PROSPECTUS & APPLICATION
INVESTMENT STRATEGY: Templeton
GLOBAL GROWTH
AND INCOME Global Bond Fund
ADVISOR CLASS
-------------------------
JANUARY 1, 1998
[LOGO]
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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 currently offers other classes of shares with different sales charge
and expense structures, which affect performance. These classes are described in
a separate prospectus. For more information, contact your investment
representative or call 1-800/DIAL BEN.
The Fund is a non-diversified series of Templeton Income Trust (the "Trust").
The Fund has a Statement of Additional Information ("SAI") for its Advisor
Class, dated January 1, 1998, which may be amended from time to time. It
includes more information about the Fund's procedures and policies. It has been
filed with the SEC and is incorporated by reference into this prospectus. For a
free copy or a larger print version of this prospectus, call 1-800/DIAL BEN.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S.
GOVERNMENT. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TEMPLETON GLOBAL
BOND FUND
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THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, JURISDICTION OR COUNTRY IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES
REPRESENTATIVE, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER
INFORMATION MAY BE OBTAINED FROM DISTRIBUTORS.
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TEMPLETON
GLOBAL
BOND FUND --
ADVISOR CLASS
January 1, 1998
When reading this prospectus, you will see certain terms beginning with capital
letters. This means the term is explained in our glossary section.
TABLE OF CONTENTS
About the Fund
Expense Summary..................................... 2
Financial Highlights................................ 3
How Does the Fund Invest Its Assets?................ 3
What Are Fund's Potential Risks?.................... 10
Who Manages the Fund?............................... 14
How Does the Fund Measure Performance?.............. 16
How Taxation Affects The Fund and Its Shareholders.. 17
How Is the Trust Organized?......................... 22
ABOUT YOUR ACCOUNT
How Do I Buy Shares?................................ 23
May I Exchanges Sahres for Shares of Another Fund?.. 25
How Do I Sell Shares?............................... 28
What Distributions Might I Receive From the Fund?... 30
Transaction Procedures and Special Requirements..... 31
Services to Help You Manage Your Account............ 36
What If I Have Questions About My Account?.......... 38
GLOSSARY
Useful Terms and Definitions......................... 39
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, FL
33733-8030
1-800/DIAL BEN
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ABOUT THE FUND
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in the
Fund. It is based on the historical expenses of the Advisor Class for the period
from January 2, 1997 (commencement of sales) through August 31, 1997. The
expenses are annualized. The Fund's actual expenses may vary.
A. SHAREHOLDER TRANSACTION EXPENSES(+)
Maximum Sales Charge Imposed on Purchases NONE
Exchange Fee (per transaction) $5.00*
B. ANNUAL FUND OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.49%
Rule 12b-1 Fees NONE
Other Expenses 0.39%
Total Fund Operating Expenses 0.88%
C. EXAMPLE
Assume the annual return for the class is 5%, operating expenses are as
described above, and you sell your shares after the number of years shown.
These are the projected expenses for each $1,000 that you invest in the
Fund.
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C>
---------------- ----------------- ----------------- ----------------
$ 9 $ 28 $ 49 $ 108
</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 its Net Asset Value or dividends and are not directly charged
to your account.
(+)IF YOUR TRANSACTION IS PROCESSED THROUGH YOUR SECURITIES DEALER, YOU MAY BE
CHARGED A FEE BY YOUR SECURITIES DEALER FOR THIS SERVICE.
*$5.00 FEE IS ONLY FOR MARKET TIMERS. WE PROCESS ALL OTHER EXCHANGES WITHOUT A
FEE.
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FINANCIAL HIGHLIGHTS
This table summarizes the financial history of the Fund's Advisor Class. The
information has been audited by McGladrey & Pullen, LLP, the Fund's independent
auditors. Their audit report covering the period shown below appears in the
financial statements in the Fund's Annual Report to Shareholders for the fiscal
year ended August 31, 1997. The Annual Report to Shareholders also includes more
information about the Fund's performance. For a free copy, please call Fund
Information.
<TABLE>
<CAPTION>
ADVISOR CLASS SHARES
PERIOD ENDED AUGUST 31 1997(1)
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<S> <C>
Per Share Operating Performance
(for a share outstanding throughout the
period) $ 10.16
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Net Asset Value, beginning of period.....
Income from investment operations:
Net investment income.................. .42
Net realized and unrealized (loss)..... (.34)
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Total from investment operations......... .08
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Less distributions:
Dividends from net investment income... (.42)
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Net Asset Value, end of period........... $ 9.82
=========
Total return(2).......................... 0.80%
Ratios/Supplemental Data:
Net assets, end of period (000).......... $ 12,742
Ratios to average net assets:
Expenses............................... 0.88%(3)
Net investment income.................. 6.76%(3)
Portfolio turnover rate.................. 166.69%
</TABLE>
(1)FOR THE PERIOD FROM JANUARY 2, 1997 (COMMENCEMENT OF SALES) THROUGH AUGUST
31, 1997.
(2)TOTAL RETURN IS NOT ANNUALIZED.
(3)ANNUALIZED.
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
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approval. There can be no assurance that the Fund's investment objective will be
achieved.
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.
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 Investment Counsel's judgment as to future interest rate changes. See "How
Does the Fund Invest Its Assets? -- Debt Securities" in the SAI.
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 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, Investment Counsel 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
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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.
TEMPORARY INVESTMENTS. When Investment Counsel 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.
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 its ability to dispose of the underlying
security and might incur a loss if the value of the security declines, as well
as incur disposition costs in liquidating the security.
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
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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 Investment Counsel believes that the
currency of a particular foreign country may suffer or enjoy a substantial
movement against another currency, it may enter into a forward contract to sell
or buy the former foreign currency (or another currency which acts as a proxy
for that currency) approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency. This second
investment practice is generally referred to as "cross-hedging." The Fund's
forward transactions may call for the delivery of one foreign currency in
exchange for another foreign currency and may at times not involve currencies in
which its portfolio securities are then denominated. The
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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
contract. In addition, when the Fund enters into a futures contract, it will
<PAGE>
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.
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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
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 Investment Counsel, 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.
<PAGE>
U.S. GOVERNMENT SECURITIES. U.S. government securities are obligations of, or
guaranteed by, the U.S. government, its agencies or instrumentalities. Some U.S.
government securities, such as Treasury bills and bonds, are supported by the
full faith and credit of the U.S. Treasury; others, such as those of Federal
Home Loan Banks, are supported by the right of the issuer to borrow from the
Treasury; others, such as those of the Federal National Mortgage Association,
are supported by the discretionary authority of the U.S. government to purchase
the agency's obligations; still others are supported only by the credit of the
instrumentality.
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 Investment Counsel will
<PAGE>
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 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
the Fund and Its Shareholders." 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
<PAGE>
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.
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
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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 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.
On July 1, 1997, Hong Kong reverted to the sovereignty of China. As with any
major political transfer of power, this could result in political, social,
economic, market or other developments in Hong Kong, China or other countries
that could affect the value of Fund investments.
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.
Although the Fund's current investment policy is that it 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
<PAGE>
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 Investment Counsel to ensure, 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 Investment
Counsel, the issuer may resume interest payments in the near future. The Fund
will not invest more than 10% of its total assets in defaulted debt securities,
which may be illiquid.
Successful use of futures contracts and related options is subject to special
risk considerations. A liquid secondary market for any futures or option
contract may not be available when the Fund seeks to close a futures or option
position. In addition, there may be an imperfect correlation between movements
in the securities or foreign currency on which the futures or option contract is
based and movements in the securities or currency in the Fund's portfolio.
Successful use of futures or option contracts is further dependent on Investment
Counsel'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
Fund's classes of shares. While none is expected, the Board will act
appropriately to resolve any material conflict that may arise.
INVESTMENT MANAGER. Investment Counsel manages the Fund's assets and makes its
investment decisions. Investment Counsel 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.
<PAGE>
Charles B. Johnson and Rupert H. Johnson, Jr. are the principal shareholders of
Resources. Together, Investment Counsel and its affiliates manage over $223
billion in assets. The Templeton organization has been investing globally since
1940. Investment Counsel and its affiliates have offices in Argentina,
Australia, Bahamas, Canada, France, Germany, Hong Kong, India, Italy, Japan,
Korea, Luxembourg, Poland, Russia, Singapore, South Africa, Taiwan, United
Kingdom, 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 Fund's lead portfolio manager since 1995 is Thomas
Latta. Mr. Latta is a vice president of Templeton Global Bond Managers, a
division of Investment Counsel. He attended the University of Missouri and New
York University. Mr. Latta is a Chartered Financial Analyst, and a member of the
Association for Investment Management and Research and the Institute of
Chartered Financial Analysts. Before joining the Templeton organization in 1991,
Mr. Latta worked as a portfolio manager with Forester & Hairston, a
Houston-based global fixed income investment management firm. Prior to that, Mr.
Latta spent seven years with Merrill Lynch, Pierce, Fenner & Smith Incorporated
where, among other assignments, he was part of an investment advisory team to
the Saudi Arabian Monetary Authority. While at Merrill Lynch, Mr. Latta also
acted as an advisor to investment managers concerning the modeling and
application of interest rate immunization strategies in fixed income portfolios.
Mr. Latta's current research responsibilities include the core European markets.
Neil S. Devlin and Thomas J. Dickson have secondary portfolio management
responsibilities for the Fund. Mr. Devlin is the chief investment officer and
executive vice president of Templeton Global Bond Managers. He holds a BA in
economics and philosophy from Brandeis University, and is a Chartered Financial
Analyst. Before joining the Templeton organization in 1987, he was a portfolio
manager and bond analyst with Constitution Capital Management of Boston. Prior
to that, Mr. Devlin was a bond trader and research analyst for the Bank of New
England. Mr. Devlin currently directs investment strategies in both the
developed and emerging fixed income markets. He is also a portfolio manager for
several Templeton mutual funds as well as corporate pension accounts. Mr.
Dickson is currently a portfolio manager for several Franklin Templeton mutual
funds. Mr. Dickson holds a BS in managerial economics from the University of
California at Davis. Prior to joining the Templeton organization in 1994, Mr.
Dickson worked as a fixed-
<PAGE>
income analyst and trader for Franklin Advisers, Inc. Mr. Dickson's current
research responsibilities include country coverage of Australia, Canada, Japan,
and New Zealand.
MANAGEMENT FEES. During the period ended August 31, 1997, management fees
totaling 0.49% of the average daily net assets of the Fund were paid to
Investment Counsel. Total expenses, including fees paid to Investment Counsel,
were 0.88% of the average daily net assets of the Advisor Class.
PORTFOLIO TRANSACTIONS. Investment Counsel tries to obtain the best execution on
all transactions. If Investment Counsel believes more than one broker or dealer
can provide the best execution, 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 provides certain administrative services
and facilities for the Fund. During the period ended August 31, 1997,
administration fees totaling 0.15% of the average daily net assets of the Fund
were paid to FT Services. These fees are included in the amount of total
expenses shown above. Please see "Investment Management and Other Services" in
the SAI for more information.
HOW DOES THE FUND MEASURE PERFORMANCE?
From time to time, the Advisor Class of the Fund advertises its performance.
Commonly used measures of performance include total return, current yield and
current distribution rate.
Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested. Current yield shows the
income per share earned by Advisor Class. The current distribution rate shows
the dividends or distributions paid to shareholders of Advisor Class. This rate
is usually computed by annualizing the dividends paid per share during a certain
period and dividing that amount by the current Net Asset Value of the class.
Unlike current yield, the current distribution rate may include income
distributions from sources other than dividends and interest received by the
Fund.
The investment results of the Advisor Class will vary. Performance figures are
always based on past performance and do not guarantee future results. For a
<PAGE>
more detailed description of how the Fund calculates its performance figures,
please see "How Does the Fund Measure Performance?" in the SAI.
HOW TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS
ON AUGUST 5, 1997, PRESIDENT CLINTON SIGNED INTO LAW THE TAXPAYER RELIEF ACT OF
1997 (THE "1997 ACT"). THIS NEW LAW MAKES SWEEPING CHANGES IN THE CODE. BECAUSE
MANY OF THESE CHANGES ARE COMPLEX, THEY ARE DISCUSSED IN THE SAI.
TAXATION OF THE FUND'S Investments. The Fund invests your money in the bonds,
stocks and other securities that are described in the section "How Does the Fund
Invest Its Assets?" Special tax rules may apply in determining the income and
gains the Fund earns on its investments. These rules may, in turn, affect the
amount of distributions that the Fund pays to you. These special tax rules are
discussed in the SAI.
TAXATION OF THE FUND. As a regulated investment company, the Fund generally pays
no federal income tax on the income and gains that it distributes to you.
HOW DOES THE FUND EARN INCOME AND GAINS?
The Fund earns interest and dividends (the Fund's "income") on its investments.
When the Fund sells a security for a price that is higher than it paid, it has a
gain. When the Fund sells a security for a price that is lower than it paid, it
has a loss. If the Fund has held the security for more than one year, the gain
or loss will be a long-term capital gain or loss. If the Fund has held the
security for one year or less, the gain or loss will be a short-term capital
gain or loss. The Fund's gains and losses are netted together, and, if the Fund
has a net gain (the Fund's "gains"), that gain will generally be distributed to
you.
FOREIGN TAXES. Foreign governments may impose taxes on the income and gains from
the Fund's investments in foreign stocks and bonds. These taxes will reduce the
amount of the Fund's distributions to you. The Fund may also invest in the
securities of foreign companies that are "passive foreign investment companies"
("PFICs"). These investments in PFICs may cause the Fund to pay income taxes and
interest charges. If possible, the Fund will not invest in PFICs or will adopt
other strategies to avoid these taxes and charges.
<PAGE>
TAXATION OF SHAREHOLDERS
DISTRIBUTIONS. Distributions from the Fund, whether you receive them in cash or
in additional shares, are generally subject to income tax. The Fund will send
you a statement in January of the current year showing the ordinary dividends,
capital gain distributions and non-taxable distributions you received from the
Fund in the prior year. The amounts on this statement will include distributions
declared in December of the prior year, and paid to you in January of the
current year. These distributions are taxable as if you had received them on
December 31 of the prior year. The IRS requires you to report these amounts on
your income tax return for the prior year.
WHAT IS A DISTRIBUTION?
As a shareholder, you will receive your share of the Fund's income and gains on
its investments in bonds, stocks and other securities. The Fund's income and
short-term capital gains are paid to you as ordinary dividends. The Fund's
long-term capital gains are paid to you as capital gain distributions. If the
Fund pays you an amount in excess of its income and gains, this excess will
generally be treated as a non-taxable distribution. These amounts, taken
together, are what we call the Fund's distributions to you.
The Fund's statement for the prior year will tell you how much of your capital
gain distribution represents 28% rate gain, or 25% rate gain, if applicable. The
remainder of the capital gain distribution, after subtracting out these amounts,
represents 20% rate gain.
DISTRIBUTIONS TO RETIREMENT PLANS. Fund distributions received by your qualified
retirement plan, such as a Section 401(k) plan or IRA, are generally
tax-deferred; this means that you are not required to report Fund distributions
on your income tax return when paid to your plan, but, rather, when your plan
makes payments to you.
DIVIDENDS-RECEIVED DEDUCTION. Either none or only a small portion of the Fund's
distributions will qualify for the corporate dividends-received deduction.
<PAGE>
REDEMPTIONS AND Exchanges. If you redeem yourshares or if you exchange your
shares in the Fund for shares inanother Franklin Templeton Fund, you will
generally have a gain or loss that the IRS requires you to report on your income
tax return. If you exchange Fund shares held for 90 days or less and pay no
sales charge or a reduced sales charge for the new shares, all or a portion of
the sales charge you paid on the purchase of the shares you exchanged is not
included in their cost for purposes of computing gain or loss on the exchange.
If you hold your shares for six months or less, any loss you have will be
treated as a long-term capital loss to the extent of any capital gains
distributions received by you from the Fund. All or a portion of any loss on the
redemption or exchange of your shares will be disallowed by the IRS if you
purchase other shares in the Fund within 30 days before or after your redemption
or exchange.
WHAT IS A REDEMPTION?
A redemption is a sale by you to the Fund of some or all of your shares in the
Fund. The price per share you receive when you redeem Fund shares may be more or
less than the price at which you purchased those shares. An exchange of shares
in the Fund for shares of another Franklin Templeton Fund is treated as a
redemption of Fund shares and then a purchase of shares of the other Fund. When
you redeem or exchange your shares, you will generally have a gain or loss,
depending upon whether the basis in your shares is more or less than your cost
or other basis in the shares. Call Fund Information at 1-800-342-5236 for a free
Shareholder Tax Information Handbook if you need more information in calculating
the gain or loss on the redemption or exchange of your shares.
<PAGE>
FOREIGN TAXES. If more than 50% of the value of the Fund's assets consists of
foreign securities, the Fund may elect to pass-through to you the amount of
foreign taxes it paid. If the Fund makes this election, your year-end statement
will show more taxable income than was actually distributed to you. However, you
will be entitled to either deduct your share of such taxes in computing your
taxable income or claim a foreign tax credit for such taxes against your U.S.
federal income tax. Your year-end statement, showing the amount of deduction or
credit available to you, will be distributed to you in January along with other
shareholder information records including your Fund Form 1099-DIV.
WHAT IS A FOREIGN TAX CREDIT?
A foreign tax credit is a tax credit for the amount of taxes imposed by a
foreign country on earnings of the Fund. When a foreign company in which the
Fund invests pays a dividend to the Fund, the dividend will generally be subject
to a withholding tax. The taxes withheld in foreign countries create credits
that you may use to offset your U.S. federal income tax.
The 1997 Act includes a provision that allows you to claim these credits
directly on your income tax return (Form 1040) and eliminates the previous
requirement that you complete a detailed supporting form. To qualify, you must
have $600 or less in joint return foreign taxes ($300 or less on a single
return), all of which are reported to you on IRS Form 1099-DIV. THIS SIMPLIFIED
PROCEDURE APPLIES ONLY FOR CALENDAR YEARS 1998 AND BEYOND, AND IS NOT AVAILABLE
IN 1997.
NON-U.S. INVESTORS. Ordinary dividends generally will be subject to U.S. income
tax withholding. Your home country may also tax ordinary dividends, capital gain
distributions and gains arising from redemptions or exchanges of your Fund
shares. Fund shares held by the estate of a non-U.S. investor may be subject to
U.S. estate tax. You may wish to contact your tax advisor to determine the U.S.
and non-U.S. tax consequences of your investment in the Fund.
STATE TAXES. Ordinary dividends and capital gain distributions that you receive
from the Fund as well as gains arising from redemptions or exchanges of your
Fund shares will generally be subject to state and local income tax.
<PAGE>
The holding of Fund shares may also be subject to state and local intangibles
taxes. You may wish to contact your tax advisor to determine the state and local
tax consequences of your investment in the Fund.
BACKUP WITHHOLDING. When you open an account, IRS regulations require that you
provide your taxpayer identification number ("TIN"), certify that it is correct,
and certify that you are not subject to backup withholding under IRS rules. If
you fail to provide a correct TIN or the proper tax certifications, the Fund is
required to withhold 31% of all the distributions (including ordinary dividends
and capital gain distributions) and redemption proceeds paid to you. The Fund is
also required to begin backup withholding on your account if the IRS instructs
the Fund to do so. The Fund reserves the right not to open your account or,
alternatively, to redeem your shares at the current net asset value, less any
taxes withheld, if you fail to provide a correct TIN, fail to provide the proper
tax certifications, or the IRS instructs the Fund to begin backup withholding on
your account.
WHAT IS A BACKUP WITHHOLDING?
Backup withholding occurs when the Fund is required to withhold and pay over to
the IRS 31% of your distributions and redemption proceeds. You can avoid backup
withholding by providing the Fund with your TIN, and by completing the tax
certifications on your account application that you were asked to sign when you
opened your account. However, if the IRS instructs the Fund to begin backup
withholding, it is required to do so even if you provided the Fund with your TIN
and these tax certifications, and backup withholding will remain in place until
the Fund is instructed by the IRS that it is no longer required.
THIS TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY. PROSPECTIVE INVESTORS
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN THE FUND. A MORE COMPLETE
DISCUSSION OF THESE RULES AND RELATED MATTERS IS CONTAINED IN THE SECTION
ENTITLED "ADDITIONAL INFORMATION ABOUT DISTRIBUTIONS AND TAXES" IN THE SAI. THE
TAX TREATMENT OF DISTRIBUTIONS OF ORDINARY DIVIDENDS, CAPITAL GAIN
DISTRIBUTIONS, FOREIGN TAXES PAID, AND INCOME TAXES WITHHELD IS ALSO DISCUSSED
IN A FREE SHAREHOLDER TAX INFORMATION HANDBOOK, AVAILABLE FROM FUND INFORMATION
AT 1-800-342-5236.
<PAGE>
HOW IS THE TRUST ORGANIZED?
The Fund is a non-diversified series of the Trust, an open-end management
investment company, commonly called a mutual fund. The Trust was organized as a
Massachusetts business trust on June 16, 1986, and is registered with the SEC.
As of January 1, 1997, the Fund began offering a new class of shares designated
Templeton Global Bond Fund -- Advisor Class. All shares outstanding before the
offering of Advisor Class shares have been designated Templeton Global Bond Fund
- -- Class I and Templeton Global Bond Fund -- Class II. Additional series and
classes of shares may be offered in the future.
Shares of each class represent proportionate interests in the assets of the Fund
and have the same voting and other rights and preferences as any other class of
the Fund for matters that affect the Fund as a whole. For matters that only
affect one class, however, only shareholders of that class may vote. Each class
will vote separately on matters affecting only that class, or expressly required
to be voted on separately by state or federal law. Shares of each class of a
series have the same voting and other rights and preferences as the other
classes and series of the Trust for matters that affect the Trust as a whole.
The Trust has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the Board.
The Trust does not intend to hold annual shareholder meetings. The Trust or a
series of the Trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may also be called by the Board in its
discretion or 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. In certain circumstances, we are required to help you
communicate with other shareholders about the removal of a Board member.
<PAGE>
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
Shares of the Fund may be purchased without a sales charge. To open your
account, contact your investment representative or complete and sign the
enclosed shareholder application and return it to the Fund with your check.
MINIMUM
INVESTMENTS*
--------------------------------- -------------------
To Open Your Account.......... $5,000,000
To Add to Your Account........ $ 25
*We waive or lower these minimums for certain investors listed below. We may
also refuse any order to buy shares.
To determine if you meet the minimum investment requirement, the amount of your
current purchase is added to the cost or current value, whichever is higher, of
your existing shares in the Franklin Templeton Funds. At least $1 million of
this amount, however, must be invested in Advisor Class or Class Z shares of any
of the Franklin Templeton Funds.
The Fund's minimum initial investment requirement will not apply to purchases
by:
1. Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for clients
participating in comprehensive fee programs
2. Qualified registered investment advisors or certified financial planners who
have clients invested in the Franklin Mutual Series Fund Inc. on October 31,
1996, or who buy through a broker-dealer or service agent who has entered
into an agreement with Distributors
3. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group and their immediate family
members, subject to a $100 minimum investment requirement
4. Accounts managed by the Franklin Templeton Group
5. The Franklin Templeton Profit Sharing 401(k) Plan
6. Each series of the Franklin Templeton Fund Allocator Series, subject to a
$1,000 minimum initial and subsequent investment requirement
<PAGE>
7. Employer stock, bonus, pension or profit sharing plans that meet the
requirements for qualification under Section 401 of the Code, including
salary reduction plans qualified under Section 401(k) of the Code, and that
(i) are sponsored by an employer with at least 5,000 employees, or (ii) have
plan assets of $50 million or more
8. Trust companies and bank trust departments initially investing in the
Franklin Templeton Funds at least $1 million of assets held in a fiduciary,
agency, advisory, custodial or similar capacity and over which the trust
companies and bank trust departments or other plan fiduciaries or
participants, in the case of certain retirement plans, have full or shared
investment discretion
9. Defined benefit plans or governments, municipalities, and tax-exempt entities
that meet the requirements for qualification under Section 501 of the Code,
subject to a $1 million initial investment in Advisor Class shares
10. Any other investor, including a private investment vehicle such as a family
trust or foundation, who is a member of a qualified group, if the group as
a whole meets the $5 million minimum investment requirement. A qualified
group is one that:
- - Was formed at least six months ago,
- - Has a purpose other than buying Fund shares at a discount,
- - Has more than 10 members,
- - Can arrange for meetings between our representatives and group members,
- - Agrees to include Franklin Templeton Fund sales and other materials in
publications and mailings to its members at reduced or no cost to Distributors,
- - Agrees to arrange for payroll deduction or other bulk transmission of
investments to the Fund, and
- - Meets other uniform criteria that allow Distributors to achieve cost savings
in distributing shares.
<PAGE>
HOW DO I BUY SHARES IN CONNECTION WITH RETIREMENT PLANS?
Your individual or employer-sponsored retirement plan may invest in the Fund.
Plan documents are required for all retirement plans. Trust Company can provide
the plan documents for you and serve as custodian or trustee.
Trust Company can provide you with brochures containing important information
about its plans. To establish a Trust Company retirement plan, you will need an
application other than the one included in this prospectus. For a retirement
plan brochure or application, call Retirement Plan Services.
Please consult your legal, tax or retirement plan specialist before choosing a
retirement plan. Your investment representative or advisor can help you make
investment decisions within your plan.
PAYMENTS TO SECURITIES DEALERS
Securities Dealers who initiate and are responsible for purchases of Advisor
Class shares may receive up to 0.25% of the amount invested. The payment is
subject to the sole discretion of Distributors, and is paid by Distributors or
one of its affiliates and not by the Fund or its shareholders.
For information on additional compensation payable to Securities Dealers in
connection with the sale of Fund shares, please see "How Do I Buy, Sell and
Exchange Shares? -- Other Payments to Securities Dealers" in the SAI.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund, its investment objective
and policies, and its rules and requirements for exchanges. For example, some
Franklin Templeton Funds do not accept exchanges and some do not offer Advisor
Class shares.
<PAGE>
METHOD STEPS TO FOLLOW
- ------------------------ -----------------------------------------------------
BY MAIL 1. Send us signed written instructions
------------------------ ----------------------------------------------------
2. Include any outstanding share certificates for
the shares you want to exchange
- ------------------------ -----------------------------------------------------
BY PHONE Call Shareholder Services
If you do not want the
ability to exchange by phone
to apply to your account,
please let us know.
- ------------------------ -----------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
------------------------ ----------------------------------------------------
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
- - You may only exchange shares within the SAME CLASS, except as noted below.
- - The accounts must be identically registered. You may, however, exchange shares
from a Fund account requiring two or more signatures into an identically
registered money fund account requiring only one signature for all transactions.
PLEASE NOTIFY US IN WRITING IF YOU DO NOT WANT THIS OPTION TO BE AVAILABLE ON
YOUR ACCOUNT. Additional procedures may apply. Please see "Transaction
Procedures and Special Requirements."
- - Trust Company IRA or 403(b) retirement plan accounts may exchange shares as
described above. Restrictions may apply to other types of retirement plans.
Please contact Retirement Plan Services for information on exchanges within
these plans.
- - The fund you are exchanging into must be eligible for sale in your state.
- - We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
- - Your exchange may be restricted or refused if you have: (i) requested an
exchange out of the Fund within two weeks of an earlier exchange request,
(ii) exchanged shares out of the Fund more than twice in a calendar quarter,
or (iii) exchanged shares equal to at least $5 million, or more than 1% of
the Fund's net assets. Shares under common ownership or control
<PAGE>
are combined for these limits. If you have exchanged shares as described in
this paragraph, you will be considered a Market Timer. Each exchange by a
Market Timer, if accepted, will be charged $5.00. Some of our funds do not
allow investments by Market Timers.
Because excessive trading can hurt Fund performance, operations and
shareholders, we may refuse any exchange purchase if (i) we believe the Fund
would be harmed or unable to invest effectively, or (ii) the Fund receives or
anticipates simultaneous orders that may significantly affect the Fund.
LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES
If you want to exchange into a fund that does not currently offer an Advisor
Class, you may exchange your Advisor Class shares for Class I shares of that
fund at Net Asset Value. If you do not qualify to buy Advisor Class shares of
Templeton Developing Markets Trust, Templeton Foreign Fund or Templeton Growth
Fund, you may exchange the Advisor Class shares you own for Class I shares of
those funds or of Templeton Institutional Funds, Inc. at Net Asset Value. If you
do so and you later decide you would like to exchange into a fund that offers an
Advisor Class, you may exchange your Class I shares for Advisor Class shares of
that fund. You may also exchange your Advisor Class shares for Class Z shares of
Franklin Mutual Series Fund Inc.
<PAGE>
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
METHOD STEPS TO FOLLOW
- --------------------------- ---------------------------------------------------
BY MAIL 1. Send us signed written instructions. If you
would like your redemption proceeds wired to a
bank account, your instructions should include:
o The name, address and telephone number of the
bank where you want the proceeds sent
o Your bank account number
o The Federal Reserve ABA routing number
o If you are using a savings and loan or credit
union, the name of the corresponding bank and
the account number
2. Include any outstanding share certificates for
the shares you are selling
3. Provide a signature guarantee if required
4. Corporate, partnership and trust accounts
may need to send additiona documents. Accounts
under court jurisdiction may have other
requirements
- --------------------------- ---------------------------------------------------
<PAGE>
METHOD STEPS TO FOLLOW
- --------------------------- ---------------------------------------------------
BY PHONE Call Shareholder Services. If you would like
your redemption proceeds wired to a bank account,
other than an escrow account, you must first sign up
for the wire feature. To sign up, send us written
instructions, with a signature guarantee. To avoid
any delay in processing, the instructions should
include the items listed in "By Mail" above.
Telephone requests will be accepted:
o If the request is $50,000 or less.
Institutional accounts may exceed $50,000 by
completing a separate agreement. Call
Institutional Services to receive a copy.
o If there are no share certificates issued
for the shares you want to sell or you have
already returned them to the Fund
o Unless you are selling shares in a Trust
Company retirement plan account
o Unless the address on your account was
changed by phone within the last 15 days
If you do not want the ability to redeem
by phone to apply to your account, please
let us know.
- --------------------------- -------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- --------------------------- --------------------------------------------------
We will send your redemption check within seven days after we receive your
request in proper form. If you would like the check sent to an address other
than the address of record or made payable to someone other than the registered
owners on the account, send us written instructions signed by all account
owners, with a signature guarantee. We are not able to receive or pay out cash
in the form of currency.
The wiring of redemption proceeds is a special service that we make available
whenever possible for redemption requests of $1,000 or more. If we receive your
request in proper form before 4:00 p.m. Eastern time, your wire payment will be
sent the next business day. For requests received in proper form after 4:00 p.m.
Eastern time, the payment will be sent the second business day. By offering this
service to you, the Fund is not bound to meet any redemption request in less
than the seven day period prescribed by law. Neither the Fund nor its agents
shall be liable to you or any other person if,
<PAGE>
for any reason, a redemption request by wire is not processed as described in
this section.
If you sell shares you recently purchased with a check or draft, we may delay
sending you the proceeds for up to 15 days or more to allow the check or draft
to clear. A certified or cashier's check may clear in less time.
Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
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 Retirement Plan Services.
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
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 and you will then receive a portion of the price you paid back in
the form of a taxable distribution.
DISTRIBUTION OPTIONS
You may receive your distributions from the Fund in any of these ways:
1. BUY ADDITIONAL SHARES OF THE FUND -- You may buy additional shares of the
same class of the Fund by reinvesting capital gain distributions, dividend
distributions, or both. This is a convenient way to accumulate additional shares
and maintain or increase your earnings base.
<PAGE>
2. BUY SHARES OF OTHER FRANKLIN TEMPLETON FUNDS -- You may direct your
distributions to buy the same class of shares of another Franklin Templeton
Fund. You may also direct your distributions to buy Class I shares of another
Franklin Templeton Fund. Many shareholders find this a convenient way to
diversify their investments.
3. RECEIVE DISTRIBUTIONS IN CASH -- You may receive capital gain 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 SECTIONS 6 AND 7 OF THE
SHAREHOLDER APPLICATION INCLUDED WITH THIS PROSPECTUS OR TELL YOUR INVESTMENT
REPRESENTATIVE WHICH OPTION YOU PREFER. IF YOU DO NOT SELECT AN OPTION, WE WILL
AUTOMATICALLY REINVEST DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS IN THE SAME CLASS
OF THE FUND. You may change your distribution option at any time by notifying us
by mail or phone. Please allow at least seven days before the record date for us
to process the new option. For Trust Company retirement plans, special forms are
required to receive distributions in cash.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
SHARE PRICE
You buy and sell Advisor Class shares at the Net Asset Value per share. The Net
Asset Value we use when you buy or sell shares is the one next calculated after
we receive your transaction request in proper form. If you buy or sell shares
through your Securities Dealer, however, we will use the Net Asset Value next
calculated after your Securities Dealer receives your request, which is promptly
transmitted to the Fund. Your redemption proceeds will not earn interest between
the time we receive the order from your dealer and the time we receive any
required documents.
HOW AND WHEN SHARES ARE PRICED
The Fund is open for business each day the NYSE is open. We determine the Net
Asset Value per share as of the scheduled close of the NYSE, generally 4:00 p.m.
Eastern time. You can find the prior day's closing Net Asset Value in many
newspapers.
The Net Asset Value of all outstanding shares of each class is calculated on a
pro rata basis. It is based on each class' proportionate participation in the
<PAGE>
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.
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 signed written instructions, 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 are 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.
JOINT ACCOUNTS. For accounts with more than one registered owner, we accept
written instructions signed by only one owner for certain types of transactions
or account changes. These include transactions or account changes that you could
also make by phone, such as certain redemptions of $50,000 or less, exchanges
between identically registered accounts, and changes to the address of record.
For most other types of transactions or changes, written instructions must be
signed by all registered owners.
<PAGE>
Please keep in mind that if you have previously told us that you do not want
telephone exchange or redemption privileges on your account, then we can only
accept written instructions to exchange or redeem shares if they are signed by
all registered owners on the account.
SIGNATURE GUARANTEES
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered owners,
3) The proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature. You should be
able to obtain a signature guarantee from a bank, broker, credit union, savings
association, clearing agency, or securities exchange or association. A notarized
signature is not sufficient.
SHARE CERTIFICATES
We will credit your shares to your Fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate is
lost, stolen or destroyed, you may have to pay an insurance premium of up to 2%
of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the Fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.
<PAGE>
TELEPHONE TRANSACTIONS
You may initiate many transactions and changes to your account by phone. Please
refer to the sections of this prospectus that discuss the transaction you would
like to make or call Shareholder Services.
When you call, we will request personal or other identifying information to
confirm that instructions are genuine. We may also record calls. If our lines
are busy or you are otherwise unable to reach us by phone, you may wish to ask
your investment representative for assistance or send us written instructions,
as described elsewhere in this prospectus.
For your protection, we may delay a transaction or not implement one if we are
not reasonably satisfied that the instructions are genuine. If this occurs, we
will not be liable for any loss. We also will not be liable for any loss if we
follow instructions by phone that we reasonably believe are genuine or if you
are unable to execute a transaction by phone.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS. We cannot accept instructions to sell
shares or change distribution options on Trust Company retirement plans by
phone. While you may exchange shares of Trust Company IRA and 403(b) retirement
accounts by phone, certain restrictions may be imposed on other retirement
plans.
To obtain any required forms or more information about distribution or transfer
procedures, please call Retirement Plan Services.
ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS
When you open an account, we need you to tell us how you want your shares
registered. How you register your account will affect your ownership rights and
ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
JOINT OWNERSHIP. If you open an account with two or more owners, we register the
account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or more
owners, we cannot accept instructions to change owners on the account unless ALL
owners agree in writing, even if the law in your state says
<PAGE>
otherwise. If you would like another person or owner to sign for you, please
send us a current power of attorney.
GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this form
of registration, a minor may not be named as an account owner.
TRUSTS. You should register your account as a trust only if you have a valid
written trust document. This avoids future disputes or possible court action
over who owns the account.
REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please send
us the following documents when you open your account. This will help avoid
delays in processing your transactions while we verify who may sign on the
account.
TYPE OF ACCOUNT DOCUMENTS REQUIRED
----------------------------- --------------------------------------------
CORPORATION Corporate Resolution
----------------------------- -------------------------------------------
PARTNERSHIP 1. The pages from the partnership agreement
that identify the general partners, or
2. A certification for a partnership agreement
----------------------------- --------------------------------------------
TRUST 1. The pages from the trust document that
identify the trustees, or
2. A certification for trust
----------------------------- -------------------------------------------
STREET OR NOMINEE ACCOUNTS. If you have Fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the shares
to the street or nominee name account of another Securities Dealer. Both dealers
must have an agreement with Distributors or we cannot process the transfer.
Contact your Securities Dealer to initiate the transfer. We will process the
transfer after we receive authorization in proper form from your delivering
Securities Dealer. Accounts may be transferred electronically through the NSCC.
For accounts registered in street or nominee name, we may take instructions
directly from the Securities Dealer or your nominee.
IMPORTANT INFORMATION IF YOU HAVE AN INVESTMENT REPRESENTATIVE
If there is a Securities Dealer or other representative of record on your
account, we are authorized: (1) to provide confirmations, account statements and
other information about your account directly to your dealer and/or
<PAGE>
representative; and (2) to accept telephone and electronic instructions directly
from your dealer or representative, including instructions to exchange or redeem
your shares. Electronic instructions may be processed through established
electronic trading systems and programs used by the Fund. Telephone instructions
directly from your representative will be accepted unless you have told us that
you do not want telephone privileges to apply to your account.
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $50. We will only do this
if the value of your account fell below this amount because you voluntarily sold
your shares and your account has been inactive (except for the reinvestment of
distributions) for at least six months. Before we close your account, we will
notify you and give you 30 days to increase the value of your account to $100.
These minimums do not apply if you fall within categories 4, 5, 6 or 7 under
"How Do I Buy Shares? -- Opening Your Account."
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
AUTOMATIC INVESTMENT PLAN
Our automatic investment plan offers a convenient way to invest in the Fund.
Under the plan, you can have money transferred automatically from your checking
account to the Fund each month to buy additional shares. If you are interested
in this program, please refer to the shareholder application included with this
prospectus or contact your investment representative. The market value of the
Fund's shares may fluctuate and a systematic investment plan such as this will
not assure a profit or protect against a loss. You may discontinue the program
at any time by notifying Investor Services by mail or phone.
SYSTEMATIC WITHDRAWAL PLAN
Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or annual
basis. The value of your account must be at least $5,000 and the minimum payment
amount for each withdrawal must be at least $50. For
<PAGE>
retirement plans subject to mandatory distribution requirements, the $50 minimum
will not apply.
If you would like to establish a systematic withdrawal plan, please complete the
systematic withdrawal plan section of the shareholder application included with
this prospectus and indicate how you would like to receive your payments. You
may choose to direct your payments to buy the same class of shares of another
Franklin Templeton Fund or have the money sent directly to you, to another
person, or to a checking account. Once your plan is established, any
distributions paid by the Fund will be automatically reinvested in your account.
You will generally receive your payment by the end of the month in which a
payment is scheduled. When you sell your shares under a systematic withdrawal
plan, it is a taxable transaction.
You may discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying us in writing at
least seven business days before the end of the month preceding a scheduled
payment. Please see "How Do I Buy, Sell and Exchange Shares? -- Systematic
Withdrawal Plan" in the SAI for more information.
TELEFACTS(R)
From a touch-tone phone, you may call our TeleFACTS(R) system (day or night) at
1-800/247-1753 to:
- - obtain information about your account; and
- - obtain price information about any Franklin Templeton Fund.
You will need the Fund's code number to use TeleFACTS(R). The Fund's code number
is 618.
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
<PAGE>
household and send only one copy of a report. Call Fund Information if you would
like an additional free copy of the Fund's financial reports.
INSTITUTIONAL ACCOUNTS
Additional methods of buying, selling or exchanging shares of the Fund may be
available to institutional accounts. Institutional investors may also be
required to complete an institutional account application. For more information,
call Institutional Services.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your shares
are held by a financial institution, in a street name account, or networked
through the NSCC, the Fund may not be able to offer these services directly to
you. Please contact your investment representative.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Investor Services
at 100 Fountain Parkway, P.O. Box 33030, St. Petersburg, Florida 33733-8030. The
Fund and Distributors are also located at this address. Investment Counsel is
located at 500 East Broward Boulevard, Ft. Lauderdale, Florida 33394-3091. 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 8:00 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 Plan Servies 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.
<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. They differ, however, primarily
in their sales charge and expense structures.
CODE - Internal Revenue Code of 1986, as amended
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Trustees."
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity
Fund, and Templeton Variable Products Series Fund
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds
FT SERVICES - Franklin Templeton Services, Inc., the Fund's administrator
INVESTMENT COUNSEL - The Fund's investment manager is Templeton Investment
Counsel, Inc., through its Global Bond Managers division
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
MARKET TIMERS - Market Timers generally include market timing or asset
allocation services, accounts administered so as to buy, sell or exchange shares
based on predetermined market indicators, or any person or group whose
transactions seem to follow a timing pattern or whose transactions include
frequent or large exchanges.
<PAGE>
MOODY'S - Moody's Investors Service, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NSCC - National Securities Clearing Corporation
NYSE - New York Stock Exchange
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TELEFACTS(R) - FRANKLIN TEMPLETON'S AUTOMATED CUSTOMER SERVICING SYSTEM
TRUST COMPANY - Franklin Templeton Trust Company. Trust Company is an affiliate
of Distributors and both are wholly owned subsidiaries of Resources.
U.S. - United States
WE/OUR/US - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.
<PAGE>
INSTRUCTIONS AND IMPORTANT NOTICE
SUBSTITUTE W-9 INSTRUCTIONS INFORMATION
GENERAL. Backup withholding is not an additional tax. Rather, the tax liability
of persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the IRS.
OBTAINING A NUMBER. If you do not have a Social Security Number/Taxpayer
Identification Number or you do not know your SSN/TIN, you must obtain Form SS-5
or Form SS-4 from your local Social Security or IRS office and apply for one. If
you have checked the "Awaiting TIN" box and signed the certification,
withholding will apply to payments relating to your account unless you provide a
certified TIN within 60 days.
WHAT SSN/TIN TO GIVE. Please refer to the following guidelines:
<TABLE>
<CAPTION>
ACCOUNT TYPE GIVE SSN OF ACCOUNT TYPE GIVE EMPLOYER ID # OF
<S> <C> <C> <C>
----------------------------- --------------- ------------------- -----------------------------------
o Individual Individual o Trust, Estate, Trust, Estate, or
or Pension Plan Pension Plan Trust
Trust
----------------------------- --------------- ------------------- -----------------------------------
o Joint Individual Owner who o Corporation, Corporation,
will be Partnership, or Partnership, or
paying tax or other other organization
first-named organization
individual
----------------------------- --------------- ------------------- -----------------------------------
o Unif. Gift/ Minor o Broker nominee Broker nominee
Transfer to Minor
----------------------------- --------------- ------------------- -----------------------------------
o Sole Proprietor Owner of
business
----------------------------- --------------- ------------------- -----------------------------------
o Legal Guardian Ward,
Minor, or
Incompetent
------------------------------ --------------- ------------------ -----------------------------------
</TABLE>
EXEMPT RECIPIENTS. Please provide your TIN and check the "Exempt Recipient" box
if you are an exempt recipient. Exempt recipients include:
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
A corporation An organization exempt from tax under
section 501(a), or an individual
A financial institution retirement plan
<PAGE>
A registered dealer in securities or An exempt charitable remainder trust or a
commodities registered in the U.S. or a non-exempt trust described in section
U.S. possession 4947(a)(1)
A real estate investment trust An entity registered at all times under
the Investment Company Act of 1940
A common trust fund operated by a bank
under section 584(a)
</TABLE>
IRS PENALTIES. If you do not supply us with your SSN/TIN, you will be subject to
an IRS $50 penalty unless your failure is due to reasonable cause and not
willful neglect. If you fail to report certain income on your federal income tax
return, you will be treated as negligent and subject to an IRS 20% penalty on
any underpayment of tax attributable to such negligence, unless there was
reasonable cause for the resulting underpayment and you acted in good faith. If
you falsify information on this form or make any other false statement resulting
in no backup withholding on an account which should be subject to backup
withholding, you may be subject to an IRS $500 penalty and certain criminal
penalties including fines and imprisonment.
SUBSTITUTE W-8 INSTRUCTIONS INFORMATION
EXEMPT FOREIGN PERSON. Check the "Exempt Foreign Person" box if you qualify as a
non-resident alien or foreign entity that is not subject to certain U.S.
information return reporting or to backup withholding rules. Dividends paid to
your account may be subject to withholding of up to 30%. You are an "Exempt
Foreign Person" if you are not (1) a citizen or resident of the U.S., or (2) a
U.S. corporation, partnership, estate, or trust. In the case of an individual,
an "Exempt Foreign Person" is one who has been physically present in the U.S.
for less than 31 days during the current calendar year. An individual who is
physically present in the U.S. for at least 31 days during the current calendar
year will still be treated as an "Exempt Foreign Person," provided that the
total number of days physically present in the current calendar year and the two
preceding calendar years does not exceed 183 days (counting all of the days in
the current calendar year, only one-third of the days in the first preceding
calendar year and only one-sixth of the days in the second preceding calendar
year). In addition, lawful permanent residents or green card holders may not be
treated as "Exempt Foreign Persons." If you are an individual or an entity, you
must not now be, or at this time expect to be, engaged in a U.S. trade or
business with respect to which any gain derived from transactions effected by
the Fund/Payer during the calendar year
<PAGE>
is effectively connected to the U.S. (or your transactions are exempt from U.S.
taxes under a tax treaty).
PERMANENT ADDRESS. The Shareholder Application must contain your permanent
address if you are an "Exempt Foreign Person." If you are an individual, provide
your permanent address. If you are a partnership or corporation, provide the
address of your principal office. If you are an estate or trust, provide the
address of your permanent residence or the principal office of any fiduciary.
NOTICE OF CHANGE IN STATUS. If you become a U.S. citizen or resident after you
have provided certification of your foreign status, or if you cease to be an
"Exempt Foreign Person," you must notify the Fund/Payer within 30 days of your
change in status. Reporting will then begin on the account(s) listed, and backup
withholding may also begin unless you certify to the Fund/Payer that (1) the
taxpayer identification number you have given is correct, and (2) the Internal
Revenue Service has not notified you that you are subject to backup withholding
because you failed to report certain interest or dividend income. You may use
Form W-9, "Payer's Request for Taxpayer Identification Number and
Certification," to make these certifications. If an account is no longer active,
you do not have to notify a Fund/Payer or broker of your change in status unless
you also have another account with the same Fund/Payer that is still active. If
you receive interest from more than one Fund/Payer or have dealings with more
than one broker or barter exchange, file a certificate with each. If you have
more than one account with the same Fund/Payer, the Fund/Payer may require you
to file a separate certificate for each account.
WHEN TO FILE. File these certifications with the Fund before a payment is made
to you, unless you have already done this in either of the two preceding
calendar years.
HOW OFTEN YOU MUST FILE. This certificate generally remains in effect for three
calendar years. A Fund/Payer or broker, however, may require that a new
certificate be filed each time a payment is made. On joint accounts for which
each joint owner is a foreign person, each must provide a certification of
foreign status.
<PAGE>
RESOLUTION SUPPORTING AUTHORITY OF
CORPORATE /ASSOCIATION SHAREHOLDER
- ------------------------------------------------------------------------------
INSTRUCTION:
It will be necessary for corporate/association shareholders to provide a
certified copy of a resolution or other certificate of authority supporting the
authority of designated officers of the corporation/association to issue oral
and written instruction on behalf of the corporation/association for the
purchase, sale (redemption), transfer and/or exchange of Franklin Templeton Fund
shares. You may use the following form of resolution or you may prefer to use
your own.
CERTIFIED COPY OF RESOLUTION (Corporation or Association)
The undersigned hereby certifies and affirms that he/she is the duly elected
_______________ of _______________ a _______________
Title Corporate Name Type of Organization
organized under the laws of the State of _______________ and that the
State
following is a true and correct copy of a resolution adopted by the Board of
Directors by unanimous written consent (a copy of which is attached) or at a
meeting duly called and held on _______________ , 19_____.
"RESOLVED, that ______________________________
Name of Corporation/Association
(the "Company") is authorized to invest the Company's assets in one or more
investment companies (mutual funds) whose shares are distributed by
Franklin/Templeton Distributors, Inc. ("Distributors"). Each such
investment company, or series thereof, is referred to as a "Franklin
Templeton Fund" or "Fund."
FURTHER RESOLVED, that any (enter number) _______________ of the following
officers of this Company (acting alone, if one, or acting together, if more
than one) is/are authorized to issue oral or written instructions (including
the signing of drafts in the case of draft accessed money fund accounts) on
behalf of the Company for the purchase, sale (redemption), transfer and/or
exchange of Fund shares and to execute any Fund application(s) and
agreements pertaining to Fund shares registered or to be registered to the
Company (referred to as a "Company Instruction"); and, that this authority
shall continue until Franklin/Templeton Investor Services, Inc. ("Investor
Services") receives written notice of revocation or amendment delivered by
registered mail. The Company's officers authorized to act on behalf of the
Company
<PAGE>
under this resolution are (enter officer titles only):
______________________________
--------------------------------------------------------------------------
(referred to as the "Authorized Officers").
FURTHER RESOLVED, that Investor Services may rely on the most recently
provided incumbency certificate delivered by the Company to Investor
Services to identify those individuals who are the incumbent Authorized
Officers and that Investor Services shall have no independent duty to
determine if there has been any change in the individuals serving as
incumbent Authorized Officers.
FURTHER RESOLVED, that the Company ("Indemnitor") undertakes and agrees to
indemnify and hold harmless Distributors, each affiliate of Distributors,
each Franklin Templeton Fund and their officers, employees and agents
(referred to hereafter collectively as the "Indemnitees") from and against
any and all liability, loss, suits, claims, costs, damages and expenses of
whatever amount and whatever nature (including without limitation reasonable
attorneys' fees, whether for consultation and advice or representation in
litigation at both the trial and appellate level) any indemnitee may sustain
or incur by reason of, in consequence of, or arising from or in connection
with any action taken or not taken by an Indemnitee in good faith reliance
on a Company Instruction given as authorized under this resolution."
The undersigned further certifies that the below named persons, whose signatures
appear opposite their names, are the incumbent Authorized Officers (as that term
is defined in the above resolution) who have been duly elected to the office
identified beside their name(s) (attach additional list if necessary).
X
Name/title (please print or type) Signature
X
Name/title (please print or type) Signature
X
Name/title (please print or type) Signature
X
Name/title (please print or type) Signature
Certified from minutes
X
Signature
- ------------------------------------------------------------------------------
Name/title (please print or type)
CORPORATE SEAL (if appropriate)
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<PAGE>
FRANKLIN TEMPLETON GROUP OF FUNDS
LITERATURE REQUEST CALL 1-800/DIAL BEN (1-800/342-5236) today for a free
descriptive brochure and prospectus on any of the funds listed below. The
prospectus contains more complete information, including fees, charges and
expenses, and should be read carefully before investing or sending money.
GLOBAL GROWTH
Franklin Global Health Care Fund
Franklin Templeton Japan Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller
Companies Fund
Templeton Global
Infrastructure Fund
Templeton Global
Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller
Companies Fund
Templeton Greater European Fund
Templeton Growth Fund
Templeton Latin America Fund
Templeton Pacific Growth Fund
Templeton World Fund
GLOBAL GROWTH AND INCOME
Franklin Global Utilities Fund
Franklin Templeton German
Government Bond Fund
Franklin Templeton
Global Currency Fund
Mutual European Fund
Templeton Global Bond Fund
Templeton Growth and Income
Fund
GLOBAL INCOME
Franklin Global Government
Income Fund
Franklin Templeton Hard
Currency Fund
Franklin Templeton High
Income Currency Fund
Templeton Americas
Government Securities Fund
GROWTH
Franklin Biotechnology
Discovery Fund
Franklin Blue Chip Fund
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin MidCap
Growth Fund
Franklin Small Cap Growth Fund
Mutual Discovery Fund
GROWTH AND INCOME
Franklin Asset Allocation Fund
Franklin Balance Sheet
Investment Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Franklin MicroCap Value Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Rising Dividends Fund
Franklin Strategic Income Fund
Franklin Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
Templeton American Trust, Inc.
FUND ALLOCATOR SERIES
Franklin Templeton
Conservative Target Fund
Franklin Templeton
Moderate Target Fund
Franklin Templeton
Growth Target Fund
INCOME
Franklin Adjustable Rate
Securities Fund
Franklin Adjustable U.S.
Government Securities Fund
Franklin's AGE High Income Fund
Franklin Investment
Grade Income Fund
Franklin Short-Intermediate U.S.
Government Securities Fund
Franklin U.S. Government
Securities Fund
Franklin Money Fund
Franklin Federal Money Fund
FOR CORPORATIONS
Franklin Corporate Qualified
Dividend Fund
FRANKLIN FUNDS SEEKING
TAX-FREE INCOME
Federal Intermediate-Term
Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund
Puerto Rico Tax-Free Income Fund
Tax-Exempt Money Fund
FRANKLIN STATE-SPECIFIC FUNDS
SEEKING TAX-FREE INCOME
Alabama
Arizona*
Arkansas**
California*
Colorado
Connecticut
Florida*
Georgia
Hawaii**
Indiana
Kentucky
Louisiana
Maryland
Massachusetts***
Michigan*
Minnesota***
Missouri
New Jersey
New York*
North Carolina
Ohio***
Oregon
Pennsylvania
Tennessee**
Texas
Virginia
Washington**
VARIABLE ANNUITIES+
Franklin Valuemark(R)
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)
*Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and/or a high yield
portfolio (CA) and a money market portfolio (CA and NY).
**The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
***Portfolio of insured municipal securities.
+Franklin Valuemark and Franklin Templeton Valuemark Income Plus are issued by
Allianz Life Insurance Company of North America or by its wholly owned
subsidiary, Preferred Life Insurance Company of New York, and distributed by
NALAC Financial Plans, LLC.
406 PA 01/98
FGF 09/97 {LOGO} Printed on recycled paper
TL406 PA
<PAGE>
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TEMPLETON Bulk Rate
GLOBAL BOND FUND U.S. Postage
PAID
P.O. Box 33031 Sacramento, CA
ST. PETERSBURG, FL 33733-8031 Permit No. 333
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406 PA 01/98
TL406 PA [LOGO] Printed on recycled paper
