florida and Templeton Funds Trust
Age 42 Company; formerly, senior tax
manager with Ernst & Young
(certified public
accountants) (1977-1989); and
treasurer of 23 of the
investment companies in the
Franklin Templeton Group of
-18-
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<TABLE>
<S> <C> <C>
Funds.
BARBARA J. GREEN Secretary Senior vice president of Templeton Worldwide, Inc. and an officer of other
500 East Broward Blvd. subsidiaries of Templeton Worldwide, Inc.; formerly, deputy director of
Fort Laurderdale, the Division of Investment Management, executive assistant and senior
Florida advisor to the chairman, counsellor to the chairman, special counsel
Age 49 and attorney fellow, U.S. Securities and Exchange Commission (1986-1995),
attorney, Rogers & Wells, and judicial clerk, U.S. District Court
(District of Massachusetts); and secretary of 23 of the investment
companies in the Franklin Templeton Group of Funds.
</TABLE>
The table above shows the officers and Board members who are affiliated with
Distributors and TGBM. Nonaffiliated members of the Board and Mr. Brady are
currently paid 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 currently pays the independent members of the Board
and Mr. Brady an annual retainer of $2,500 and a fee of $200 per meeting of the
Board and its portion of a flat fee of $2,000 for each Audit Committee meeting
and/or Nominating and Compensation Committee meeting attended. As shown above,
some of the nonaffiliated Board members also serve as directors, trustees or
managing general partners of other investment companies in the Franklin
Templeton Group of Funds. They may receive fees from these funds for their
services. The following table provides the total fees paid to nonaffiliated
Board members and Mr. Brady by the Trust and by other funds in the Franklin
Templeton Group of Funds.
-19-
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<TABLE>
<CAPTION>
NUMBER OF
BOARDS IN THE
TOTAL FEES FRANKLIN
RECEIVED FROM TEMPLETON GROUP
TOTAL FEES THE FRANKLIN OF FUNDS ON
RECEIVED FROM TEMPLETON GROUP WHICH EACH
NAME THE TRUST(A) OF FUNDS(B) SERVES(C)
- ---- ------------- --------------- ---------------
<S> <C> <C> <C>
Harris J.Ashton $3,400 $339,592 55
Nicholas F. Brady $3,400 119,275 23
F. Bruce Clarke(D) $3,686 69,500 0
Hasso-G von
Diergardt-Naglo(E) $3,400 66,375 0
S. Joseph Fortunato $3,400 356,412 57
John Wm. Galbraith $3,386 102,475 22
Andrew H. Hines, Jr. $3,820 130,525 24
Betty P. Krahmer $3,400 119,275 23
Gordon S. Macklin $3,534 331,542 52
Fred R. Millsaps $3,686 130,525 24
</TABLE>
- -------------------
(A) For the fiscal year ended August 31, 1996.
(B) For the calendar year ended December 31, 1996.
(C) We base the number of boards on the number of registered investment
companies in the Franklin Templeton Group of Funds. This number does not
include the total number of series or funds within each investment company
for which the Board members are responsible. The Franklin Templeton Group of
Funds currently includes 61 registered investment companies, with
approximately 171 U.S. based funds or series.
(D) Mr. Clarke resigned as a director on October 20, 1996.
(E) Mr. Von Diergardt resigned as a director on December 31, 1996.
Nonaffiliated members of the Board and Mr. Brady are reimbursed for expenses
incurred in connection with attending board meetings, and paid pro rata by each
fund in the Franklin Templeton Group of Funds for which they serve as director,
trustee or managing general partner. No officer or Board member received any
other compensation, including pension or retirement benefits, directly or
indirectly from the Trust or other funds in the Franklin Templeton Group of
Funds. Certain officers or Board members who are shareholders of Resources may
be deemed to receive indirect remuneration by virtue of their participation, if
any, in the fees paid to its subsidiaries.
As of December 1, 1996, the officers and Board members, as a group, owned of
record and beneficially approximately 1,896 shares, or less than 1% of each
class of the Fund's total outstanding shares. Many of the Board members also own
shares in other funds in the Franklin Templeton Group of Funds. Charles B.
Johnson and Rupert H. Johnson, Jr. are brothers and the father and uncle,
respectively, of Charles E. Johnson.
-20-
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INVESTMENT MANAGEMENT AND OTHER SERVICES
Investment Manager and Services Provided. The Fund's investment manager is TGBM.
TGBM provides investment research and portfolio management services, including
the selection of securities for the Fund to buy, hold or sell and the selection
of brokers through whom the Fund's portfolio transactions are executed. TGBM's
activities are subject to the review and supervision of the Board to whom TGBM
renders periodic reports of the Fund's investment activities. TGBM is covered by
fidelity insurance on its officers, directors and employees for the protection
of the Fund.
TGBM and its affiliates act as investment manager to numerous other investment
companies and accounts. TGBM may give advice and take action with respect to any
of the other funds it manages, or for its own account, that may differ from
action taken by TGBM on behalf of the Fund. Similarly, with respect to the Fund,
TGBM is not obligated to recommend, buy or sell, or to refrain from
recommending, buying or selling any security that TGBM and access persons, as
defined by the 1940 Act, may buy or sell for its or their own account or for the
accounts of any other fund. TGBM is not obligated to refrain from investing in
securities held by the Fund or other funds that it manages. Of course, any
transactions for the accounts of TGBM and other access persons will be made in
compliance with the Fund's Code of Ethics. Please see "Miscellaneous Information
- - Summary of Code of Ethics."
Management Fees. Under its management agreement, the Fund pays TGBM a monthly
management fee equal to an annual rate of 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. Each class pays
its proportionate share of the management fee.
For the fiscal years ended August 31, 1996, 1995 and 1994, management fees
totaling $968,182, $989,493 and $1,040,324, respectively, were paid to TGBM.
Management Agreement. The management agreement may continue in effect for
successive annual periods if its continuance is specifically approved at least
annually by a vote of the Board or by a vote of the holders of a majority of the
Fund's outstanding voting securities, and in either event by a majority vote of
the Board members who are not parties to the management agreement or interested
persons of any such party (other than as members of the Board), cast in person
at a meeting called for that purpose. The management agreement may be terminated
without penalty at any time by the Board or by a vote of the holders of a
majority of the Fund's outstanding voting securities, or by TGBM on 60 days'
written notice, and will automatically terminate in the event of its assignment,
as defined in the 1940 Act.
Administrative Services. FT Services (and, prior to October 1, 1996, Templeton
Global Investors, Inc.) provides certain administrative services and facilities
for the Fund. These include preparing and maintaining books, records, and tax
and financial reports, and monitoring compliance with regulatory requirements.
FT Services is a wholly owned subsidiary of Resources.
Under its administration agreement, the Trust pays FT Services a monthly
administration fee equal to an annual rate of 0.15% of the Trust's average daily
net assets up to $200 million, 0.135% of average daily net assets over $200
million up to $700 million, 0.10% of average daily net assets over $700 million
up to $1.2 billion, and 0.075% of average daily net assets over $1.2 billion.
The fee is allocated between the two series of shares of the Trust, the Fund and
Templeton Money Fund, according to their respective average daily net assets.
During the fiscal years ended August 31, 1996,
-21-
PAGE
1995, and 1994, the Fund paid to Templeton Global Investors, Inc. administration
fees totaling $278,143, $282,007 and $300,111, respectively.
Shareholder Servicing Agent. Investor Services, a wholly owned subsidiary of
Resources, is the Fund's shareholder servicing agent and acts as the Fund's
transfer agent and dividend-paying agent. Investor Services is compensated on
the basis of a fixed fee per account.
Custodian. The Chase Manhattan Bank, at its principal office at MetroTech
Center, Brooklyn, NY 11245, and at the offices of its branches and agencies
throughout the world, acts as custodian of the Fund's assets. The custodian does
not participate in decisions relating to the purchase and sale of portfolio
securities.
Auditors. McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, NY 10017, are the
Fund's independent auditors. During the fiscal year ended August 31, 1996, their
auditing services consisted of rendering an opinion on the financial statements
of the Fund included in the Fund's Annual Report to Shareholders for the fiscal
year ended August 31, 1996, and review of the Fund's filings with the SEC and
the IRS. Advisor Class shares of the Fund were not offered to the public before
January 1, 1997.
HOW DOES THE FUND BUY SECURITIES FOR ITS PORTFOLIO?
The selection of brokers and dealers to execute transactions in the Fund's
portfolio is made by TGBM in accordance with criteria set forth in the
investment management agreement and any directions that the Board may give.
When placing a portfolio transaction, TGBM seeks to obtain prompt execution of
orders at the most favorable net price. When portfolio transactions are done on
a securities exchange, the amount of commission paid by the Fund is negotiated
between TGBM and the broker executing the transaction. The determination and
evaluation of the reasonableness of the brokerage commissions paid in connection
with portfolio transactions are based to a large degree on the professional
opinions of the persons responsible for the placement and review of the
transactions. These opinions are based on the experience of these individuals in
the securities industry and information available to them about the level of
commissions being paid by other institutional investors of comparable size. TGBM
will ordinarily place orders to buy and sell over-the-counter securities on a
principal rather than agency basis with a principal market maker unless, in the
opinion of TGBM, a better price and execution can otherwise be obtained.
Purchases of portfolio securities from underwriters will include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
will include a spread between the bid and ask price.
The amount of commission is not the only factor TGBM considers in the selection
of a broker to execute a trade. If TGBM believes it is in the Fund's best
interest, it may place portfolio transactions with brokers who provide the types
of services described below, even if it means the Fund will pay a higher
commission than if no weight were given to the broker's furnishing of these
services. This will be done only if, in the opinion of TGBM, the amount of any
additional commission is reasonable in relation to the value of the services.
Higher commissions will be paid only when the brokerage and research services
received are bona fide and produce a direct benefit to the Fund or assist TGBM
in
-22-
PAGE
carrying out its responsibilities to the Fund, or when it is otherwise in the
best interest of the Fund to do so, whether or not such services may also be
useful to TGBM in advising other clients.
When TGBM believes several brokers are equally able to provide the best net
price and execution, it may decide to execute transactions through brokers who
provide quotations and other services to the Fund, in an amount of total
brokerage as may reasonably be required in light of these services.
Specifically, these services may include providing the quotations necessary to
determine the Fund's Net Asset Value, as well as research, statistical and other
data.
It is not possible to place a dollar value on the special executions or on the
research services received by TGBM from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits TGBM to supplement its own research and
analysis activities and to receive the views and information of individuals and
research staff of other securities firms. As long as it is lawful and
appropriate to do so, TGBM and its affiliates may use this research and data in
their investment advisory capacities with other clients. If the Fund's officers
are satisfied that the best execution is obtained, consistent with internal
policies the sale of Fund shares, as well as shares of other funds in the
Franklin Templeton Group of Funds, may also be considered a factor in the
selection of broker-dealers to execute the Fund's portfolio transactions.
Because Distributors is a member of the NASD, it may sometimes receive certain
fees when the Fund tenders portfolio securities pursuant to a tender-offer
solicitation. As a means of recapturing brokerage for the benefit of the Fund,
any portfolio securities tendered by the Fund will be tendered through
Distributors if it is legally permissible to do so. In turn, the next investment
management fee payable to TGBM will be reduced by the amount of any fees
received by Distributors in cash, less any costs and expenses incurred in
connection with the tender.
If purchases or sales of securities of the Fund and one or more other investment
companies or clients supervised by TGBM are considered at or about the same
time, transactions in these securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by TGBM,
taking into account the respective sizes of the funds and the amount of
securities to be purchased or sold. In some cases this procedure could have a
detrimental effect on the price or volume of the security so far as the Fund is
concerned. In other cases it is possible that the ability to participate in
volume transactions and to negotiate lower brokerage commissions will be
beneficial to the Fund.
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.
During the fiscal years ended August 31, 1996, 1995 and 1994, the Fund paid
brokerage commissions totaling $0, $0 and $32,000, respectively.
As of August 31, 1996, the Fund did not own securities of its regular
broker-dealers.
HOW DO I BUY, SELL AND EXCHANGE SHARES?
-23-
PAGE
ADDITIONAL INFORMATION ON BUYING SHARES
Securities laws of states where the Fund offers its shares may differ from
federal law. Banks and financial institutions that sell shares of the Fund may
be required by state law to register as Securities Dealers.
When you buy shares, if you submit a check or a draft that is returned unpaid to
the Fund we may impose a $10 charge against your account for each returned item.
Reinvestment Date. Shares acquired through the reinvestment of dividends will be
purchased at the Net Asset Value determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The processing
date for the reinvestment of dividends may vary and does not affect the amount
or value of the shares acquired.
ADDITIONAL INFORMATION ON EXCHANGING SHARES
If you request the exchange of the total value of your account, declared but
unpaid income dividends and capital gain distributions will be exchanged into
the new fund and will be invested at Net Asset Value. Backup withholding and
information reporting may apply. Information regarding the possible tax
consequences of an exchange is included in the tax section in this SAI and in
the Prospectus.
If a substantial number of shareholders should, within a short period, sell
their shares of the Fund under the exchange privilege, the Fund might have to
sell portfolio securities it might otherwise hold and incur the additional costs
related to such transactions. On the other hand, increased use of the exchange
privilege may result in periodic large inflows of money. If this occurs, it is
the Fund's general policy to initially invest this money in short-term,
interest-bearing money market instruments, unless it is believed that attractive
investment opportunities consistent with the Fund's investment objective exist
immediately. This money will then be withdrawn from the short-term money market
instruments and invested in portfolio securities in as orderly a manner as is
possible when attractive investment opportunities arise.
The proceeds from the sale of shares of an investment company are generally not
available until the fifth business day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange until
that fifth business day. The sale of Fund shares to complete an exchange will be
effected at Net Asset Value at the close of business on the day the request for
exchange is received in proper form. Please see "May I Exchange Shares for
Shares of Another Fund?" in the Prospectus.
ADDITIONAL INFORMATION ON SELLING SHARES
Systematic Withdrawal Plan. There are no service charges for establishing or
maintaining a systematic withdrawal plan. Once your plan is established, any
distributions paid by the Fund will be automatically reinvested in your account.
Payments under the plan will be made from the redemption of an equivalent amount
of shares in your account, generally on the 25th day of the month in which a
payment is scheduled.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
This is especially likely to occur if
-24-
PAGE
there is a market decline. If a withdrawal amount exceeds the value of your
account, your account will be closed and the remaining balance in your account
will be sent to you. Because the amount withdrawn under the plan may be more
than your actual yield or income, part of the payment may be a return of your
investment.
The Fund may discontinue a systematic withdrawal plan by notifying you in
writing and will automatically discontinue a systematic withdrawal plan if all
shares in your account are withdrawn or if the Fund receives notification of the
shareholder's death or incapacity.
Through Your Securities Dealer. If you sell shares through your Securities
Dealer, it is your dealer's responsibility to transmit the order to the Fund in
a timely fashion. Any loss to you resulting from your dealer's failure to do so
must be settled between you and your Securities Dealer.
Redemptions in Kind. The Fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the Fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior approval of the SEC. In the case of redemption
requests in excess of these amounts, the Board reserves the right to make
payments in whole or in part in securities or other assets of the Fund, in case
of an emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of the Fund. In these circumstances,
the securities distributed would be valued at the price used to compute the
Fund's net assets and you may incur brokerage fees in converting the securities
to cash. The Fund does not intend to redeem illiquid securities in kind. If this
happens, however, you may not be able to recover your investment in a timely
manner.
GENERAL INFORMATION
If dividend checks are returned to the Fund marked "unable to forward" by the
postal service, we will consider this a request by you to change your dividend
option to reinvest all distributions. The proceeds will be reinvested in
additional shares at Net Asset Value until we receive new instructions.
If mail is returned as undeliverable or we are unable to locate you or verify
your current mailing address, we may deduct the costs of our efforts to find you
from your account. These costs may include a percentage of the account when a
search company charges a percentage fee in exchange for its location services.
All checks, drafts, wires and other payment mediums used to buy or sell shares
of the Fund must be denominated in U.S. dollars. We may, in our sole discretion,
either (a) reject any order to buy or sell shares denominated in any other
currency or (b) honor the transaction or make adjustments to your account for
the transaction as of a date and with a foreign currency exchange factor
determined by the drawee bank.
Special Services. The Franklin Templeton Institutional Services Department
provides specialized services, including recordkeeping, for institutional
investors. The cost of these services is not borne by the Fund.
Investor Services may pay certain financial institutions that maintain omnibus
accounts with the Fund on behalf of numerous beneficial owners for recordkeeping
operations performed with respect to such
-25-
PAGE
owners. For each beneficial owner in the omnibus account, the Fund may reimburse
Investor Services an amount not to exceed the per account fee that the Fund
normally pays Investor Services. These financial institutions may also charge a
fee for their services directly to their clients.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
HOW ARE FUND SHARES VALUED?
We calculate the Net Asset Value per share of each class as of the scheduled
close of the NYSE, generally 4:00 p.m. Eastern time, each day that the NYSE is
open for trading. As of the date of this SAI, the Fund is informed that the NYSE
observes the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
For the purpose of determining the aggregate net assets of the Fund, cash and
receivables are valued at their realizable amounts. Interest is recorded as
accrued and dividends are recorded on the ex-dividend date. Portfolio securities
listed on a securities exchange or on the NASDAQ National Market System for
which market quotations are readily available are valued at the last quoted sale
price of the day or, if there is no such reported sale, within the range of the
most recent quoted bid and ask prices. Over-the-counter portfolio securities are
valued within the range of the most recent quoted bid and ask prices. Portfolio
securities that are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market as
determined by TGBM.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
of the NYSE on each day that the NYSE is open. Trading in European or Far
Eastern securities generally, or in a particular country or countries, may not
take place on every NYSE business day. Furthermore, trading takes place in
various foreign markets on days that are not business days for the NYSE and on
which the Net Asset Value of each class is not calculated. Thus, the calculation
of the Net Asset Value of each class does not take place contemporaneously with
the determination of the prices of many of the portfolio securities used in the
calculation and, if events materially affecting the values of these foreign
securities occur, the securities will be valued at fair value as determined by
management and approved in good faith by the Board.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times before
the scheduled close of the NYSE. The value of these securities used in computing
the Net Asset Value of each class is determined as of such times. Occasionally,
events affecting the values of these securities may occur between the times at
which they are determined and the scheduled close of the NYSE that will not be
reflected in the computation of the Net Asset Value of each class. If events
materially affecting the values of these securities occur during this period,
the securities will be valued at their fair value as determined in good faith by
the Board.
Other securities for which market quotations are readily available are valued at
the current market price, which may be obtained from a pricing service, based on
a variety of factors including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity)
-26-
PAGE
and/or developments related to specific issues. Securities and other assets for
which market prices are not readily available are valued at fair value as
determined following procedures approved by the Board. With the approval of the
Board, the Fund may utilize a pricing service, bank or Securities Dealer to
perform any of the above described functions.
ADDITIONAL INFORMATION ON DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
You may receive two types of distributions from the Fund:
1. Income dividends. The Fund receives income generally in the form of interest
and other income derived from its investments. This income, less the expenses
incurred in the Fund's operations, is its net investment income from which
income dividends may be distributed. Thus, the amount of dividends paid per
share may vary with each distribution.
2. Capital gain distributions. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any capital loss carryforward or post October
loss deferral) may generally be made once a year in December to reflect any net
short-term and net long-term capital gains realized by the Fund as of October 31
of the current fiscal year and any undistributed capital gains from the prior
fiscal year. The Fund may make more than one distribution derived from net
short-term and net long-term capital gains in any year or adjust the timing of
these distributions for operational or other reasons.
TAXES
As stated in the Prospectus, the Fund has elected and qualified to be treated as
a regulated investment company under Subchapter M of the Code. The Fund intends
normally to pay a monthly dividend representing its net investment income and to
distribute at least annually any net realized capital gain. The status of the
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, the 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, the Fund intends to distribute in accordance with the calendar year
distribution requirement.
The Board reserves the right not to maintain the qualification of the Fund as a
regulated investment company if it determines this course of action to be
beneficial to shareholders. In that case, the Fund will be subject to federal
and possibly state corporate taxes on its taxable income and gains, and
distributions to shareholders will be taxable to the extent of the Fund's
available earnings and profits.
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 the Fund's qualifying dividend income. However,
the
-27-
PAGE
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 the Fund as capital gain dividends are taxable to shareholders as
long-term capital gains, regardless of the length of time the Fund's shares have
been held by a shareholder, and are not eligible for the dividends received
deduction. Generally, dividends and distributions are taxable to shareholders,
whether received in cash or reinvested in shares of the Fund. Any distributions
that are not from the Fund's investment company taxable income or net capital
gain may be characterized as a return of capital to shareholders or, in some
cases, as capital gain. 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 the 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 the 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 the 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 the 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 the 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.
The 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 the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which the Fund held the PFIC shares. The 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.
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The 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 the 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 the
Fund could, in limited circumstances, incur nondeductible interest charges. The
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 the
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 the 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 the 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 the Fund. In addition, losses
realized by the 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 the Fund of hedging transactions are not
entirely clear. The hedging transactions may increase the amount of short-term
capital gain realized by the Fund which is taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the Code which
are applicable to straddles. If the 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 the Fund
that did not engage in such hedging transactions.
Requirements relating to the Fund's tax status as a regulated investment company
may limit the extent to which the 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 the Fund accrues income or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and the
time the Fund actually collects such receivables or pays
-29-
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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 financial 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
the 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 the 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, the 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, or as a capital gain.
Income received by the Fund from sources within foreign countries may be subject
to withholding and other income or similar taxes imposed by such countries. If
more than 50% of the value of the Fund's total assets at the close of its
taxable year consists of securities of foreign corporations, the Fund will be
eligible and intends to elect to "pass through" to the Fund's shareholders the
amount of foreign taxes paid by the Fund. Pursuant to this election, 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 the
Fund, and will be entitled either to deduct (as an itemized deduction) his pro
rata share of foreign income and similar taxes in computing 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 the Fund's taxable year whether the
foreign taxes paid by the Fund will "pass through" for that year.
Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed 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
the Fund's income flows through to its shareholders. With respect to the Fund,
gains from the sale of securities will be treated as derived from U.S. sources
and certain currency fluctuation gains, including fluctuation gains from foreign
currency denominated debt securities, receivables and payables, will be treated
as ordinary income derived from U.S. sources. The limitation on the foreign tax
credit is applied separately to foreign source passive income (as defined for
purposes of the foreign tax credit), including the foreign source passive income
passed through by the Fund. Shareholders may be unable to claim a credit for the
full amount of their proportionate share of the foreign taxes paid by the Fund.
Foreign taxes may not be deducted in computing alternative minimum taxable
income and the foreign tax credit can be used to offset only 90% of the
alternative minimum tax (as computed under the Code for purposes of this
limitation) imposed on corporations and individuals. If the Fund is not eligible
to make the election to "pass through" to its shareholders its foreign taxes,
the foreign income taxes it pays generally will reduce investment company
taxable income and the distributions by the Fund will be treated as U.S. source
income.
-30-
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Upon the sale or exchange of the 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 the 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 the 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 the Fund shares since the 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 Fund 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 the Fund), to a shareholder if (1)
the shareholder fails to furnish the Fund with the shareholder's correct
taxpayer identification number or social security number, (2) the IRS notifies
the shareholder or the 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 the 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 the Fund.
THE FUND'S UNDERWRITER
Pursuant to an underwriting agreement, Distributors acts as principal
underwriter in a continuous public offering of the Fund's shares. The
underwriting agreement will continue in effect for successive annual periods if
its continuance is specifically approved at least annually by a vote of the
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Board or by a vote of the holders of a majority of the Fund's outstanding voting
securities, and in either event by a majority vote of the Board members who are
not parties to the underwriting agreement or interested persons of any such
party (other than as members of the Board), cast in person at a meeting called
for that purpose. The underwriting agreement terminates automatically in the
event of its assignment and may be terminated by either party on 90 days'
written notice.
Distributors pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The Fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
Distributors and/or its affiliates provide financial support to various
Securities Dealers that sell shares of the Franklin Templeton Group of Funds.
Such support is based primarily on the amount of sales of fund shares. The
amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a Securities Dealer's sales and marketing efforts
in the Franklin Templeton Group of Funds; a Securities Dealer's support of, and
participation in, Distributors' marketing programs; a Securities Dealer's
compensation programs for its registered representatives; and the extent of a
Securities Dealer's marketing programs relating to the Franklin Templeton Group
of Funds. Financial support to Securities Dealers may be made by payments from
Distributors' resources, from Distributors' retention of underwriting
concessions and, in the case of funds that have Rule 12b-1 plans, from payments
to Distributors under such plans. In addition, certain Securities Dealers may
receive brokerage commissions generated by fund portfolio transactions in
accordance with the NASD's rules.
Distributors will not receive compensation from the Fund for acting as
underwriter with respect to the Advisor Class shares.
HOW DOES THE FUND MEASURE PERFORMANCE?
Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Fund be accompanied by
certain standardized performance information computed as required by the SEC.
Current yield and average annual total return quotations used by the Fund are
based on the standardized methods of computing performance mandated by the SEC.
If a Rule 12b-1 plan is adopted, performance figures reflect fees from the date
of the plan's implementation. An explanation of these and other methods used by
the Fund to compute or express performance for the Advisor Class shares follows.
For any period prior to January 1, 1997, the standardized performance quotations
for Advisor Class will be calculated by substituting the performance of Class I
for the relevant time period,and excluding the effect of the maximum sales
charge and including the effect of Rule 12b-1 fees applicable to Class I.
Regardless of the method used, past performance is not necessarily indicative of
future results, but is an indication of the return to shareholders only for the
limited historical period used.
TOTAL RETURN
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Average Annual Total Return. Average annual total return is determined by
finding the average annual rates of return over one-, five- and ten-year
periods, or fractional portion thereof, that would equate an initial
hypothetical $1,000 investment to its ending redeemable value. The calculation
assumes income dividends and capital gain distributions are reinvested at Net
Asset Value. The quotation assumes the account was completely redeemed at the
end of each one-, five- and ten-year period and the deduction of all applicable
charges and fees.
The average annual total return for Advisor Class for the one- and five-year
periods ended August 31, 1996 would have been ___%, and ___%, and for the period
from commencement of operations on September 18, 1986 through August 31, 1996,
would have been ___%.
These figures were calculated according to the SEC formula:
P(1+T)(n) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
(n) = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the one-, five- or ten-year periods
at the end of the one-, five- or ten-year periods (or
fractional portion thereof)
Cumulative Total Return. The Fund may also quote its cumulative total return, in
addition to its average annual total return. These quotations are computed the
same way, except the cumulative total return will be based on the Fund's actual
return for a specified period rather than on its average return over the period.
The cumulative total return for Advisor Class for the one- and five-year periods
ended August 31, 1996 would have been 11.44% and 47.83%, and for the period from
commencement of operations on September 18, 1986 through August 31, 1996, would
have been 121.75%.
YIELD
Current Yield. Current yield of each class shows the income per share earned by
the Fund. It is calculated by dividing the net investment income per share of
Advisor Class earned during a 30-day base period by the Net Asset Value per
share on the last day of the period and annualizing the result. Expenses accrued
for the period include any fees charged to all shareholders of the class during
the base period. The yield for Advisor Class for the 30-day period ended August
31, 1996, would have been 7.50%.
These figures were obtained using the following SEC formula:
Yield = 2 [(a-b + 1)(6) - 1]
cd
where:
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a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = he average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the Net Asset Value per share on the last day of the period
CURRENT DISTRIBUTION RATE
Current yield, which is calculated according to a formula prescribed by the SEC,
is not indicative of the amounts which were or will be paid to shareholders of a
class. Amounts paid to shareholders are reflected in the quoted current
distribution rate. For Advisor Class, the current distribution rate is usually
computed by annualizing the dividends paid per share by the class during a
certain period and dividing that amount by the current Net Asset Value. The
current distribution rate differs from the current yield computation because it
may include distributions to shareholders from sources other than dividends and
interest, such as premium income from option writing and short-term capital
gains and is calculated over a different period of time. The current
distribution rate for Advisor Class for the 30-day period ended August 31, 1996,
would have been 6.15%.
VOLATILITY
Occasionally statistics may be used to show the Fund's volatility or risk.
Measures of volatility or risk are generally used to compare the Fund's Net
Asset Value or performance to a market index. One measure of volatility is beta.
Beta is the volatility of a fund relative to the total market, as represented by
an index considered representative of the types of securities in which the fund
invests. A beta of more than 1.00 indicates volatility greater than the market
and a beta of less than 1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation. Standard deviation is used
to measure variability of Net Asset Value or total return around an average over
a specified period of time. The idea is that greater volatility means greater
risk undertaken in achieving performance.
OTHER PERFORMANCE QUOTATIONS
For any period prior to January 1, 1997, sales literature about Advisor Class
may quote a current distribution rate, yield, cumulative total return, average
annual total return and other measures of performance as described elsewhere in
this SAI by substituting the performance of Class I for the relevant time period
and excluding the effect of the maximum sales charge, if applicable, and Rule
12b-1 fees applicable to Class I.
Sales literature referring to the use of the Fund as a potential investment for
Individual Retirement Accounts (IRAs), Business Retirement Plans, and other
tax-advantaged retirement plans may quote a total return based upon compounding
of dividends on which it is presumed no federal income tax applies.
The Fund may include in its advertising or sales material information relating
to investment objectives and performance results of funds belonging to the
Franklin Templeton Group of Funds. Resources is the parent company of the
advisors and underwriter of both the Franklin Group of Funds and Templeton Group
of Funds.
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COMPARISONS
From time to time, advertisements or information for the Fund may include a
discussion of certain attributes or benefits to be derived from an investment in
the Fund. The advertisements or information may include symbols, headlines, or
other material that highlights or summarizes the information discussed in more
detail in the communication.
Advertisements or information may also compare the performance of Advisor Class
to the return on CDs or other investments. You should be aware, however, that an
investment in the Fund involves the risk of fluctuation of principal value, a
risk generally not present in an investment in a CD issued by a bank. For
example, as the general level of interest rates rise, the value of the Fund's
fixed-income investments, if any, as well as the value of its shares that are
based upon the value of such portfolio investments, can be expected to decrease.
Conversely, when interest rates decrease, the value of the Fund's shares can be
expected to increase. CDs are frequently insured by an agency of the U.S.
government. An investment in the Fund is not insured by any federal, state or
private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the Fund to calculate its figures. In addition,
there can be no assurance that the Fund will continue its performance as
compared to these other averages.
Performance information for the 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 the 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 the Fund reflects only the performance of a
hypothetical investment in the Fund during the particular time period on which
the calculations are based. Performance information should be considered in
light of the 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, the Fund and TGBM may also refer to the following
information:
(1) TGBM'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.
-35-
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(3) The capitalization of U.S. and foreign stock markets as prepared or
published by the International Finance Corporation, Morgan Stanley
Capital International or a similar financial organization.
(4) The geographic and industry distribution of the Fund's portfolio and
the Fund's top ten holdings.
(5) The gross national product and populations, including age
characteristics, literacy rates, foreign investment improvements due to
a liberalization of securities laws and a reduction of foreign exchange
controls, and improving communication technology, 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) The number of shareholders in the Fund or the aggregate number of
shareholders of the open-end investment companies in the Franklin
Templeton Group of Funds or the dollar amount of fund and private
account assets under management.
(13) Comparison of the characteristics of various emerging markets,
including population, financial and economic conditions.
(14) Quotations from the Templeton organization's founder, Sir John
Templeton,* advocating the virtues of diversification and long-term
investing, including the following:
- "Never follow the crowd. Superior performance is possible only
if you invest differently from the crowd."
- --------
* Sir John Templeton sold the Templeton organization to Resources in
October, 1992 and resigned from the Fund's Board on April 16, 1995. He
is no longer involved with the investment management process.
-36-
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- "Diversify by company, by industry and by country."
- "Always maintain a long-term perspective."
- "Invest for maximum total real return."
- "Invest - don't trade or speculate."
- "Remain flexible and open-minded about types of investment."
- "Buy low."
- "When buying stocks, search for bargains among quality
stocks."
- "Buy value, not market trends or the economic outlook."
- "Diversify. In stocks and bonds, as in much else, there is
safety in numbers."
- "Do your homework or hire wise experts to help you."
- "Aggressively monitor your investments."
- "Don't panic."
- "Learn from your mistakes."
- "Outperforming the market is a difficult task."
- "An investor who has all the answers doesn't even understand
all the questions."
- "There's no free lunch."
- "And now the last principle: Do not be fearful or negative too
often."
MISCELLANEOUS INFORMATION
The Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis in order to have
a projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by the
College Board.) The Franklin Retirement Planning Guide leads you through the
steps to start a retirement savings program. Of course, an investment in the
Fund cannot guarantee that these goals will be met.
The Fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 48
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years and now services more than 2.5 million shareholder accounts. In 1992,
Franklin, a leader in managingfixed-income mutual funds and an innovator in
creating domestic equity funds, joined forces with Templeton Worldwide, Inc., a
pioneer in international investing. Together, the Franklin Templeton Group has
over $152 billion in assets under management for more than [4.2] million U.S.
based mutual fund shareholder and other accounts. The Franklin Templeton Group
of Funds offers 125 U.S. based open-end investment companies to the public. The
Fund may identify itself by its NASDAQ symbol or CUSIP number.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one in
service quality for five of the past eight years.
[As of [], 199[], the principal shareholder[s] of the Class I and Class II
shares of the Fund, beneficial or of record, [was] [were] as follows:]
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARE AMOUNT PERCENTAGE
- ---------------- ------------ ----------
<S> <C> <C>
CLASS I
[] [] []%
CLASS II
[] [] []%
</TABLE>
From time to time, the number of Fund shares held in the "street name" accounts
of various Securities Dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding. [NOTE:
VERIFY.] [To the best knowledge of the Fund, no other person holds beneficially
or of record more than 5% of the Fund's outstanding Advisor Class shares.]
As a shareholder of a Massachusetts business trust, you could, under certain
circumstances, be held personally liable as a partner for its obligations. The
Fund's Agreement and Declaration of Trust, however, contains an express
disclaimer of shareholder liability for acts or obligations of the Fund. The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of the Fund's assets if you are held personally liable for
obligations of the Fund. The Declaration of Trust provides that the Fund shall,
upon request, assume the defense of any claim made against you for any act or
obligation of the Fund and satisfy any judgment thereon. All such rights are
limited to the assets of the Fund. The Declaration of Trust further provides
that the Fund may maintain appropriate insurance (for example, fidelity bonding
and errors and omissions insurance) for the protection of the Fund, its
shareholders, trustees, officers, employees and agents to cover possible tort
and other liabilities. Furthermore, the activities of the Fund as an investment
company, as distinguished from an operating company, would not likely give rise
to liabilities in excess of the Fund's total assets. Thus, the risk of you
incurring financial loss on account of shareholder liability is limited to the
unlikely circumstances in which both inadequate insurance exists and the Fund
itself is unable to meet its obligations.
In the event of disputes involving multiple claims of ownership or authority to
control your account, the Fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all persons deemed by
the Fund to have a potential property interest in the account, prior to
executing instructions regarding the account; (b) interplead disputed funds or
accounts with a court of competent jurisdiction; or (c) surrender ownership of
all or a portion of the account to the IRS in response to a Notice of Levy.
-38-
PAGE
Summary of Code of Ethics. Employees of Resources or its subsidiaries who are
access persons under the 1940 Act are permitted to engage in personal securities
transactions subject to the following general restrictions and procedures: (i)
the trade must receive advance clearance from a compliance officer and must be
completed within 24 hours after clearance; (ii) copies of all brokerage
confirmations must be sent to a compliance officer and, within 10 days after the
end of each calendar quarter, a report of all securities transactions must be
provided to the compliance officer; and (iii) access persons involved in
preparing and making investment decisions must, in addition to (i) and (ii)
above, file annual reports of their securities holdings each January and inform
the compliance officer (or other designated personnel) if they own a security
that is being considered for a fund or other client transaction or if they are
recommending a security in which they have an ownership interest for purchase or
sale by a fund or other client.
FINANCIAL STATEMENTS
The audited financial statements contained in the Annual Report to Shareholders
of the Fund, for the fiscal year ended August 31, 1996, including the auditors'
report, are incorporated herein by reference. These audited financial statements
do not include information for Advisor Class as these shares were not publicly
offered prior to the date of this SAI.
-39-
PAGE
USEFUL TERMS AND DEFINITIONS
1933 Act - Securities Act of 1933, as amended
1940 Act - Investment Company Act of 1940, as amended
Board - The Board of Trustees of the Trust
CD - Certificate of deposit
Class I, Class II and Advisor Class - Each Fund offers three classes of shares,
designated "Class I," "Class II," and "Advisor Class." The three classes have
proportionate interests in the respective Fund's portfolio. Class I and Class II
differ, however, primarily in their sales charge structures and Rule 12b-1
plans. Advisor Class shares are purchased without a sales charge and do not have
a Rule 12b-1 plan.
Code - Internal Revenue Code of 1986, as amended
Contingency Period - For Class I shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. For Class II shares, the contingency
period is 18 months. Regardless of when during the month you purchased shares,
they will age one month on the last day of that month and each following month.
Contingent Deferred Sales Charge (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the Contingency Period.
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter.
Franklin Funds - the mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin Government Securities Trust
Franklin Templeton Funds - The Franklin Funds and the Templeton Funds and Mutual
Series.
Franklin Templeton Group - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries.
Franklin Templeton Group of Funds - All U.S. registered investment companies in
the Franklin Group of Funds(R), and the Templeton Group of Funds and Mutual
Series.
FT Services - Franklin Templeton Services, Inc., the Fund's administrator.
Investor Services - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
-40-
PAGE
Market Timer(s) - Market Timers generally include market timing or allocation
services, accounts administered so as to buy, sell or exchange shares based on
predetermined market indicators, or any person or group whose transactions seem
to follow a timing pattern.
Moody's - Moody's Investors Service, Inc.
Mutual Series - Franklin Mutual Series Fund Inc., a member of the Franklin Group
of Funds, formerly the Mutual Series Fund Inc. Each series of Mutual Series
began offering three classes of shares on November 1, 1996, Class I, Class II
and Class Z. All shares sold before that time are designated Class Z shares.
NASD - National Association of Securities Dealers, Inc.
Net Asset Value (NAV) - the value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of a Fund by the
number of shares outstanding.
NSCC - National Securities Clearing Corporation
NYSE - New York Stock Exchange, Inc.
Offering Price - The public offering price is based on the Net Asset Value per
share of the class and includes the front-end sales charge, if applicable. The
maximum front-end sales charge is 5.75% for Class I and 1% for Class II. Advisor
Class has no front-end sales charge.
Prospectus - The prospectus for Advisor Class of the Fund dated January 1, 1997,
as may be amended from time to time.
Qualified Retirement Plan(s) - an employer sponsored pension or profit-sharing
plan that qualifies under section 401 of the Code. Examples include 401(k),
money purchase pension, profit sharing and defined benefit plans.
REIT - Real Estate Investment Trust
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
Securities Dealer - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with a Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
-41-
PAGE
Templeton Funds - The U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund
TGBM - Templeton Global Bond Managers, a division of Templeton Investment
Counsel, Inc., the Fund's investment manager, is located at Broward Financial
Centre, Fort Lauderdale, FL 33394-3091.
Trust Company - Franklin Templeton Trust Company. Trust Company is an affiliate
of Distributors and both are wholly owned subsidiaries of Resources.
U.S. - United States
We/Our/Us - Unless the context indicates a different meaning, these terms refer
to the Funds and/or Investor Services, Distributors, or other wholly-owned
subsidiaries of Resources.
-42-
PAGE
APPENDICES
DESCRIPTION OF RATINGS
CORPORATE BOND RATINGS
Moody's
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large, fluctuation of protective elements may be of greater amplitude, or
there may be other elements present which make the long-term risks appear
somewhat larger.
A - Bonds rated A possess many favorable investment attributes and are
considered 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.
Baa - Bonds rated Baa are considered medium grade obligations. They are neither
highly protected nor poorly secured. Interest payments 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.
Ba - Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of interest
and principal payments is very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C - Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
-43-
PAGE
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
S&P
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in small degree.
A - Bonds rated A 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.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB, B, CCC, CC - 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 repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C - Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating may also reflect the
filing of a bankruptcy petition under circumstances where debt service payments
are continuing. The C1 rating is reserved for income bonds on which no interest
is being paid.
D - Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
COMMERCIAL PAPER RATINGS
Moody's
Moody's commercial paper ratings, which are also applicable to municipal paper
investments permitted to be made by the Fund, are opinions of the ability of
issuers to repay punctually their promissory obligations not having an original
maturity in excess of nine months. Moody's employs the following designations,
all judged to be investment grade, to indicate the relative repayment capacity
of rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
-44-
PAGE
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
-45-
PAGE
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements: Incorporated by reference from the
1996 Annual Reports to Shareholders of Templeton Global
Bond Fund:
Independent Auditors' Report
Investment Portfolio as of August 31, 1996
Statement of Assets and Liabilities as of August 31, 1996
Statement of Operations for the year ended August 31, 1996
Statements of Changes in Net Assets for the years ended
August 31, 1996 and 1995
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*
(F) Establishment and Designation of Classes
(Advisor Class)
(2) By-Laws*
(3) Not applicable
(4) Specimen security of Templeton Income Fund*
(5) Amended and Restated Investment Management
Agreement - Templeton Income Fund*
(6) (A) Distribution Agreement*
(B) Dealer Agreement*
(7) Not applicable
(8) (A) Custody Agreement - Templeton Income Fund*
(9) (A) Fund Administration 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*
(17) Assistant Secretary's Certificate pursuant to
Rule 483(b)*
(18) Form of Multi-class Plan*
(27) Financial Data Schedule
- -----------------
* Previously filed with Registration No. 33-6510 and incorporated by
reference herein.
PAGE
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF RECORD HOLDERS
Shares of Beneficial Interest, par value $0.01 per share -
Templeton Global Bond Fund Class I: 10,859 Shareholders as
of November 30, 1996
Shares of Beneficial Interest, par value $0.01 per share -
Templeton Global Bond Fund Class II: 658 Shareholders as
of November 30, 1996
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 Registran 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 con-
nection 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.
PAGE
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Franklin Templeton Distributors, Inc. also acts as
principal underwriter of shares of:
Franklin Templeton Japan Fund
Templeton American Trust, Inc.
Templeton Capital Accumulator Fund, Inc.
Templeton Developing Markets Trust
Templeton Funds, Inc.
Templeton Global Investment Trust
Templeton Global Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller Companies, Inc.
Templeton Growth Fund, Inc.
Templeton Institutional Funds, Inc.
Templeton Variable Products Series Fund
Franklin Asset Allocation Fund
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Gold Fund
Franklin Investors Securities Trust
Franklin High Income 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 Trust
Franklin Strategic Mortgage Portfolio
Franklin Strategic Series
Franklin Tax-Advantaged High Yield Securities Fund
Franklin Tax-Advantaged International Bond Fund
Franklin Tax-Advantaged U.S. Government Securities Fund
Franklin Tax Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton Global Trust
Franklin Templeton International Trust
Franklin Templeton Money Fund Trust
Franklin Value Investors Trust
Institutional Fiduciary Trust
(b) The directors and officers of FTD, located at 777 Mariners Island
Blvd., San, Mateo, California are as follows:
<TABLE>
<CAPTION>
POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH
NAME UNDERWRITER REGISTRANT
<S> <C> <C>
Charles B. Johnson Chairman of the Board and Chairman, Vice President
Director and Trustee
Gregory E. Johnson President None
Rupert H. Johnson, Jr. Executive Vice President Vice President
and Director
Harmon E. Burns Executive Vice President Vice President
and Director
Edward V. McVey Senior Vice President None
Kenneth V. Domingues Senior Vice President None
William J. Lippman Senior Vice President None
Richard C. Stoker Senior Vice President None
Peter Jones Senior Vice President None
700 Central Avenue
St. Petersburg, FL
Charles E. Johnson Senior Vice President Vice President
500 E. Broward Blvd.
Ft. Lauderdale, FL
Deborah R. Gatzek Senior Vice President Vice President
and Assistant Secretary
Daniel T. O'Lear Senior Vice President None
Richard O. Conboy Vice President None
James A. Escobedo Vice President None
Loretta Fry Vice President None
Robert N. Geppner Vice President None
Mike Hackett Vice President None
James K. Blinn Vice President None
Philip J. Kearns Vice President None
Ken Leder Vice President None
Jack Lemein Vice President None
John R. McGee Vice President None
Harry G. Mumford Vice President None
Vivian J. Palmieri Vice President None
Bert W. Feuss Vice President None
Kent P. Strazza Vice President None
Francie Arnone Vice President None
Alison Hawksley Vice President None
Sarah Stypa Vice President None
John R. Kay Assistant Vice President Vice President
500 E. Broward Blvd.
Ft. Lauderdale, FL
Andrea Dover Assistant Vice President None
Laura Komar Assistant Vice President None
Virgina Marans Assistant Vice President None
Bernadetti Marino Howard Assistant Vice President None
Susan Thompson Assistant Vice President None
Kenneth A. Lewis Treasurer None
Leslie M. Kratter Secretary None
Karen DeBellis Assistant Treasurer Assistant Treasurer
700 Central Avenue
St. Petersburg, FL
</TABLE>
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 promulgated thereunder are in the possession of
Franklin Templeton Services, 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 Global Bond Fund 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, as amended,
and the Investment Company Act of 1940, the Registrant, as amended, the
Registrant certifies that it meets all the requirements for effectiveness of
this Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of St Petesburg, Florida on the 30th day of December,
1996.
Templeton Income Trust
(REGISTRANT)
By:
Gregory E. McGowan*
President
*By:/s/JOHN K. CARTER
John K. Carter
attorney-in-fact**
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
____________________ President (Chief December 30, 1996
Gregory E. McGowan* Executive Officer)
____________________ Trustee, Chairman, December 30, 1996
Charles B. Johnson* and Vice President
____________________ Trustee December 30, 1996
Betty P. Krahmer*
___________________ Trustee December 30, 1996
Fred R. Millsaps*
____________________ Trustee December 30, 1996
Harris J. Ashton*
____________________ Trustee December 30, 1996
S. Joseph Fortunato*
____________________ Trustee December 30, 1996
Andrew H. Hines, Jr.*
____________________ Trustee December 30, 1996
Hasso-G Von Diergardt*
____________________ Trustee December 30, 1996
John Wm. Galbraith*
____________________ Trustee December 30, 1996
Gordon S. Macklin*
____________________ Trustee December 30, 1996
Nicholas F. Brady*
____________________ Treasurer (Chief December 30, 1996
James R. Baio* Financial and
Accounting Officer)
</TABLE>
*By:/s/JOHN K. CARTER
John K. Carter
Attorney-in-fact**
** Powers of Attorney were previously filed with Registration Statement
No. 33-6510 and are incorporated herein by reference, or are contained
herewith.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
FILED
WITH
POST-EFFECTIVE AMENDMENT NO. 19 TO
REGISTRATION STATEMENT
ON
FORM N-1A
TEMPLETON INCOME TRUST
PAGE
EXHIBIT LIST
EXHIBIT NUMBER NAME OF EXHIBIT
1(F) Establishment and Designation of Classes
(Advisor Class)
27 Financial Data Schedules
PAGE
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 Global Bond Fund series of the Trust (the
"Fund") into three separate classes, each class to have the following special
and relative rights:
1. The classes shall be designated "Templeton Global Bond
Fund Class I," "Templeton Global Bond Fund Class II" and "Templeton Global
Bond Fund Advisor Class."
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 26th day of December, 1996.
<TABLE>
<CAPTION>
<S> <C>
/s/HARRIS J.ASTON
Harris J. Ashton, Trustee Charles B. Johnson, Trustee
/s/BETTY P. KRAHMER
Nicholas F. Brady, Trustee Betty P. Krahmer, Trustee
/s/S. JOSEPH FORTUNATO /s/GORDON S. MACKLIN
S. Joseph Fortunato, Trustee Gordon S. Macklin, Trustee
/s/FRED R. MILLSAPS
John Wm. Galbraith, Trustee Fred R. Millsaps, Trustee
/s/ANDREW H. HINES, JR.
Andrew H. Hines, Jr., Trustee Hasso-G Von Diergardt-Naglo, Trustee
</TABLE>
PAGE
CERTIFICATE
Pursuant to Section 10.1 of the Declaration of Trust, the undersigned
Trustee hereby acknowledges and certifies that this instrument is made in
accordance with the provisions of the Declaration of Trust, 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
26th day of December, 1996.
/s/ANDREW H. HINES, JR.
Andrew H. Hines, Jr., Trustee
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE TEMPLETON GLOBAL BOND FUND AUGUST 31, 1996 ANNUAL REPORT AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000795402
<NAME> TEMPLETON GLOBAL BOND FUND CLASS I
<SERIES>
<NUMBER> 011
<NAME> TEMPLETON INCOME TRUST
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 188921736
<INVESTMENTS-AT-VALUE> 187307554
<RECEIVABLES> 5237477
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 84341
<TOTAL-ASSETS> 192629372
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 470430
<TOTAL-LIABILITIES> 470430
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 197078835
<SHARES-COMMON-STOCK> 19015037
<SHARES-COMMON-PRIOR> 20536570
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3351051)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1568842)
<NET-ASSETS> 192158942
<DIVIDEND-INCOME> 725468
<INTEREST-INCOME> 15184186
<OTHER-INCOME> 0
<EXPENSES-NET> 2198625
<NET-INVESTMENT-INCOME> 13711029
<REALIZED-GAINS-CURRENT> (163615)
<APPREC-INCREASE-CURRENT> 7528543
<NET-CHANGE-FROM-OPS> 21075957
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11385814)
<DISTRIBUTIONS-OF-GAINS> (377284)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3539465
<NUMBER-OF-SHARES-REDEEMED> (5902799)
<SHARES-REINVESTED> 841801
<NET-CHANGE-IN-ASSETS> (1184795)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (5288377)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 968182
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2198625
<AVERAGE-NET-ASSETS> 189732836
<PER-SHARE-NAV-BEGIN> 9.32
<PER-SHARE-NII> .69
<PER-SHARE-GAIN-APPREC> .35
<PER-SHARE-DIVIDEND> (.58)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (.02)
<PER-SHARE-NAV-END> 9.76
<EXPENSE-RATIO> 1.13
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>TEMPLETON GLOBAL TRUST FORMERLY TEMPLETON INCOME FUND.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
TEMPLETON GLOBAL BOND FUND AUGUST 31, 1996 ANNUAL REPORT AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 012
<NAME> GLOBAL BOND FUND CLASS II
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 188921736
<INVESTMENTS-AT-VALUE> 187307554
<RECEIVABLES> 5237477
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 84341
<TOTAL-ASSETS> 192629372
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 470430
<TOTAL-LIABILITIES> 470430
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 197078835
<SHARES-COMMON-STOCK> 671960
<SHARES-COMMON-PRIOR> 219355
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3351051)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1568842)
<NET-ASSETS> 192158942
<DIVIDEND-INCOME> 725468
<INTEREST-INCOME> 15184186
<OTHER-INCOME> 0
<EXPENSES-NET> 2198625
<NET-INVESTMENT-INCOME> 13711029
<REALIZED-GAINS-CURRENT> (163615)
<APPREC-INCREASE-CURRENT> 7528543
<NET-CHANGE-FROM-OPS> 21075957
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (224274)
<DISTRIBUTIONS-OF-GAINS> (7432)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 584301
<NUMBER-OF-SHARES-REDEEMED> (150240)
<SHARES-REINVESTED> 18544
<NET-CHANGE-IN-ASSETS> (1184795)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (5288377)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 968182
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2198625
<AVERAGE-NET-ASSETS> 3923238
<PER-SHARE-NAV-BEGIN> 9.31
<PER-SHARE-NII> .61
<PER-SHARE-GAIN-APPREC> .41
<PER-SHARE-DIVIDEND> (.54)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (.02)
<PER-SHARE-NAV-END> 9.77
<EXPENSE-RATIO> 1.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
