TEMPLETON GLOBAL INVESTMENT TRUST
ON BEHALF OF
TEMPLETON AMERICAS GOVERNMENT SECURITIES FUND
500 EAST BROWARD BOULEVARD
FORT LAUDERDALE, FL 33394-3091
Dear Shareholder:
Enclosed is a Notice of Meeting for a Special Shareholders' Meeting of
Templeton Americas Government Securities Fund ("Americas Government Securities
Fund"). The Meeting has been called for October 1, 1999 at 10:00 a.m. Eastern
time at the offices of Templeton Global Investment Trust ("Investment Trust")
at 500 East Broward Boulevard, Fort Lauderdale, FL 33394-3091. The
accompanying Prospectus/Proxy Statement describes an important proposal being
presented for your consideration and requests your prompt attention and vote
via the enclosed proxy card.
PLEASE TAKE A MOMENT TO FILL OUT, SIGN AND
RETURN THE ENCLOSED PROXY CARD
This meeting is critically important. The Trustees of your fund
unanimously recommend that you consider and approve an Agreement and Plan of
Reorganization that would result in your shares of the Americas Government
Securities Fund being exchanged for those of a fund called Templeton Global
Bond Fund ("Global Bond Fund"), which is a series of Templeton Income Trust. If
the shareholders of Americas Government Securities Fund approve the proposal,
you will receive Class A shares of Global Bond Fund equal in value to your
investment in Americas Government Securities Fund. You will no longer be a
shareholder of Americas Government Securities Fund, and you will instead be a
shareholder of Global Bond Fund.
The proposed transaction is intended to be a tax-free reorganization under
the Internal Revenue Code of 1986, as amended, as further described in the
accompanying Prospectus/Proxy Statement, which means that you will not have a
federal taxable gain or loss on the exchange of your shares.
The transaction is being proposed because the projected growth in assets
of Americas Government Securities Fund was not sufficient to continue to offer
a fund with competitive performance and high quality service to shareholders
over the long term. Global Bond Fund's investment goals and investment policies
as compared to those of Americas Government Securities Fund are outlined in the
Prospectus/Proxy Statement. Both funds are managed by Templeton Investment
Counsel, Inc. through its Templeton Global Bond Managers division. Global Bond
Fund is a larger fund that should be better able to obtain cost savings for
shareholders.
Please take the time to review this document and vote now. THE TRUSTEES OF
YOUR FUND UNANIMOUSLY RECOMMEND THAT YOU VOTE IN FAVOR OF THIS PROPOSAL.
o To ensure that your vote is counted, indicate your position on the
enclosed proxy card.
o Sign and return your card promptly.
o If you determine at a later date that you wish to attend this meeting,
you may revoke your proxy and vote in person.
Thank you for your attention to this matter.
Sincerely,
Barbara J. Green
Secretary
TEMPLETON GLOBAL INVESTMENT TRUST
ON BEHALF OF
TEMPLETON AMERICAS GOVERNMENT SECURITIES FUND
500 EAST BROWARD BOULEVARD
FORT LAUDERDALE, FL 33394-3091
NOTICE OF SPECIAL SHAREHOLDERS' MEETING
TO BE HELD ON OCTOBER 1, 1999
To the Shareholders of Templeton Americas Government Securities Fund:
NOTICE IS HEREBY GIVEN that a Special Shareholders' Meeting of Templeton
Americas Government Securities Fund ("Americas Government Securities Fund")
will be held at the offices of the Templeton Global Investment Trust
("Investment Trust"), 500 East Broward Boulevard, Fort Lauderdale, FL
33394-3091 on October 1, 1999 at 10:00 a.m. Eastern time. The Meeting is being
called for the following reasons:
1. To approve or disapprove an Agreement and Plan of Reorganization
between Investment Trust, on behalf of its Americas Government Securities Fund
series, and Templeton Income Trust, on behalf of its Templeton Global Bond Fund
series ("Global Bond Fund") that provides for: (i) the acquisition of
substantially all of the assets of Americas Government Securities Fund in
exchange for Class A shares of Global Bond Fund; (ii) the distribution of such
shares of Global Bond Fund to the shareholders of Americas Government
Securities Fund; and (iii) the liquidation and dissolution of Americas
Government Securities Fund.
2. To grant the proxyholders the authority to vote upon any other
business as may properly come before the Meeting or any adjournment(s) thereof.
The Agreement and Plan of Reorganization in the attached Prospectus/Proxy
Statement describes this transaction more completely. A copy of the Agreement
and Plan of Reorganization is attached as Exhibit A to the Prospectus/Proxy
Statement.
Shareholders of record as of the close of business on August 3, 1999 are
entitled to notice of, and to vote at, the Meeting or any adjournment(s)
thereof.
By Order of the Board of Trustees,
Barbara J. Green
Secretary
August 27, 1999
THE BOARD OF TRUSTEES URGES YOU TO COMPLETE, DATE, SIGN, AND RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE. IT IS
IMPORTANT THAT YOU RETURN YOUR SIGNED PROXY CARD PROMPTLY SO THAT A QUORUM MAY
BE ENSURED.
PROSPECTUS AND PROXY STATEMENT
When reading this Prospectus/Proxy Statement, you will see certain terms
beginning with capital letters. This means the term is explained in our
glossary section.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
COVER PAGE ............................................................................... Cover
SUMMARY .................................................................................. 3
What proposal am I voting on? .......................................................... 3
How will the shareholder voting be handled? ............................................ 3
What are the general tax consequences of the Transaction? .............................. 4
COMPARISONS OF SOME IMPORTANT FEATURES ................................................... 4
How do the investment goals and policies of the funds compare? ......................... 4
What are the risks of an investment in the funds? ...................................... 5
Who manages the funds? ................................................................. 5
What are the fees and expenses of each fund and what might they be after the
Transaction? ......................................................................... 6
Where can I find more financial information about the funds? ........................... 7
What are other key features of the funds? .............................................. 8
REASONS FOR THE TRANSACTION .............................................................. 10
INFORMATION ABOUT THE TRANSACTION ........................................................ 11
How will the Transaction be carried out? ............................................... 11
Who will pay the expenses of the Transaction? .......................................... 11
What are the tax consequences of the Transaction? ...................................... 11
What should I know about Global Bond Fund Class A Shares? .............................. 12
What are the capitalizations of the funds and what might the capitalization be
after the Transaction? ............................................................... 12
COMPARISON OF INVESTMENT GOALS AND POLICIES .............................................. 13
Are there any significant differences between the investment goals and strategies
of the funds? ........................................................................ 13
How do the types of securities the funds buy and the investment policies of the funds
compare? ............................................................................. 13
How do the fundamental investment restrictions of the funds differ? .................... 17
What are the risk factors associated with investments in the funds? .................... 19
VOTING INFORMATION ....................................................................... 22
How many votes are necessary to approve the Agreement and Plan? ........................ 22
How do I ensure my vote is accurately recorded? ........................................ 22
Can I revoke my proxy? ................................................................. 23
What other matters will be voted upon at the Meeting? .................................. 23
Who is entitled to vote? ............................................................... 23
What other solicitations will be made? ................................................. 23
Are there dissenters' rights? .......................................................... 23
</TABLE>
i
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
INFORMATION ABOUT GLOBAL BOND FUND ............................................... 23
INFORMATION ABOUT AMERICAS GOVERNMENT SECURITIES FUND ............................ 24
PRINCIPAL HOLDERS OF SHARES ...................................................... 24
GLOSSARY OF USEFUL TERMS AND DEFINITIONS ......................................... 25
EXHIBITS TO PROSPECTUS AND PROXY STATEMENT ....................................... 26
Exhibit A -- Agreement and Plan of Reorganization .............................. A-1
Exhibit B -- Prospectus of Templeton Global Bond Fund - Class A & C dated
January 1, 1999, as supplemented March 23, 1999 (enclosed)
Exhibit C -- Annual Report to Shareholders of Templeton Global Bond Fund
dated August 31, 1998 (enclosed)
</TABLE>
ii
PROSPECTUS AND PROXY STATEMENT
DATED AUGUST 9, 1999
ACQUISITION OF THE ASSETS OF
TEMPLETON AMERICAS GOVERNMENT SECURITIES FUND
A SERIES OF TEMPLETON GLOBAL INVESTMENT TRUST
BY AND IN EXCHANGE FOR CLASS A SHARES OF
TEMPLETON GLOBAL BOND FUND,
A SERIES OF TEMPLETON INCOME TRUST
This Prospectus/Proxy Statement solicits proxies to be voted at a Special
Shareholders' Meeting (the "Meeting") of Templeton Americas Government
Securities Fund ("Americas Government Securities Fund"), a series of Templeton
Global Investment Trust ("Investment Trust"), to approve or disapprove an
Agreement and Plan of Reorganization (the "Agreement and Plan"). If
shareholders of the Americas Government Securities Fund vote to approve the
Agreement and Plan, the net assets of the Americas Government Securities Fund
will be acquired by and in exchange for Class A shares of Templeton Global Bond
Fund (the "Global Bond Fund"), a series of Templeton Income Trust ("Income
Trust").
The Meeting will be held at the principal offices of Investment Trust,
which are located at 500 East Broward Boulevard, Fort Lauderdale, FL 33394-3091
on October 1, 1999 at 10:00 a.m. Eastern time. The Board of Trustees of
Investment Trust, on behalf of Americas Government Securities Fund, is
soliciting these proxies. This Prospectus/Proxy Statement will first be sent to
shareholders on or about August 27, 1999.
If Americas Government Securities Fund shareholders vote to approve the
Agreement and Plan, you will receive Class A shares of Global Bond Fund equal
in value to your investment in shares of Americas Government Securities Fund.
Americas Government Securities Fund will then be liquidated and dissolved.
Both Investment Trust and Income Trust are open-end investment companies.
Although the investment goals of Global Bond Fund and Americas Government
Securities Fund are similar, their investment strategies are somewhat
different. Americas Government Securities Fund's investment goal is to provide
a high level of current income, with total return as a secondary goal. Global
Bond Fund's investment goal is current income with capital appreciation and
growth of income. The main difference between the investment strategies of the
two funds is that under normal market conditions, Americas Government
Securities Fund primarily invests in debt securities issued or guaranteed by
governments and government entities of the Western Hemisphere, while Global
Bond Fund primarily invests in debt securities of companies, governments and
government agencies located anywhere in the world, which generally permits
Global Bond Fund to invest in a broader range of debt instruments than the
Americas Government Securities Fund.
This Prospectus/Proxy Statement gives the information about the proposed
reorganization and Class A Shares of Global Bond Fund that you should know
before investing. You should retain it for future reference. Additional
information about Global Bond Fund and the proposed reorganization can be found
in the following documents:
o The Prospectus of Global Bond Fund -- Class A & C dated January 1, 1999,
as supplemented March 23, 1999 (the "Global Bond Fund Prospectus") is
enclosed with and considered a part of this Prospectus/Proxy Statement.
o The Annual Report to Shareholders of Global Bond Fund dated August 31,
1998 contains financial and performance information for the Global Bond
Fund and is enclosed with and considered a part of this Prospectus/Proxy
Statement.
o A Statement of Additional Information dated August 9, 1999 relating to
this Prospectus/Proxy Statement has been filed with the SEC and is
incorporated by reference into this Prospectus/ Proxy Statement.
o The Prospectus of Americas Government Securities Fund dated August 1,
1999 (the "Americas Government Securities Fund Prospectus"), and Americas
Government Securities Fund's Annual Report to Shareholders dated March
31, 1999, which contains financial and performance information for
Americas Government Securities Fund, are each on file with the SEC (File
nos. 33-73244 and 811-08226) and are incorporated by reference herein.
You may request a free copy of the SAI relating to this Prospectus/Proxy
Statement or any of the documents referred to above without charge by calling
1-800/DIAL-BEN (R)or by writing to either fund at 100 Fountain Parkway, P.O. Box
33030, St. Petersburg, FL 33733-8030.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON
THE ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER U.S. GOVERNMENT
AGENCY. MUTUAL FUND SHARES INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
2
SUMMARY
This is only a summary of certain information contained in this
Prospectus/Proxy Statement. You should read the more complete information in
the rest of this Prospectus/Proxy Statement, including the Agreement and Plan
(attached as Exhibit A), the Global Bond Fund Prospectus (enclosed as Exhibit
B), and the Annual Report to Shareholders of the Global Bond Fund (enclosed as
Exhibit C).
WHAT PROPOSAL AM I VOTING ON?
The Board of Trustees of Investment Trust approved the Agreement and Plan
and recommends that shareholders of Americas Government Securities Fund vote to
approve the Agreement and Plan. If shareholders of Americas Government
Securities Fund vote to approve the Agreement and Plan, it will result in the
transfer of the net assets of Americas Government Securities Fund to Global
Bond Fund, in exchange for an equal value of shares of Global Bond Fund. The
shares of Global Bond Fund will then be distributed to Americas Government
Securities Fund shareholders and Americas Government Securities Fund will be
liquidated and dissolved. (The proposed transaction is referred to in this
Prospectus/Proxy Statement as the "Transaction.") As a result of the
Transaction, you will cease to be a shareholder of Americas Government
Securities Fund and will become a shareholder of Global Bond Fund. This
exchange will occur on the closing date of the Transaction, which is the
specific date on which the Transaction takes place.
This means that your shares of Americas Government Securities Fund will be
exchanged for an equal value of shares of Global Bond Fund. You will receive
Class A shares of Global Bond Fund equal in value to your investment in shares
of Americas Government Securities Fund.
Like Americas Government Securities Fund, Global Bond Fund is a mutual
fund in the Franklin Templeton Group of Funds that is managed by Investment
Counsel. Global Bond Fund has an investment goal and policies that are similar,
but not identical, to those of Americas Government Securities Fund. For the
reasons set forth in the "Reasons for the Transaction" section, the Board of
Trustees of Investment Trust has determined that the Transaction is in the best
interests of the shareholders of Americas Government Securities Fund. The
Boards of Trustees of Investment Trust and Income Trust also concluded that no
dilution in value would result to the shareholders of Americas Government
Securities Fund or Global Bond Fund, respectively, as a result of the
Transaction.
THE BOARD OF TRUSTEES RECOMMENDS THAT YOU
VOTE TO APPROVE THE AGREEMENT AND PLAN.
HOW WILL THE SHAREHOLDER VOTING BE HANDLED?
Shareholders who own shares of the Americas Government Securities Fund at
the close of business on August 3, 1999 will be entitled to vote at the
Meeting, and will be entitled to one vote for each full share and a fractional
vote for each fractional share that they hold. To approve the Transaction, a
"majority of the outstanding voting securities" of Americas Government
Securities Fund must be voted in favor of the Agreement and Plan, which means
the vote of: (i) more than 50% of the outstanding voting securities of Americas
Government Securities Fund; or (ii) 67% or more of the voting securities of
Americas Government Securities Fund present at the meeting, if the holders of
more than 50% of the outstanding voting securities are present or represented
by proxy, whichever is less.
Please vote by proxy as soon as you receive this Prospectus/Proxy
Statement. You may place your vote by completing and signing the enclosed proxy
card. If you return your signed proxy card, your votes will be officially cast
at the Meeting by the persons appointed as proxies.
3
You can revoke your proxy or change your voting instructions at any time
until the vote is taken at the Meeting. For more details about shareholder
voting, see the "Voting Information" section of this Prospectus/Proxy
Statement.
WHAT ARE THE GENERAL TAX CONSEQUENCES OF THE TRANSACTION?
It is expected that shareholders of Americas Government Securities Fund
will not recognize any gain or loss for federal income tax purposes as a result
of the exchange of their shares for Global Bond Fund Class A Shares. You
should, however, consult your tax advisor regarding the effect, if any, of the
Transaction in light of your individual circumstances. You also should consult
your tax advisor about state and local tax consequences. For more information
about the tax consequences of the Transaction, please see the section
"Information About the Transaction -- What are the tax consequences of the
Transaction?"
COMPARISONS OF SOME IMPORTANT FEATURES
HOW DO THE INVESTMENT GOALS AND POLICIES OF THE FUNDS COMPARE?
While not identical, the investment goals of Global Bond Fund and Americas
Government Securities Fund are similar in a number of respects. Americas
Government Securities Fund's investment goal is to provide a high level of
current income, with total return as a secondary goal. Global Bond Fund's
investment goal is current income with capital appreciation and growth of
income. While both funds seek to achieve their goals by primarily investing in
debt securities, the type and quality of the debt securities and the geographic
location of the issuers in which the funds normally invest differ.
One difference between the investment strategies of the two funds is that
Americas Government Securities Fund invests in securities of issuers in the
Western Hemisphere. This includes countries located in North, South and Central
America and the surrounding waters. Global Bond Fund has no geographic
limitation on its investments, except that it will invest at least 65% of its
total assets in issuers located in at least three different countries. Global
Bond Fund may, therefore, invest its assets in issuers located anywhere in the
world. Both funds may invest up to 100% of their total assets in emerging
markets.
Another principal difference in the investment strategies of the funds is
the type of issuers in which each fund primarily invests. Americas Government
Securities Fund primarily invests in debt securities issued or guaranteed by
governments and government entities of the Western Hemisphere. Global Bond Fund
primarily invests in debt securities of governments and government agencies as
well as companies located anywhere in the world.
The quality of the debt securities in which the funds generally may invest
also differs. Both funds may invest in debt securities rated in any rating
category. Americas Government Securities Fund may invest up to 100% of its
total assets in non-investment grade debt securities. Global Bond Fund may also
invest in debt securities in any rating category, but focuses on "investment
grade" debt securities and may invest only up to 25% of its total assets in
non-investment grade debt securities. Non-investment grade debt securities are
those rated lower than BBB by S&P or Baa by Moody's or, if unrated, determined
by the fund to be of comparable quality, and are commonly referred to as "junk
bonds." Investment grade debt securities are issues rated in the top four
rating categories by independent rating agencies such as S&P or Moody's or, if
unrated, determined by the fund's manager to be comparable. Generally, a lower
rating indicates higher risk.
Up to 35% of the total assets of Americas Government Securities Fund may
be invested in securities, including equity securities and depositary receipts,
issued by non-government issuers, such
4
as corporations and financial institutions, located in the Western Hemisphere.
Global Bond Fund may also invest in equity securities and depositary receipts,
but may do so without any limit on the amount of its assets it may invest in
these non-debt securities or the geographic location of the issuer of such
securities. And, as stated above, Global Bond Fund may invest any portion of
its assets in non-government issuers.
For more information about the investment goals and policies of the funds,
please see "Comparison of Investment Goals and Policies."
WHAT ARE THE RISKS OF AN INVESTMENT IN THE FUNDS?
As with most investments, investments in Global Bond Fund and Americas
Government Securities Fund involve risks. There can be no guarantee against
losses resulting from an investment in either fund, nor can there be any
assurance that either fund will achieve its investment goal. The risks
associated with an investment in each fund include risks associated with debt
investments generally, such as interest rate, credit and other risks applicable
to fixed income securities. However, because Americas Government Securities
Fund may invest in securities rated in any rating category, including without
limit in high yield debt securities, while Global Bond Fund focuses on
investment grade securities, Americas Government Securities Fund's portfolio is
generally subject to greater credit risk than Global Bond Fund's portfolio. In
addition, both funds may invest some portion of their assets in securities of
issuers in emerging markets. Such securities are subject to greater risks due
to a lack of established legal, business and social frameworks to support
securities markets. Because Americas Government Securities Fund tends to invest
a greater portion of its assets in these securities, specifically in Latin
American securities, than Global Bond Fund, it has greater exposure to these
risks. Both Americas Government Securities Fund and Global Bond Fund are
non-diversified funds, which means they may invest a greater portion of their
assets in the securities of one issuer, and therefore a smaller number of
individual issuers, than a diversified fund. Therefore, both funds may be more
sensitive to economic, business, political or other changes affecting similar
issuers or securities.
For more information about the risks of the funds, see "What are the risk
factors associated with investments in the funds?" under the heading
"Comparison of Investment Goals and Policies."
WHO MANAGES THE FUNDS?
Each fund's Board of Trustees is responsible for the general oversight of
the respective fund's business affairs. Both funds are open-end series funds of
a registered management investment company, commonly referred to as "mutual
funds." Global Bond Fund is a series of Income Trust. Income Trust was
organized as a Massachusetts business trust on June 16, 1986, and is registered
with the SEC. Americas Government Securities Fund is a series of Investment
Trust. Investment Trust was organized as a Delaware business trust on December
21, 1993, and is also registered with the SEC.
Investment Counsel, through its Templeton Global Bond Managers division,
manages the assets of both funds and makes each fund's investment decisions. A
team from the Templeton Global Bond Managers division is responsible for the
day-to-day management of each fund. Investment Counsel is a wholly-owned
subsidiary of Resources. Resources is a publicly owned company engaged in
various aspects of the financial services industry through its subsidiaries.
Together, Investment Counsel and its affiliates serve as investment manager or
administrator to 54 registered investment companies, with approximately 162
U.S. based funds or series. They have over $225 billion in combined assets
under management for more than 7 million U.S. based mutual fund shareholder and
other accounts. The principal shareholders of Resources are Charles B. Johnson
and Rupert H. Johnson, Jr.
Global Bond Fund has a management agreement with Investment Counsel under
which Investment Counsel receives a management fee equal to an annual rate of
0.50% of the value of average daily net assets up to and including $200
million; 0.45% of the value of average daily net assets over $200 million and
up to and including $1.3 billion; and 0.40% of the value of average daily net
assets over $1.3 billion. Each class of the fund's shares pays its
proportionate share of the management fee.
5
Americas Government Securities Fund has a management agreement with
Investment Counsel under which Investment Counsel receives a management fee
(before any waiver) equal to an annual rate of 0.60% of its average daily net
assets. Under an agreement by Investment Counsel to waive its fees, which
Investment Counsel may end at any time after July 31, 2000, upon notice to the
fund's Board of Trustees, Investment Counsel charged the fund management fees
of 0.26% for the fiscal year ended March 31, 1999.
WHAT ARE THE FEES AND EXPENSES OF EACH FUND AND WHAT MIGHT THEY BE AFTER THE
TRANSACTION?
The following table describes the fees and expenses that you may pay if
you buy and hold shares of Americas Government Securities Fund or Class A
shares of Global Bond Fund. The table also shows the estimated expense levels
of Global Bond Fund after the proposed Transaction.
<TABLE>
<CAPTION>
ACTUAL/dagger/
---------------------------------
(PROJECTED)
AMERICAS GLOBAL BOND GLOBAL BOND FUND --
GOVERNMENT FUND -- CLASS A
SECURITIES FUND CLASS A AFTER TRANSACTION
----------------- ------------- --------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES*
Maximum Sales Charge
(as a percentage of offering price) ..... 4.25% 4.25% 4.25%
Paid at time of purchase1 ............... 4.25% 4.25% 4.25%
Paid at time of redemption(2) ............. None None None
Exchange fee (per transaction)** ......... $5.00 $5.00 $5.00
ANNUAL FUND OPERATING EXPENSES .............
(as percentage of average net assets)
Management Fees .......................... 0.60%(3) 0.49% 0.50%
Rule 12b-1 Fees(4) ......................... 0.35% 0.25% 0.25%
Other Expenses ........................... 0.64% 0.42% 0.41%
----- ----- -----
Total Annual Fund Operating Expenses ..... 1.59% 1.16% 1.16%
===== ===== =====
</TABLE>
/dagger/ INFORMATION PROVIDED IS FOR AMERICAS GOVERNMENT SECURITIES FUND
SHARES FOR THE FISCAL YEAR ENDED MARCH 31, 1999. INFORMATION FOR
GLOBAL BOND FUND CLASS A SHARES IS PROVIDED FOR THE FISCAL YEAR ENDED
AUGUST 31, 1998.
* IF YOUR TRANSACTION IS PROCESSED THROUGH YOUR SECURITIES DEALER, YOU MAY BE
CHARGED A FEE BY YOUR SECURITIES DEALER FOR THIS SERVICE.
** THERE IS A $5.00 FEE FOR EACH EXCHANGE BY A MARKET TIMER, AS THAT TERM IS
DEFINED IN THE GLOSSARY OF THIS PROSPECTUS/PROXY STATEMENT. ALL OTHER
EXCHANGES ARE PROCESSED WITHOUT A FEE.
1 THERE IS NO FRONT-END SALES CHARGE IF YOU INVEST $1 MILLION OR MORE.
2 A CONTINGENT DEFERRED SALES CHARGE (CDSC) MAY APPLY TO ANY PURCHASE OF $1
MILLION OR MORE IF YOU SELL THE SHARES WITHIN ONE YEAR. A CDSC MAY ALSO
APPLY TO PURCHASES BY CERTAIN RETIREMENT PLANS THAT QUALIFY TO BUY CLASS A
SHARES OF GLOBAL BOND FUND WITHOUT A FRONT-END SALES CHARGE. THE CHARGE IS
1% OF THE VALUE OF THE SHARES SOLD OR THE NET ASSET VALUE AT THE TIME OF
PURCHASE, WHICHEVER IS LESS. SEE "SALES CHARGES" IN EACH FUND'S CURRENT
PROSPECTUS FOR DETAILS.
3 AS A RESULT OF A FEE WAIVER, WHICH INVESTMENT COUNSEL MAY END AT ANY TIME
AFTER JULY 31, 2000, ACTUAL MANAGEMENT FEES WERE 0.26%.
4 THE COMBINATION OF FRONT-END SALES CHARGES AND RULE 12B-1 FEES COULD CAUSE
LONG-TERM SHAREHOLDERS TO PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGES PERMITTED UNDER THE NASD'S RULES.
6
EXAMPLE
The following expense example can help you compare the cost of investing
in Global Bond Fund Class A shares versus the cost of investing in Americas
Government Securities Fund. Assume the annual return for each fund 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 $10,000 that
you invest in a fund.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Americas Government Securities Fund ............................. $580* $906 $1,254 $2,234
Global Bond Fund-Class A ........................................ $538* $778 $1,036 $1,774
Projected Global Bond Fund-Class A (after Transaction) .......... $538* $778 $1,036 $1,774
</TABLE>
* Assumes a Contingent Deferred Sales Charge will not apply.
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. Each
fund pays its operating expenses. The effects of these expenses are reflected
in the Net Asset Value or dividends of each class and are not directly charged
to your account.
WHERE CAN I FIND MORE FINANCIAL INFORMATION ABOUT THE FUNDS?
For the Global Bond Fund - Class A shares, per share income information
for the past five fiscal years (and the most recent six-month semiannual
period) is shown immediately below under the heading "Financial Highlights."
Also, the current Annual Report to Shareholders of Global Bond Fund, which is
enclosed with and considered a part of this Prospectus/Proxy Statement,
contains more financial information about Global Bond Fund and a discussion of
Global Bond Fund's performance during the fiscal year ended August 31, 1998.
The current SemiAnnual Report to Shareholders of Global Bond Fund, which
contains financial information about Global Bond Fund as of the six-month
period ended February 28, 1999 is available upon request, and is included in
the SAI related to this Prospectus/Proxy Statement.
The Americas Government Securities Fund Prospectus, as well as its Annual
Report to Shareholders for the fiscal year ended March 31, 1999, contain more
financial information about Americas Government Securities Fund. These
documents are available free of charge upon request (see "Information About
Americas Government Securities Fund").
7
FINANCIAL HIGHLIGHTS
GLOBAL BOND FUND -- CLASS A
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 28, 1999
(UNAUDITED)
------------------
<S> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period .............. $ 9.49
--------
Income from investment operations:
Net investment income ............................ .28
Net realized and unrealized gains (losses) ....... (.24)
--------
Total from investment operations .................. .04
--------
Less distributions from net investment income (.30)
Less distributions from net realized gains ....... --
Less: Tax return of capital ...................... --
--------
Total distributions ............................... (.30)
--------
Net asset value, end of period .................... $ 9.23
========
Total return1 ..................................... .33%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................. $170,573
Ratios to average net assets:
Expenses ......................................... 1.20%(2)
Net investment income ............................ 5.90%(2)
Portfolio turnover rate ........................... 63.69%
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994/dagger/
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period .............. $ 9.82 $ 9.76 $ 9.32 $ 9.05 $ 9.96
-------- -------- -------- -------- -------
Income from investment operations:
Net investment income ............................ .60 .63 .69 .73 .72
Net realized and unrealized gains (losses) ....... (.32) .03 .35 .17 (.91)
-------- -------- -------- -------- -------
Total from investment operations .................. .28 .66 1.04 .90 (.19)
-------- -------- -------- -------- -------
Less distributions from net investment income (.55) (.60) (.58) (.54) (.53)
Less distributions from net realized gains ....... (.06) -- -- -- (.07)
Less: Tax return of capital ...................... -- -- (.02) (.09) (.12)
-------- -------- -------- -------- -------
Total distributions ............................... (.61) (.60) (.60) (.63) (.72)
-------- -------- -------- -------- -------
Net asset value, end of period .................... $ 9.49 $ 9.82 $ 9.76 $ 9.32 $ 9.05
======== ======== ======== ======== =======
Total return1 ..................................... 2.82% 6.87% 11.44% 10.43% (2.01%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................. $189,898 $198,131 $185,596 $191,301 $205,482
Ratios to average net assets:
Expenses ......................................... 1.17% 1.15% 1.13% 1.18% 1.18%
Net investment income ............................ 6.12% 6.41% 7.09% 7.99% 7.50%
Portfolio turnover rate ........................... 75.95% 166.69% 109.40% 101.12% 139.23%
</TABLE>
1 TOTAL RETURN DOES NOT REFLECT SALES CHARGES AND IS NOT ANNUALIZED.
2 ANNUALIZED.
/dagger/ BASED ON WEIGHTED AVERAGE SHARES OUTSTANDING.
WHAT ARE OTHER KEY FEATURES OF THE FUNDS?
TRANSFER AGENCY AND CUSTODY SERVICES. Investor Services, a wholly owned
subsidiary of Resources, is the shareholder servicing agent and acts as the
transfer agent and dividend-paying agent for the funds.
The Chase Manhattan Bank acts as the custodian of the securities and other
assets of both funds. The main office of the Chase Manhattan Bank that provides
custody services is MetroTech Center, Brooklyn, NY 11245. As a foreign custody
manager, the bank selects and monitors foreign sub-custodian banks, selects and
evaluates non-compulsory foreign depositories, and monitors and furnishes
information relevant to the selection of compulsory depositories.
ADMINISTRATIVE SERVICES. FT Services, a wholly owned subsidiary of
Resources, provides certain administration services and facilities for both
funds.
DISTRIBUTION SERVICES. Pursuant to underwriting agreements with each fund,
Distributors acts as principal underwriter in a continuous public offering of
the funds' shares. Distributors pays the expenses of the distribution of fund
shares, including advertising expenses and the costs of printing sales
materials and prospectuses used to offer shares to the public.
DISTRIBUTION AND SERVICE (12B-1) FEES. Americas Government Securities Fund
and Global Bond Fund - Class A shares each has a separate distribution or "Rule
12b-1" plan under which it shall pay or may reimburse Distributors or others
for the expenses of activities that are primarily intended to sell shares of
the class. These expenses may include, among others, distribution or service
fees paid to securities dealers or others who have executed a servicing
agreement with the fund, Distributors or its affiliates; a prorated portion of
Distributors' overhead expenses; and the expenses of printing
8
prospectuses and reports used for sales purposes, and preparing and
distributing sales literature and advertisements. The distribution and service
(12b-1) fees charged to Global Bond Fund - Class A shares are based only on the
fees attributable to that particular class.
Payments by Global Bond Fund under its Class A plan may not exceed 0.25%
per year of Class A's average daily net assets and payments by Americas
Government Securities Fund under its plan may not exceed 0.35% per year of that
Fund's average daily net assets. All distribution expenses over these amounts
will be borne by those who have incurred them. In the case of the Global Bond
Fund plan, expenses not reimbursed in any quarter may be reimbursed in future
quarters or years, while the Americas Government Securities Fund plan does not
permit unreimbursed expenses incurred in a particular year to be carried over
to or reimbursed in later years.
PURCHASES AND REDEMPTIONS. The maximum front-end sales charge for Class A
shares of Global Bond Fund and Americas Government Securities Fund is 4.25%
with reduced charges for purchases of $100,000 or more and no front-end sales
charges for purchases of $1 million or more. Each fund generally requires a
minimum initial investment of $1,000 and subsequent investments of at least
$50.
You may sell (redeem) your shares at any time. Shares of each fund also
may be exchanged for shares of other Franklin Templeton Funds, subject to
certain limitations, as provided in the prospectus of the respective Franklin
Templeton Fund. Because an exchange is technically a sale and a purchase of
shares, an exchange is a taxable transaction.
Shares of each fund may be redeemed at their respective Net Asset Value
per share. However, redemptions of shares of each fund which were purchased in
amounts of $1,000,000 or more generally are subject to a Contingent Deferred
Sales Charge. Global Bond Fund shares acquired by Americas Government
Securities Fund shareholders as a result of this Transaction are subject to a
Contingent Deferred Sales Charge to the same extent that the Americas
Government Securities Fund shares were subject to a Contingent Deferred Sales
Charge.
Additional information and specific instructions explaining how to buy,
sell, and exchange shares of Global Bond Fund are outlined in the current
prospectus of Global Bond Fund and in the Americas Government Securities Fund
Prospectus, under the heading "Your Account." The accompanying Global Bond Fund
Prospectus also lists phone numbers for you to call if you have any questions
about your account under the heading "Questions." These phone numbers are the
same for both funds.
DIVIDENDS AND DISTRIBUTIONS. Each fund intends to pay a dividend at least
monthly, representing its net investment income. The amount of these dividends
will vary depending on changes in the funds' net investment income. Neither
fund pays "interest" nor guarantees any amount of dividends or return on an
investment in its shares.
Each fund automatically reinvests distributions in additional shares of
that fund unless you select a different option. Specific instructions
explaining how to select a different option are outlined in the current
Americas Government Securities Fund Prospectus and in the attached Global Bond
Fund Prospectus, under the heading "Investor Services -- Distribution Options."
Distributions from the funds, whether you receive them in cash or in
additional shares, are generally subject to income tax. Each fund will send you
a statement in January of the current year that reflects the amount of ordinary
dividends, capital gain distributions and non-taxable distributions you
received from the fund in the prior year.
Ordinary dividends and capital gain distributions that you receive from a
fund, and gains arising from redemptions or exchanges of your fund shares, will
generally be subject to state and local income tax. The holding of fund shares
may also be subject to state and local intangible taxes.
For more information about the tax implications of investments in the
funds, see the attached Global Bond Fund Prospectus or the current Americas
Government Securities Fund Prospectus, under the heading "Distributions and
Taxes."
9
REASONS FOR THE TRANSACTION
The Board of Trustees of Investment Trust, on behalf of Americas
Government Securities Fund, has recommended the Transaction for purposes of
combining Americas Government Securities Fund with a larger fund. Because of
the relatively low demand for Americas Government Securities Fund, Investment
Counsel recommended to the Board of Trustees of Investment Trust that the
assets of Americas Government Securities Fund be combined with a larger fund
that has similar investment goals and policies. A larger fund should be better
able to obtain certain savings in costs for Americas Government Securities Fund
and its shareholders. The Transaction was also recommended to combine similar
funds within the Franklin Templeton Group to eliminate duplication of expenses
and internal competition.
The Agreement and Plan was presented to Investment Trust's Board of
Trustees at a meeting held on May 19, 1999. At the meeting, the Board of
Trustees questioned management about the potential benefits and costs to
shareholders of the Americas Government Securities Fund. In deciding whether to
recommend approval of the Transaction to shareholders, the Board of Trustees
considered, among other things: the expense ratios of Global Bond Fund and
Americas Government Securities Fund; the comparative investment performance of
Global Bond Fund and Americas Government Securities Fund; the compatibility of
the investment goals, policies, restrictions and investments of Americas
Government Securities Fund with those of Global Bond Fund; the tax consequences
of the Transaction; and the significant experience of Investment Counsel.
During the course of its deliberations, the Board of Trustees also considered
that the expenses of the Transaction will be shared one-quarter by Global Bond
Fund, one-quarter by Americas Government Securities Fund, and one-half by
Investment Counsel.
The Board of Trustees concluded that the Transaction is in the best
interests of the shareholders of Americas Government Securities Fund and that
no dilution of value would result to the shareholders of Americas Government
Securities Fund from the Transaction. The Board of Trustees then decided to
approve the Agreement and Plan and to recommend that shareholders of Americas
Government Securities Fund vote to approve the Transaction. As required by law,
the Board members approving the Agreement and Plan included a majority of the
trustees who are not interested persons of Americas Government Securities Fund.
The Board of Trustees' conclusion was based on a number of factors,
including that the Transaction would permit shareholders to pursue their
investment goals in a larger fund. A larger fund should have an enhanced
ability to effect portfolio transactions on more favorable terms and should
have greater investment flexibility. A fund with higher aggregate net assets
may also be able to reduce or eliminate certain duplicative costs and expenses.
This may result in lower overall expense ratios through the spreading of fixed
costs of fund operations over a larger asset base. However, variable expenses
that are based on the value of assets or the number of shareholder accounts,
such as custody and transfer agent fees, would be largely unaffected by the
Transaction.
The Board of Trustees of Income Trust, on behalf of Global Bond Fund, also
determined that the Transaction was in the best interests of Global Bond Fund
and its shareholders and that no dilution would result to those shareholders.
FOR THE REASONS DISCUSSED ABOVE, THE BOARD OF TRUSTEES OF INVESTMENT
TRUST, ON BEHALF OF AMERICAS GOVERNMENT SECURITIES FUND, RECOMMENDS THAT YOU
VOTE FOR THE AGREEMENT AND PLAN.
If shareholders of Americas Government Securities Fund do not approve the
Agreement and Plan, the Board of Trustees will consider other possible courses
of action for Americas Government Securities Fund, including dissolution and
liquidation.
10
INFORMATION ABOUT THE TRANSACTION
This is only a summary of the Agreement and Plan. You should read the
actual Agreement and Plan. It is attached as Exhibit A.
HOW WILL THE TRANSACTION BE CARRIED OUT?
If the shareholders of Americas Government Securities Fund approve the
Agreement and Plan, the Transaction will take place after various conditions
are satisfied by Investment Trust on behalf of Americas Government Securities
Fund, and by Income Trust on behalf of Global Bond Fund, including the delivery
of certain documents. Investment Trust and Income Trust will agree on a
specific date for the actual Transaction to take place. This is called the
closing date. If the shareholders of Americas Government Securities Fund do not
approve the Agreement and Plan, the Transaction will not take place.
In anticipation of the proposed Transaction, the Board of Trustees decided
to close Americas Government Securities Fund to new investors effective after
the close of business on June 8, 1999. If you were a shareholder of record as
of the close of business on June 8, 1999, you may continue to add to your
existing account subject to your applicable minimum additional investment
amount or buy additional shares through the reinvestment of dividend and
capital gain distributions. If the shareholders approve the Agreement and Plan
at the Meeting or any adjournment thereof, shares of Americas Government
Securities Fund will no longer be offered for sale to existing shareholders,
except through the reinvestment of dividend or capital gain distributions or
through established automatic investment plans, including automatic salary
deferrals through defined contribution plans.
If the shareholders approve the Agreement and Plan, Americas Government
Securities Fund will deliver to Global Bond Fund substantially all of its
assets on the closing date. In exchange, Americas Government Securities Fund
will receive Class A shares of Global Bond Fund which have a value equal to the
dollar value of the assets delivered to Global Bond Fund. The stock transfer
books of Americas Government Securities Fund will be permanently closed as of
4:00 p.m. Eastern time on the closing date. Americas Government Securities Fund
will only accept requests for redemption received in proper form before 4:00
p.m. Eastern time on the closing date. Requests received after that time will
be considered requests to redeem shares of Global Bond Fund.
To the extent permitted by law, the Trusts may agree to amend the
Agreement and Plan without shareholder approval. They may also agree to
terminate and abandon the Transaction at any time before or, to the extent
permitted by law, after the approval of shareholders of Americas Government
Securities Fund.
WHO WILL PAY THE EXPENSES OF THE TRANSACTION?
The expenses resulting from the Transaction will be paid one-quarter by
Global Bond Fund, one-quarter by Americas Government Securities Fund, and
one-half by Investment Counsel.
WHAT ARE THE TAX CONSEQUENCES OF THE TRANSACTION?
The Transaction is intended to qualify as a tax-free reorganization for
federal income tax purposes under Section 368(a)(1) of the Internal Revenue
Code of 1986, as amended. Based on certain assumptions and representations
received from Investment Trust on behalf of Americas Government Securities Fund
and Income Trust on behalf of Global Bond Fund, it is the opinion of Stradley
Ronon Stevens & Young, LLP, counsel to the funds, that shareholders of Americas
Government Securities Fund will not recognize any gain or loss for federal
income tax purposes as a result of the exchange of their shares of Americas
Government Securities Fund for shares of Global Bond Fund and that neither
Global Bond Fund nor its Class A shareholders will recognize any gain or loss
upon receipt of the assets of the Americas Government Securities Fund.
11
You will continue to be responsible for tracking the purchase cost and
holding period of your shares and should consult your tax advisor regarding the
effect, if any, of the Transaction in light of your individual circumstances.
You should also consult your tax advisor as to state and local tax
consequences, if any, of the Transaction, because this discussion only relates
to the federal income tax consequences.
WHAT SHOULD I KNOW ABOUT GLOBAL BOND FUND CLASS A SHARES?
Global Bond Fund Class A shares will be distributed to shareholders of the
Americas Government Securities Fund. Each share will be fully paid and
nonassessable when issued with no personal liability attaching to the ownership
thereof. Each Class A share will have no preemptive or conversion rights and
will be transferable upon the books of Global Bond Fund. The shares of Global
Bond Fund will be recorded electronically in each shareholder's account. Global
Bond Fund will then send a confirmation to each shareholder. As described in
its prospectus, Global Bond Fund does not issue share certificates unless
requested. Former shareholders of Americas Government Securities Fund whose
shares are represented by outstanding share certificates will not be allowed to
redeem shares of Global Bond Fund until the certificates have been returned.
Both Global Bond Fund and Americas Government Securities Fund have
non-cumulative voting rights. This gives the holders of more than 50% of the
Trusts' shares voting the ability to elect 100% of the trustees.
Like Americas Government Securities Fund, Global Bond Fund does not
routinely hold shareholders' meetings. Global Bond Fund may hold special
meetings for matters requiring shareholder approval. A meeting of either
Trust's shareholders may also be called by its respective Board of Trustees in
such Board's discretion or at the request of its shareholders who hold at least
10% of that Trust's outstanding shares in order to consider the removal of a
Board member.
WHAT ARE THE CAPITALIZATIONS OF THE FUNDS AND WHAT MIGHT THE CAPITALIZATION BE
AFTER THE TRANSACTION?
The following table sets forth, as of June 30, 1999, the capitalization of
Americas Government Securities Fund and the Class A shares of Global Bond Fund.
The table also shows the projected capitalization of the Class A shares of
Global Bond Fund as adjusted to give effect to the proposed Transaction. The
capitalization of the Class A shares of Global Bond Fund is likely to be
different when the Transaction is consummated.
<TABLE>
<CAPTION>
INCLUDING PRO
FORMA
ADJUSTMENTS
GLOBAL BOND
AMERICAS GLOBAL BOND FUND--CLASS A
GOVERNMENT FUND-- PROJECTED AFTER
SECURITIES FUND CLASS A TRANSACTION
(UNAUDITED) (UNAUDITED) (UNAUDITED)*
----------------- --------------- ----------------
<S> <C> <C> <C>
Net assets ........................ $19,806,800 $153,401,459 $173,201,211
Total shares outstanding .......... 2,070,193 17,252,950 19,480,606
Net asset value per share ......... $ 9.57 $ 8.89 $ 8.89
</TABLE>
* GLOBAL BOND FUND OFFERS TWO ADDITIONAL CLASSES OF SHARES, CLASS C AND
ADVISOR CLASS. GLOBAL BOND FUND CURRENTLY HAS 19,458,413 SHARES OUTSTANDING OF
ALL OF ITS CLASSES REFLECTING COMBINED NET ASSETS OF $173,030,166. AFTER THE
TRANSACTION, THERE ARE EXPECTED TO BE APPROXIMATELY 21,686,069 SHARES OF ALL
CLASSES OUTSTANDING REFLECTING COMBINED NET ASSETS OF $192,829,918.
12
COMPARISON OF INVESTMENT GOALS AND POLICIES
This section describes key investment policies of Global Bond Fund and
Americas Government Securities Fund, and certain noteworthy differences between
the investment goals and policies of the funds. For a complete description of
Global Bond Fund's investment policies and risks, you should read the Global
Bond Fund Prospectus, which is enclosed with this Prospectus/Proxy Statement as
Exhibit B.
ARE THERE ANY SIGNIFICANT DIFFERENCES BETWEEN THE INVESTMENT GOALS AND
STRATEGIES OF THE FUNDS?
The investment goals of Global Bond Fund and Americas Government
Securities Fund are substantially similar. Americas Government Securities
Fund's investment goal is to provide a high level of current income, with total
return as a secondary goal. Global Bond Fund's investment goal is current
income with capital appreciation and growth of income. Both investment goals
are fundamental.
While both funds seek to achieve their goals by primarily investing in
debt securities, the type and quality of the debt securities and the geographic
location of the issuers in which the funds normally invest differ. The main
difference between the investment strategies of the two funds is that Americas
Government Securities Fund primarily invests in debt securities issued or
guaranteed by governments and government entities of the Western Hemisphere.
This includes countries located in North, South and Central America and the
surrounding waters. Global Bond Fund primarily invests in debt securities of
companies, governments and government agencies located anywhere in the world.
At least 65% of Global Bond Fund's total assets will be invested in issuers
located in at least three countries (including the U.S.).
While both funds may invest in debt securities rated in any rating
category, the quality of the debt securities in which both funds invest may
differ. Generally, a lower rating indicates higher risk. Americas Government
Securities Fund may invest up to 100% of its total assets in non-investment
grade debt securities. Global Bond Fund may only invest up to 25% of its total
assets in non-investment grade debt securities and focuses its investments on
"investment grade" debt securities.
Policies or restrictions stated in this Prospectus/Proxy Statement as
fundamental may not be changed without the approval of the lesser of (i) a
majority of the outstanding shares of the fund, or (ii) 67% or more of the
shares represented at a shareholders' meeting at which the holders of more than
50% of the outstanding shares are represented.
HOW DO THE TYPES OF SECURITIES THE FUNDS BUY AND THE INVESTMENT POLICIES OF THE
FUNDS COMPARE?
DEBT SECURITIES.
Each fund normally invests at least 65% of its total assets in debt
securities. For Americas Government Fund, these are debt securities issued or
guaranteed by government entities of Western Hemisphere countries. Global Bond
Fund is not subject to geographic limits on debt securities investments. The
debt securities in which Global Bond Fund primarily invests are issued by
companies, as well as by governments and government agencies located anywhere
in the world. Each fund currently holds a relatively significant portion of its
total assets in U.S. government bonds.
Debt securities represent an obligation of the issuer to repay a loan of
money to it, and generally provide for the payment of interest. These include
bonds, notes and debentures. In selecting debt securities, Americas Government
Securities Fund may include obligations that have been indexed to foreign
currency exchange rates. Indexed obligations generally provide that at maturity
the principal amount is adjusted up or down (but not below zero) to reflect
fluctuations in the exchange rate between two currencies during the period the
obligation was outstanding. Investments in indexed securities are subject to
the risk of loss in the event that exchange rate movements are not accurately
predicted.
13
Both funds may purchase debt securities of any maturity.
Americas Government Securities Fund invests its assets in securities rated
in any category by independent rating agencies (or, if unrated, determined by
the fund's manager to be comparable) and may invest up to 100% of its total
assets in non-investment grade securities. Non-investment grade securities are
those rated lower than BBB by S&P or Baa by Moody's or, if unrated, determined
by the fund to be of comparable quality, and are commonly referred to as "junk
bonds."
Global Bond Fund also may buy both rated and unrated debt securities,
including lower-rated debt securities such as high yield corporate securities,
but may only invest up to 25% of its total assets in non-investment grade
securities. Global Bond Fund focuses its investments on "investment grade" debt
securities. These are issues rated in the top four rating categories by
independent rating agencies such as S&P or Moody's or, if unrated, determined
by the fund's manager to be comparable.
EQUITY SECURITIES.
Both funds have the ability to invest in equity securities, although both
funds currently hold a relatively insignificant portion of their assets in such
securities. Equity securities generally entitle the holder to participate in a
company's general operating results and include common stock, preferred stock,
and convertible securities.
FOREIGN SECURITIES.
Each fund may invest up to 100% of its assets in foreign securities issued
by foreign corporations, governments and their government entities. Americas
Government Securities Fund focuses its investments in the countries of the
Western Hemisphere including North, South, and Central America and surrounding
waters, some of which are considered emerging markets. Global Bond Fund has no
geographic limitation, except that at least 65% of the total assets of the
Global Bond Fund is invested in at least three countries (including the U.S.).
Both funds may invest up to 100% of its total assets in emerging markets. Both
funds may also buy foreign securities that are traded in the U.S. or directly
in foreign markets and may buy securities denominated in foreign currencies.
DEPOSITARY RECEIPTS.
Both funds may invest in American, European and Global Depositary
Receipts. Depositary Receipts are certificates typically issued by a bank or
trust company that give their holders the right to receive securities issued by
a foreign or domestic company.
MORTGAGE SECURITIES.
Americas Government Securities Fund may invest in a variety of mortgage
securities, while Global Bond Fund may only invest in collateralized mortgage
obligations. Mortgage securities represent an ownership interest in mortgage
loans made by banks and other financial institutions to finance purchases of
homes, commercial buildings or other real estate. These mortgage loans may have
either fixed or adjustable interest rates. The individual mortgage loans are
packaged or "pooled" together for sale to investors. As the underlying mortgage
loans are paid off, investors receive principal and interest payments.
Both funds may invest in mortgage-backed securities that are issued by
U.S. government agencies and private institutions. Americas Government
Securities Fund may invest without limit in mortgage-backed securities issued
or guaranteed by Government entities, but may invest only up to 35% of its
total assets in privately issued mortgage-backed and asset-backed securities.
The payment of interest and principal on securities issued by U.S. government
agencies generally is guaranteed either by the full faith and credit of the
U.S. government or by the credit of the agency. The guarantee applies only to
the timely repayment of principal and interest and not to the market prices and
yields of the
14
securities or to the net asset value or performance of the fund, which will
vary with changes in interest rates and other market conditions. The U.S.
government and its agencies do not guarantee mortgage-backed securities issued
by private institutions.
MORTGAGE-BACKED SECURITIES. Americas Government Securities Fund may invest
up to 25% of its total assets in derivative mortgage-backed securities
consisting primarily (but not exclusively) of stripped mortgage-backed
securities. Stripped mortgage-backed securities are usually structured with two
classes, each receiving different proportions of the interest and principal
distributions on a pool of mortgage assets. Typically, one class will receive
some of the interest and most of the principal from the mortgage assets, while
the other class will receive most of the interest and the remainder of the
principal. In the most extreme case, one class will receive all of the interest
(the interest-only or "IO" class), while the other class will receive all of
the principal (the principal-only or "PO" class).
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS") Both funds may invest in debt
obligations that are collateralized by mortgage loans or mortgage pass-through
securities. CMOs are fixed-income securities that 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. The underlying mortgages are backed by residential and various types of
commercial properties. Timely payment of interest and principal (but not the
market value) of some of these pools is supported by various forms of insurance
or guarantees issued by private issuers, those who pool the mortgage asset and,
in some cases, by U.S. government agencies. Prepayments of the mortgages
underlying a CMO, which usually increase when interest rates decrease, will
generally reduce the life of the mortgage pool, thus impacting the CMO's yield.
Under these circumstances, the reinvestment of prepayments will generally be at
a rate lower than the rate applicable to the original CMO.
ASSET-BACKED SECURITIES. Americas Government Securities Fund may invest in
asset-backed securities rated in any category by the rating agencies.
Asset-backed securities are securities backed by home equity loan receivables;
credit card receivables; automobile, mobile home and recreational vehicle loans
and leases; and other receivables. Asset-backed securities are issued in either
a pass-through structure (similar to a mortgage pass-through structure) or in a
pay-through structure (similar to a CMO structure).
BRADY BONDS AND OTHER DEBT SECURITIES OF GOVERNMENT ENTITIES.
Americas Government Securities Fund may invest a portion of its assets in
certain debt securities referred to as "Brady Bonds." These are public-issue
bonds of developing countries that are created through an exchange of existing
commercial bank loans to sovereign entities for new obligations in connection
with a debt restructuring plan introduced by former U.S. Treasury Secretary,
Nicholas F. Brady. In light of the residual risk of Brady Bonds and, among
other factors, the history of defaults with respect to commercial bank loans by
public and private entities of countries issuing Brady Bonds, investments in
Brady Bonds are generally considered speculative. In addition, many Brady Bonds
currently are rated below investment grade.
Americas Government Securities Fund may also invest in restructured
external debt that has not undergone a Brady-style debt exchange, and internal
government debt.
OPTIONS.
Each fund may buy and sell options on securities, securities indices, and
futures contracts, although neither fund currently intends to enter into such
transactions. An option on a security or futures contract is a contract that
allows the buyer of the option the right to buy or sell a specified security or
futures contract from or to the seller at a specified price during the term of
the option. An option on a securities index is a contract that allows the buyer
of the option the right to receive from the seller cash, in an amount equal to
the difference between the index's closing price and the option's exercise
price.
15
Each fund may only sell covered options. This means that, with respect to
any call option written, the fund will own the underlying securities or
comparable securities satisfying the cover requirements of the securities
exchanges. In addition, Americas Government Securities Fund will limit the sale
of options on its securities to 15% or less of its total assets and may only
buy options if the total premiums it paid for such options is 5% or less of its
total assets.
FUTURES CONTRACTS.
Each fund may enter into contracts for the purchase or sale for future
delivery of securities or contracts based upon financial or securities indices
("financial futures") and options on these contracts, although Global Bond Fund
does not currently intend to enter into such transactions. A financial futures
contract is an agreement to buy or sell a specific security or commodity at a
specified future date and price. A futures contract on a foreign currency is an
agreement to buy or sell a specific amount of a currency for a set price on a
future date. Neither fund may commit more than 5% of its total assets to
initial margin deposits on futures contracts. Additionally, Americas Government
Securities Fund will not engage in transactions in futures contracts or related
options for speculation but only as a hedge against changes resulting from
market conditions in the values of its securities or securities it intends to
buy.
FOREIGN CURRENCY EXCHANGE CONTRACTS.
Both funds may enter into forward foreign currency contracts, which are
agreements to buy or sell a specific currency at a set price on a future date.
STRUCTURED INVESTMENTS.
Each fund may invest in structured investment transactions. Included among
the issuers of debt securities in which the funds may invest are entities
organized and operated solely for the purpose of restructuring the investment
characteristics of various securities. These entities are typically organized
by investment banking firms which receive fees in connection with establishing
each entity and arranging for the placement of its securities. This type of
restructuring involves the deposit with or purchase by an entity, such as a
corporation or trust, of specified instruments and the issuance by that entity
of one or more classes of securities ("structured investments") backed by, or
representing interest in, the underlying instruments.
REPURCHASE AGREEMENTS.
Each fund will generally have a portion of its assets in cash and cash
equivalents for a variety of reasons, including waiting for a special
investment opportunity or taking a defensive position. To earn income on this
portion of its assets, each fund may enter into repurchase agreements with
certain banks and broker-dealers. Under a repurchase agreement, the fund agrees
to buy a U.S. government security from a bank or broker-dealer at one price and
agrees to sell the security back to the bank or broker-dealer at a higher price
after a short period of time (generally, less than seven days). The bank or
broker-dealer must transfer to the fund's custodian securities with an initial
value of at least 102% of the dollar amount invested by the fund in each
repurchase agreement. If the bank or broker-dealer does not purchase the
securities as agreed, the funds may experience a loss or delay in the
liquidation of the securities underlying the repurchase agreement and may also
incur liquidation costs. Both funds intend to enter into repurchase agreements
with banks or broker-dealers considered to be creditworthy by their managers.
TEMPORARY INVESTMENTS.
When Investment Counsel believes unusual or adverse economic, market or
other conditions exist, each fund's portfolio may be invested in a temporary
defensive manner. Under these circumstances, the Global Bond Fund may invest
all of its assets in: U.S. government securities
16
maturing in 13 months or less, commercial paper, bank time deposits with less
than seven days remaining to maturity, and banker's acceptances. Similarly,
under these circumstances, the Americas Government Securities Fund may invest
up to 100% of its assets in money market securities denominated in the currency
of any nation including: short-term and medium-term securities issued or
guaranteed by the U.S. or a foreign government, their agencies or
instrumentalities; finance company and corporate commercial paper, and other
short-term corporate obligations, rated A by S&P or Prime-1 by Moody's or, if
unrated, determined by the fund to be of comparable quality; bank obligations
(including certificates of deposit, time deposits and banker's acceptances);
and repurchase agreements with banks and broker-dealers. Under these
circumstances, the funds may be unable to pursue their investment goals.
ILLIQUID SECURITIES.
Global Bond Fund may not invest more than 10% of its total assets in
restricted and other securities that are not readily marketable. Americas
Government Securities Fund may not invest more than 15% of its total assets in
illiquid securities, including no more than 10% of its total assets in
restricted securities. Illiquid securities are generally securities that cannot
be sold within seven days in the normal course of business at approximately the
amount at which the fund has valued them. Restricted securities are generally
securities that are subject to restrictions on their transfer.
CONCENTRATION.
Both Funds may invest in any industry although neither will concentrate
(invest more than 25% of its total assets) in any one industry.
DIVERSIFICATION.
Both funds are non-diversified funds, which means they may invest a
greater portion of their assets in the securities of one issuer and, therefore,
a smaller number of individual issuers than a diversified fund. Economic,
business, political or other changes can affect all securities of a similar
type. Because the funds are non-diversified, they may be more sensitive to
these changes. Although both funds may each invest a greater portion of their
assets in the securities of one issuer than a diversified fund, they do intend
to meet the diversification requirements of the Internal Revenue Code.
HOW DO THE FUNDAMENTAL INVESTMENT RESTRICTIONS OF THE FUNDS DIFFER?
As described below, the funds have adopted similar restrictions as
fundamental policies, which may not be changed without the approval of a
majority of the outstanding voting securities of the fund.
Each fund may not invest in real estate or mortgages on real estate
(although each fund may invest in marketable securities secured by real estate
or interests therein); invest in other open-end investment companies (except in
connection with a merger, consolidation, acquisition or reorganization); invest
in interests (other than publicly issued debentures or equity stock interests)
in oil, gas or other mineral exploration or development programs; or purchase
or sell commodity contracts (except futures contracts as described in the
respective fund's prospectus). As a non-fundamental restriction, Americas
Government Securities Fund may not purchase or sell real estate limited
partnership interests or interests in oil, gas and mineral leases (other than
securities of companies that invest in or sponsor such programs).
Each fund may not invest more than 25% of the value of its total assets in
one particular industry. In the case of Americas Government Securities Fund, if
the fund receives from an issuer of securities held by the fund subscription
rights to purchase securities of that issuer, and if the fund exercises such
subscription rights at a time when the fund's portfolio holdings of securities
of that issuer would
17
otherwise exceed this limit, it will not constitute a violation if, prior to
receipt of securities upon exercise of such rights, and after announcement of
such rights, the fund has sold at least as many securities of the same class
and value as it would receive on exercise of such rights.
Neither fund may act as an underwriter; issue senior securities; or
purchase on margin or sell short, except that the funds may make margin
payments in connection with futures, options and currency transactions.
Both funds are generally prohibited from making loans. Each fund, however,
may purchase a portion of an issue of publicly distributed bonds, debentures,
notes, and other evidences of indebtedness, and in the case of Americas
Government Securities Fund, may lend its portfolio securities, and enter into
repurchase agreements.
Both funds are generally prohibited from borrowing money, except that
Global Bond Fund may borrow money in amounts up to 30% of the value of its net
assets and the Americas Government Securities Fund may borrow money from banks
in amounts not exceeding 331/3% of the value of its total assets (including the
amount borrowed).
Neither fund may pledge, mortgage or hypothecate its assets for any
purpose, except that the fund may do so to secure permitted bank borrowings. In
the case of Global Bond Fund, such pledges, mortgages and hypothecations may
not exceed 15% of its total assets and arrangements with respect to margin for
futures contracts are not deemed to be a pledge of assets. In the case of
Americas Government Securities Fund, this restriction does not prohibit escrow,
collateral or margin arrangements in connection with its use of options,
futures contracts and options on futures contracts.
Neither fund may participate on a joint or a joint and several basis in
any trading account in securities.
Global Bond Fund may not invest more than 15% of its total assets in
securities of foreign companies that are not listed on a recognized U.S. or
foreign securities exchange, including no more than 5% of its total assets in
restricted securities and no more than 10% of its total assets in restricted
securities and other securities (including repurchase agreements having more
than seven days remaining to maturity) which are not restricted but which are
not readily marketable (i.e., trading in the security is suspended or, in the
case of unlisted securities, market makers do not exist or will not entertain
bids or offers).
The following policies are fundamental for Global Bond Fund, but are only
non-fundamental for the Americas Government Securities Fund. Global Bond Fund
may not: purchase or retain securities of any issuer in which officers or
trustees of the fund or its investment manager, individually own more than 1/2
of 1% of the securities of such issuer, in the aggregate own more than 5% of
such issuer's securities; invest in securities for the purpose of exercising
control of management of the issuer; invest more than 5% of the value of its
total assets in securities of any issuer that has been in continuous operation
for less than three years; and invest more than 5% of its net assets in
warrants whether or not listed on the New York Stock Exchange (NYSE) or
American Stock Exchange, and more than 2% of its net assets in warrants that
are not listed on those exchanges. Warrants acquired in units or attached to
securities are not included in this restriction.
In addition, Americas Government Securities Fund, as a matter of
non-fundamental policy, also may not: purchase more than 10% of a company's
outstanding voting securities; or invest more than 15% of the fund's total
assets in securities that are not readily marketable (including repurchase
agreements maturing in more than seven days and over-the-counter options
purchased by the fund), including no more than 10% of its total assets in
restricted securities. Rule 144A securities are not subject to the 10%
limitation on restricted securities, although the fund will limit its
investment in all restricted securities, including Rule 144A securities, to 15%
of its total assets.
18
WHAT ARE THE RISK FACTORS ASSOCIATED WITH INVESTMENTS IN THE FUNDS?
Like all investments, an investment in either of the funds involves risk.
There is no assurance that the funds will meet their investment goals. The
achievement of the funds' goals depend upon market conditions, generally, and
on the investment manager's analytical and portfolio management skills. The
risks of the funds are basically the same as those of other investments in
foreign fixed-income securities of similar quality.
CREDIT RISK.
The funds' investments in debt securities involve credit risk. Credit risk
is the possibility that the issuer of a debt security or the borrower on an
underlying mortgage or debt obligation will be unable to make interest payments
or repay principal. Changes in an issuer's or borrower's financial strength or
in a security's credit rating may affect its value. Even securities supported
by credit enhancements have the credit risk of the entity providing the credit
support. Credit support provided by a foreign entity may be less certain
because of the possibility of adverse foreign economic, political or legal
developments that may affect the ability of that foreign entity to meet its
obligations. Changes in the credit quality of the credit provider could affect
the value of the security and a fund's share price.
Non-investment grade securities, sometimes called "junk bonds," generally
have more credit risk than higher-rated securities. The risk of default or
price changes due to changes in the issuer's credit quality is greater. Issuers
of lower-rated securities are typically in weaker financial health than issuers
of higher-rated securities, and their ability to make interest payments or
repay principal is less certain. These issuers are also more likely to
encounter financial difficulties and to be materially affected by these
difficulties when they do encounter them. The market price of lower-rated
securities may fluctuate more than higher-rated securities and may decline
significantly in periods of economic difficulty. Lower-rated securities may
also be less liquid than higher-rated securities.
Americas Government Securities Fund may invest to an unlisted extent in
non-investment grade securities, while Global Bond Fund limits its investments
in non-investment grade securities to 25% of total assets.
INTEREST RATE RISK.
When interest rates rise, debt securities prices fall. The opposite is
also true: debt security prices rise when interest rates fall. In general,
securities with longer maturities are more sensitive to these price changes.
INCOME RISK.
Since a fund can only distribute what it earns, a fund's distributions to
its shareholders may decline when interest rates fall.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES RISK.
Both funds are subject to risks particular to mortgage-backed and/or
asset-backed securities. Mortgage-backed securities differ from conventional
debt securities because principal is paid back over the life of the security
rather than at maturity. As a result, the holder of the mortgage securities may
receive unscheduled principal payments representing prepayments on the
underlying mortgages. When the holder reinvests the payments and any
unscheduled prepayments of principal it receives, it may receive a rate of
interest that is lower than the rate on the existing mortgage securities. A
reduction in the anticipated rate of principal prepayments, especially during
periods of rising interest rates, may increase the effective maturity of
mortgage-backed securities, making them more susceptible than other debt
securities to a decline in market value when interest rates rise. This could
increase the volatility of each fund's returns and share price depending on
their level of investment in these securities.
19
Stripped mortgage-backed securities have greater market volatility than
other types of mortgage securities in which the funds invest. The value of
these securities is extremely sensitive to changes in interest rates and the
rate of principal payments and prepayments on the underlying mortgage assets.
Issuers of asset-backed securities may have limited ability to enforce the
security interest in the underlying assets and credit enhancements provided to
support these securities, if any, may be inadequate to protect investors in the
event of a default. Like mortgage-backed securities, asset-backed securities
are also subject to prepayment risk. To varying degrees, the funds are subject
to these risks.
FOREIGN SECURITIES RISK.
Securities of companies and governments located outside the U.S. may
involve risks that can increase the potential for losses in the funds.
Investments in Depositary Receipts also involve some or all of the following
risks:
COUNTRY RISK. General securities market movements in any country where a
fund has investments are likely to affect the value of the securities the fund
owns that trade in that country. These movements will affect the fund's share
price and fund performance.
The political, economic and social structures of some countries the funds
invest in may be less stable and more volatile than those in the U.S. The risks
of investing in these countries include the possibility of the imposition of
exchange controls, currency devaluations, foreign ownership limitations,
expropriation, restrictions on removal of currency or other assets,
nationalization of assets, punitive taxes and certain custody and settlement
risks.
Each fund's investments in developing or emerging markets are subject to
all of the risks of foreign investing generally, and have additional heightened
risks due to a lack of established legal, business and social frameworks to
support securities markets. Foreign securities markets, including emerging
markets, may have substantially lower trading volumes than U.S. markets,
resulting in less liquidity and more volatility than experienced in the U.S.
Volatility in these markets can be disconcerting and declines in excess of 50%
are not unusual.
While both funds may invest in securities of Latin American issuers,
Americas Government Securities Fund generally invests a higher percentage of
its assets in such securities. Global Bond Fund, on the other hand, generally
invests a higher percentage of its assets in more developed countries,
including the U.S., Canada, Australia, New Zealand, and Western European
countries. Investing in Latin American issuers involves a high degree of risk
and special considerations not typically associated with investing in the U.S.
and other more developed securities markets, and should be considered highly
speculative. Latin American countries may be subject to a greater degree of
economic, political, and social instability than is the case in the U.S. or
Western European countries.
COMPANY RISK. Foreign companies are not subject to the same disclosure,
accounting, auditing and financial reporting standards and practices as U.S.
companies and their securities may not be as liquid as securities of similar
U.S. companies. Foreign stock exchanges, trading systems, brokers and companies
generally have less government supervision and regulation than in the U.S. A
fund may have greater difficulty voting proxies, exercising shareholder rights,
pursuing legal remedies and obtaining judgments with respect to foreign
investments in foreign courts than with respect to U.S. companies in U.S.
courts.
CURRENCY RISK.
To the extent a fund's investments are denominated in foreign currencies,
changes in foreign currency exchange rates will affect the value of what the
fund owns and the fund's share price.
20
Generally, when the U.S. dollar rises in value against a foreign currency, an
investment in that country loses value because that currency is worth fewer
U.S. dollars. Devaluation of currency by a country's government or banking
authority also has a significant impact on the value of any securities
denominated in that currency.
EURO. On January 1, 1999, the European Monetary Union (EMU) introduced a
new single currency, the euro, which will replace the national currency for
participating member countries.
Because the change to a single currency is new and untested, it is not
possible to predict the impact of the euro on the business or financial
condition of European issuers that a fund may hold in its portfolio, and their
impact on fund performance. To the extent a fund holds non-U.S. dollar (euro or
other) denominated securities, it will still be exposed to currency risk due to
fluctuations in those currencies versus the U.S. dollar.
STOCK RISK.
While stocks have historically outperformed other asset classes over the
long term, they tend to go up and down more dramatically over the shorter term.
The price movements may result from factors affecting individual companies,
industries or securities markets as a whole.
DERIVATIVE SECURITIES RISK.
Option transactions, foreign currency exchange transactions, futures
contracts, swap agreements and CMOs are considered derivative investments since
their value depends on the value of the underlying asset to be purchased or
sold. A fund's investment in derivatives may involve a small investment
relative to the amount of risk assumed. To the extent a fund enters into any of
these transactions, their success will depend upon the manager's ability to
predict market movements.
ILLIQUID SECURITIES RISK.
As a fundamental policy, each fund may invest up to 10%, in the case of
Global Bond Fund, and 15%, in the case of Americas Government Securities Fund,
of its total assets in securities with a limited trading market. Investments by
a fund in illiquid securities involve the possibility that the securities
cannot be readily sold or can only be resold at a price significantly lower
than their value, which may have a negative effect on the value of the fund's
shares.
NON-DIVERSIFICATION RISK.
Both funds are non-diversified funds. To the extent that a fund's
investments are not diversified, the fund may be more sensitive to economic,
political, business or regulatory developments affecting a single issuer or
industry. This, in turn, may result in greater fluctuation in the value of the
fund's share price.
YEAR 2000 RISK.
When evaluating current and potential portfolio positions, Year 2000 is
one of the factors each fund's manager considers.
The manager will rely upon public filings and other statements made by
companies about their Year 2000 readiness. Issuers in countries outside the
U.S. may not be required to make the same level of disclosure about Year 2000
readiness as is required in the U.S. The manager, of course, cannot audit each
company and its major suppliers to verify their Year 2000 readiness.
If a company in which a fund is invested is adversely affected by Year
2000 problems, it is likely that the price of its security will also be
adversely affected. A decrease in the value of one or more of a fund's
portfolio holdings will have a similar impact on the price of the fund's shares
and the fund's performance.
21
Each fund's business operations depend on a worldwide network of computer
systems that contain date fields, including securities trading systems,
securities transfer agent operations and stock market links. Many of the
systems currently use a two digit date field to represent the date, and unless
these systems are changed or modified, they may not be able to distinguish the
Year 1900 from the Year 2000 (commonly referred to as the Year 2000 problem).
In addition, the fact that the Year 2000 is a leap year may create difficulties
for some systems.
When the Year 2000 arrives, a fund's operations could be adversely
affected if the computer systems used by the manager, its service providers and
other third parties it does business with are not Year 2000 ready. For example,
the fund's portfolio and operational areas could be impacted, including
securities trade processing, interest and dividend payments, securities
pricing, shareholder account services, reporting, custody functions and others.
The fund could experience difficulties in effecting transactions if any of its
foreign subcustodians, or if foreign broker-dealers or foreign markets are not
ready for Year 2000.
The funds' manager and its affiliated service providers are making a
concerted effort to take steps they believe are reasonably designed to address
their Year 2000 problems. Of course, the funds' ability to reduce the effects
of the Year 2000 problem is also very much dependent upon the efforts of third
parties over which a fund and its manager may have no control.
VOTING INFORMATION
HOW MANY VOTES ARE NECESSARY TO APPROVE THE AGREEMENT AND PLAN?
A "majority of outstanding voting securities" of Americas Government
Securities Fund is necessary to approve the Agreement and Plan, which means the
vote of: (i) 67% or more of the voting securities of the Fund present at the
meeting, if the holders of more than 50% of the outstanding voting securities
are present or represented by proxy, or (ii) more than 50% of the outstanding
voting securities, whichever is less. Each shareholder will be entitled to one
vote for each full share, and a fractional vote for each fractional share of
Americas Government Securities Fund held at the close of business on August 3,
1999 (the "Record Date"). If sufficient votes to approve the Agreement and Plan
are not received by the date of the Meeting, the Meeting may be adjourned to
permit further solicitations of proxies. The holders of a majority of shares
entitled to vote at the Meeting and present in person or by proxy (whether or
not sufficient to constitute a quorum) may adjourn the Meeting.
Under relevant state law, and Income Trust's governing documents,
abstentions and broker non-votes will be included for purposes of determining
whether a quorum is present at the Meeting, but will be treated as votes not
cast and, therefore, will not be counted for purposes of determining whether
the matters to be voted upon at the Meeting have been approved, and will have
the same effect as a vote against the Agreement and Plan.
HOW DO I ENSURE MY VOTE IS ACCURATELY RECORDED?
You can vote in any one of three ways:
o By mail, with the enclosed proxy card.
o In person at the Meeting.
o Through Shareholder Communications Corporation ("SCC"), a proxy
solicitor, by calling toll-free 1-800/723-8607.
A proxy card is, in essence, a ballot. IF YOU SIMPLY SIGN AND DATE THE
PROXY BUT GIVE NO VOTING INSTRUCTIONS, YOUR SHARES WILL BE VOTED IN FAVOR OF
THE AGREEMENT AND PLAN AND IN ACCORDANCE WITH THE VIEWS OF MANAGEMENT UPON ANY
UNEXPECTED MATTERS THAT COME BEFORE THE MEETING OR ADJOURNMENT(S) OF THE
MEETING.
22
CAN I REVOKE MY PROXY?
You may revoke your proxy at any time before it is voted by sending a
written notice to Investment Trust expressly revoking your proxy, by signing
and forwarding to Investment Trust a later-dated proxy, or by attending the
Meeting and voting in person.
WHAT OTHER MATTERS WILL BE VOTED UPON AT THE MEETING?
The Board of Trustees of Investment Trust does not intend to bring any
matters before the Meeting other than those described in this Prospectus/Proxy
Statement. It is not aware of any other matters to be brought before the
Meeting by others. If any other matter legally comes before the Meeting,
proxies for which discretion has been granted will be voted in accordance with
the views of management.
WHO IS ENTITLED TO VOTE?
Shareholders of record of Americas Government Securities Fund on the
Record Date will be entitled to vote at the meeting. On the Record Date, there
were 1,996,112.403 outstanding shares of Americas Government Securities Fund.
WHAT OTHER SOLICITATIONS WILL BE MADE?
Americas Government Securities Fund will request broker-dealer firms,
custodians, nominees and fiduciaries to forward proxy material to the
beneficial owners of the shares of record. Americas Government Securities Fund
may reimburse broker-dealer firms, custodians, and nominees and fiduciaries for
their reasonable expenses incurred in connection with such proxy solicitation.
In addition to solicitations by mail, officers and employees of Investment
Counsel, without extra pay, may conduct additional solicitations by telephone,
personal interviews and other means. Investment Trust, on behalf of Americas
Government Securities Fund, has engaged SCC to solicit proxies from brokers,
banks, other institutional holders and individual shareholders for an
approximate fee, including out-of-pocket expenses ranging between $5,017 and
$6,076. The costs of any such additional solicitation and of any adjourned
session will be shared one-quarter by Americas Government Securities Fund, one-
quarter by Global Bond Fund, and one-half by Investment Counsel.
ARE THERE DISSENTERS' RIGHTS?
Shareholders of Americas Government Securities Fund will not be entitled
to any "dissenters' rights" as the proposed Transaction involves two open-end
investment companies registered under the 1940 Act (commonly called mutual
funds). Although no dissenters' rights may be available, you have the right to
redeem your shares at Net Asset Value until the closing date. After the closing
date, you may redeem your Global Bond Fund shares or exchange them for shares
of certain other funds in the Franklin Templeton Funds, subject to the terms in
the prospectus of the respective fund.
INFORMATION ABOUT GLOBAL BOND FUND
Information about Global Bond Fund is included in the Global Bond Fund
Prospectus, which is enclosed with and considered a part of this
Prospectus/Proxy Statement. Additional information about Global Bond Fund is
included in its SAI dated January 1, 1999, as supplemented April 1, 1999, which
has been filed with the SEC and is incorporated by reference into the SAI
relating to this Prospectus/ Proxy Statement. You may request a free copy of
Global Bond Fund's SAI and other information by calling
1-800/DIAL-BEN(R)(1-800/342-5236) or by writing to the Global Bond Fund at 100
Fountain Parkway, P.O. Box 33030, St. Petersburg, FL 33733-8030. The Global Bond
Fund's Annual Report to Shareholders for the fiscal year ended August 31, 1998,
is enclosed with and considered a part of this
23
Prospectus/Proxy Statement and its SemiAnnual Report to Shareholders for the
period ended February 28, 1999 is included in the SAI related to this
Prospectus/Proxy Statement.
The Global Bond Fund files proxy materials, reports and other information
with the SEC in accordance with the informational requirements of the
Securities Exchange Act of 1934 and the 1940 Act. These materials can be
inspected and copied at: the SEC's Public Reference Room at 450 Fifth Street
N.W., Washington, D.C. 20549, and at the Regional Offices of the SEC located in
New York City at 7 World Trade Center, Suite 1300, New York, NY 10048 and in
Chicago at 500 West Madison Street, Suite 1400, Chicago, IL 60661. Also, copies
of such material can be obtained from the SEC's Public Reference Section,
Washington, DC 20549-6009, at prescribed rates, or from the SEC's internet
address at http://www.sec.gov.
INFORMATION ABOUT AMERICAS GOVERNMENT SECURITIES FUND
Information about Americas Government Securities Fund is included in the
current Americas Government Securities Fund Prospectus, as well as the Americas
Government Securities Fund's SAI dated August 1, 1999, and in the Americas
Government Securities Fund's Annual Report to Shareholders dated March 31, 1999.
These documents have been filed with the SEC and the Americas Government
Securities Fund Prospectus and Annual Report are incorporated by reference
herein. You may request free copies of these documents and other information
relating to Americas Government Securities Fund by calling 1-800/DIAL BEN (R)
(1-800/342-5236) or by writing to 100 Fountain Parkway, P.O. Box 33030, St.
Petersburg, FL 33733-8030. Reports and other information filed by Americas
Government Securities Fund can be inspected and copied at: the SEC's Public
Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549, and at the
Regional Offices of the SEC located in New York City at 7 World Trade Center,
Suite 1300, New York, NY 10048 and in Chicago at 500 West Madison Street, Suite
1400, Chicago, IL 60661. Also, copies of such material can be obtained from the
SEC's Public Reference Section, Washington, DC 20549-6009, at prescribed rates,
or from the SEC's internet address at http://www.sec.gov.
PRINCIPAL HOLDERS OF SHARES
As of the Record Date, the officers and Trustees of the Investment Trust,
as a group, owned less than 1% of the outstanding voting shares of Americas
Government Securities Fund. In addition, as of the Record Date, the officers
and Trustees of Income Trust, as a group, owned less than 1% of the outstanding
voting shares of Class A, Class C or Advisor Class of Global Bond Fund. Except
as listed below, as of the Record Date, no other person owned (beneficially or
of record) 5% or more of the outstanding shares of either Americas Government
Securities Fund or Global Bond Fund.
<TABLE>
<CAPTION>
NAME AND ADDRESS FUND PERCENTAGE (%)
- ------------------------------------------ --------------------- ---------------
<S> <C> <C>
Templeton Global Investors, Inc. Americas Government 15.04
c/o Corporate Accounting Securities Fund Securities Fund
555 Airport Blvd., 4th Floor
Burlingame, CA 94010
</TABLE>
24
GLOSSARY OF USEFUL TERMS AND DEFINITIONS
1940 ACT -- Investment Company Act of 1940, as amended
DISTRIBUTORS -- Franklin/Templeton Distributors, Inc., 777 Mariners Island
Boulevard, San Mateo, CA 94404, the principal underwriter for both funds
FRANKLIN TEMPLETON FUNDS -- The U.S. registered mutual funds in the Franklin
Group of Funds (R) and the Templeton Group of Funds, except Franklin Templeton
Variable Insurance Products Trust, Templeton Capital Accumulator Fund, Inc., 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 funds' administrator
INVESTMENT COUNSEL -- Templeton Investment Counsel, Inc., located at 500 East
Broward Boulevard, Fort Lauderdale, FL 33394-3091, the funds' investment
manager.
INVESTOR SERVICES -- Franklin/Templeton Investor Services, Inc., 777 Mariners
Island Boulevard, San Mateo, CA 94404, the shareholder servicing and transfer
agent to the funds
MARKET TIMERS -- Market Timers generally include market timing or asset
allocation services, accounts administered so as to buy, sell or exchange
shares based on predetermined market indicators, or any person or group whose
transactions seem to follow a timing pattern or whose transactions include
frequent or large exchanges
MOODY'S -- Moody's Investors Services, Inc.
NASD -- National Association of Securities Dealers, Inc.
NET ASSET VALUE (NAV) -- The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by
the number of shares outstanding
RESOURCES -- Franklin Resources, Inc.
SAI -- Statement of Additional Information
SEC -- U.S. Securities and Exchange Commission
SECURITIES DEALER -- A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the funds. This reference is for convenience only and does not
indicate a legal conclusion of capacity
S&P -- Standard & Poor's Corporation
U.S. -- United States
25
EXHIBITS TO COMBINED PROSPECTUS
AND PROXY STATEMENT
<TABLE>
<CAPTION>
EXHIBIT
- ---------
<S> <C>
A Agreement and Plan of Reorganization between Templeton Global Investment Trust on
behalf of Templeton Americas Government Securities Fund and Templeton Income Trust
on behalf of Templeton Global Bond Fund (attached)
B Prospectus of Templeton Global Bond Fund-Class A & C, dated January 1, 1999, as
supplemented March 23, 1999 (enclosed)
C Annual Report to Shareholders of Templeton Global Bond Fund, dated August 31, 1998
(enclosed)
</TABLE>
26
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement and Plan"), made as
of this 2nd day of August, 1999, by and between Templeton Income Trust ("Income
Trust"), a business trust created under the laws of the Commonwealth of
Massachusetts in 1986, with its principal place of business at 500 East Broward
Boulevard, Fort Lauderdale, Florida 33394, on behalf of Templeton Global Bond
Fund ("Bond Fund"), a series of shares of Income Trust, and Templeton Global
Investment Trust ("Investment Trust"), a business trust created under the laws
of the State of Delaware in 1993, with its principal place of business at 500
East Broward Boulevard, Fort Lauderdale, Florida 33394, on behalf of Templeton
Americas Government Securities Fund ("Government Fund"), a series of shares of
Investment Trust.
PLAN OF REORGANIZATION
The reorganization (hereinafter referred to as the "Plan of
Reorganization") will consist of (i) the acquisition by Income Trust, on behalf
of Bond Fund, of substantially all of the property, assets and goodwill of
Government Fund in exchange solely for shares of beneficial interest, par value
$0.01 per share, of Bond Fund - Class A ("Bond Fund Shares"); (ii) the
distribution of Bond Fund Shares to the shareholders of Government Fund
according to their respective interests; and (iii) the subsequent dissolution
of Government Fund as soon as practicable after the closing (as defined in
Section 3, hereinafter called the "Closing"), all upon and subject to the terms
and conditions of this Agreement and Plan hereinafter set forth.
AGREEMENT
In order to consummate the Plan of Reorganization and in consideration of
the promises and of the covenants and agreements hereinafter set forth, and
intending to be legally bound, the parties hereto covenant and agree as
follows:
1. SALE AND TRANSFER OF ASSETS, LIQUIDATION AND DISSOLUTION OF GOVERNMENT FUND.
(a) Subject to the terms and conditions of this Agreement and Plan, and
in reliance on the representations and warranties of Income Trust herein
contained, and in consideration of the delivery by Income Trust of the number
of its Bond Fund Shares hereinafter provided, Investment Trust, on behalf of
Government Fund, agrees that it will convey, transfer and deliver to Income
Trust, on behalf of Bond Fund, at the Closing all of Government Fund's then
existing assets, free and clear of all liens, encumbrances, and claims
whatsoever (other than shareholders' rights of redemption), except for cash,
bank deposits, or cash equivalent securities in an estimated amount necessary
to: (i) pay the costs and expenses of carrying out this Agreement and Plan
(including, but not limited to, fees of counsel and accountants, and expenses
of its liquidation and dissolution contemplated hereunder), which costs and
expenses shall be established on Government Fund's books as liability reserves;
(ii) discharge its unpaid liabilities on its books at the closing date (as
defined in Section 3, hereinafter called the "Closing Date"), including, but
not limited to, its income dividends and capital gains distributions, if any,
payable for the period prior to, and through, the Closing Date; and (iii) pay
such contingent liabilities as the Board of Trustees shall reasonably deem to
exist against Government Fund, if any, at the Closing Date, for which
contingent and other appropriate liabilities reserves shall be established on
Government Fund's books (hereinafter "Net Assets"). Government Fund shall also
retain any and all rights that it may have over and against any person that may
have accrued up to and including the close of business on the Closing Date.
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(b) Subject to the terms and conditions of this Agreement and Plan, and
in reliance on the representations and warranties of Investment Trust herein
contained, and in consideration of such sale, conveyance, transfer, and
delivery, Income Trust agrees at the Closing to deliver to Investment Trust the
number of Bond Fund Shares, determined by dividing the aggregate Net Assets of
Government Fund on the Closing Date by the net asset value per share of Bond
Fund Shares, as of 1:00 p.m. Pacific time on the Closing Date. All such values
shall be determined in the manner and as of the time set forth in Section 2
hereof.
(c) Immediately following the Closing, Government Fund shall dissolve and
distribute pro rata to its shareholders of record as of the close of business
on the Closing Date, Bond Fund Shares received by Government Fund pursuant to
this Section 1. Such liquidation and distribution shall be accomplished by the
establishment of accounts on the share records of Bond Fund of the type and in
the amounts due such shareholders based on their respective holdings as of the
close of business on the Closing Date. Fractional Bond Fund Shares shall be
carried to the third decimal place. As promptly as practicable after the
Closing, each holder of any outstanding certificate or certificates
representing shares of beneficial interest of Government Fund shall be entitled
to surrender the same to the transfer agent for Bond Fund in exchange for the
number of Bond Fund Shares into which the shares of Government Fund theretofore
represented by the certificate or certificates so surrendered shall have been
converted. Certificates for Bond Fund Shares shall not be issued, unless
specifically requested by the shareholders. Until so surrendered, each
outstanding certificate which, prior to the Closing, represented shares of
beneficial interest of Government Fund shall be deemed for all Bond Fund's
purposes to evidence ownership of the number of Bond Fund Shares into which the
shares of beneficial interest of Government Fund (which prior to the Closing
were represented thereby) have been converted.
2. VALUATION.
(a) The value of Government Fund's Net Assets to be acquired by Income
Trust, on behalf of Bond Fund, hereunder shall be computed as of 1:00 p.m.
Pacific time on the Closing Date using the valuation procedures set forth in
Government Fund's currently effective prospectus.
(b) The net asset value of a share of beneficial interest of Bond Fund
shall be determined to the nearest full cent as of 1:00 p.m. Pacific time on
the Closing Date using the valuation procedures set forth in Bond Fund's
currently effective prospectus.
(c) The net asset value of a share of beneficial interest of Government
Fund shall be determined to the fourth decimal place as of 1:00 p.m. Pacific
time on the Closing Date using the valuation procedures set forth in Government
Fund's currently effective prospectus.
3. CLOSING AND CLOSING DATE.
The Closing Date shall be October 21, 1999, or such later date as the
parties may mutually agree. The Closing shall take place at the principal
office of Income Trust at 2:00 p.m. Pacific time on the Closing Date.
Investment Trust shall have provided for delivery as of the Closing of those
Net Assets of Government Fund to be transferred to Bond Fund's Custodian, The
Chase Manhattan Bank, N.A., MetroTech Center, Brooklyn, New York 11245. Also,
Investment Trust shall deliver at the Closing a list of names and addresses of
the shareholders of record of Government Fund's shares and the number of shares
of beneficial interest owned by each such shareholder, indicating thereon which
such shares are represented by outstanding certificates and which by book-entry
accounts, all as of 1:00 p.m. Pacific time on the Closing Date, certified by
its transfer agent or by its President to the best of its or his knowledge and
belief. Income Trust shall issue and deliver a certificate or certificates
evidencing the shares of beneficial interest of Bond Fund to be delivered to
said transfer agent registered in such manner as Investment Trust may request,
or provide evidence satisfactory to Investment Trust that such Bond Fund Shares
have been registered in an account on the books of Bond Fund in such manner as
Investment Trust may request.
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4. REPRESENTATIONS AND WARRANTIES BY INVESTMENT TRUST.
Investment Trust represents and warrants to Income Trust that:
(a) Investment Trust is a business trust created under the laws of the
State of Delaware on December 21, 1993, and is validly existing and in good
standing under the laws of that state. Investment Trust is duly registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end, management investment company and all of Government Fund's shares
sold were sold pursuant to an effective registration statement filed under the
Securities Act of 1933, as amended (the "1933 Act"), except for those shares
sold pursuant to the private offering exemption for the purpose of raising the
required initial capital.
(b) Investment Trust is authorized to issue an unlimited number of shares
of beneficial interest, par value $0.01 per share, each outstanding share of
which is fully paid, non-assessable, freely transferable and has full voting
rights, and currently issues shares of five (5) series, including Government
Fund. Investment Trust is authorized to issue an unlimited number of shares of
beneficial interest of each series.
(c) The financial statements appearing in Government Fund's Annual Report
to Shareholders for the fiscal year ended March 31, 1999, audited by McGladrey
& Pullen LLP, copies of which have been delivered to Income Trust, fairly
present the financial position of Government Fund as of such date and the
results of its operations for the periods indicated in conformity with
generally accepted accounting principles applied on a consistent basis.
(d) The books and records of Government Fund made available to Income
Trust and/or its counsel accurately summarize the accounting data represented
and contain no material omissions with respect to the business and operations
of Government Fund.
(e) Investment Trust has the necessary power and authority to conduct
Government Fund's business as such business is now being conducted.
(f) Investment Trust is not a party to or obligated under any provision
of its Trust Instrument or By-laws, or any contract or any other commitment or
obligation, and is not subject to any order or decree that would be violated by
Investment Trust's execution of or performance under this Agreement and Plan.
(g) Investment Trust has elected to treat Government Fund as a regulated
investment company ("RIC") for federal income tax purposes under Part I of
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and
Government Fund has qualified as a RIC for each taxable year since its
inception, and will qualify as a RIC as of the Closing Date.
5. REPRESENTATIONS AND WARRANTIES BY INCOME TRUST.
Income Trust represents and warrants to Investment Trust that:
(a) Income Trust is a business trust created under the laws of the
Commonwealth of Massachusetts on June 16, 1986, and is validly existing and in
good standing under the laws of that commonwealth. Income Trust is duly
registered under the 1940 Act as an open-end, management investment company and
all of Income Fund's shares sold were sold pursuant to an effective
registration statement filed under the 1933 Act, except for those shares sold
pursuant to the private offering exemption for the purpose of raising the
required initial capital.
(b) Income Trust is authorized to issue an unlimited number of shares of
beneficial interest, par value $0.01 per share, each outstanding share of which
is fully paid, non-assessable, freely transferable and has full voting rights.
Bond Fund Shares to be issued pursuant to this Agreement and Plan will be fully
paid, non-assessable, freely transferable and have full voting rights.
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(c) At the Closing, Bond Fund Shares will be eligible for offering to the
public in those states of the United States and jurisdictions in which the
shares of Government Fund are presently eligible for offering to the public,
and there are a sufficient number of Bond Fund Shares registered under the 1933
Act to permit the transfers contemplated by this Agreement and Plan to be
consummated.
(d) The financial statements appearing in Bond Fund's Annual Report to
Shareholders for the fiscal year ended August 31, 1998, audited by McGladrey &
Pullen LLP, and Semi-Annual Report to Shareholders for the six month period
ended February 28, 1999, copies of which have been delivered to Investment
Trust, fairly present the financial position of Bond Fund as of such dates and
the results of its operations for the periods indicated in conformity with
generally accepted accounting principles applied on a consistent basis.
(e) Income Trust has the necessary power and authority to conduct Bond
Fund's business as such business is now being conducted.
(f) Income Trust is not a party to or obligated under any provision of
its Declaration of Trust, as amended, or By-laws, or any contract or any other
commitment or obligation, and is not subject to any order or decree, that would
be violated by Income Trust's execution of or performance under this Agreement
and Plan.
(g) Income Trust has elected to treat Bond Fund as a RIC for federal
income tax purposes under Part I of Subchapter M of the Code, and Bond Fund has
qualified as a RIC for each taxable year since its inception and will qualify
as a RIC as of the Closing Date.
6. REPRESENTATIONS AND WARRANTIES BY INVESTMENT TRUST AND INCOME TRUST.
Investment Trust and Income Trust each represents and warrants to the
other that:
(a) The statement of assets and liabilities to be furnished by it as of
1:00 p.m. Pacific time on the Closing Date for the purpose of determining the
number of Bond Fund Shares to be issued pursuant to Section 1 of this Agreement
and Plan will accurately reflect its Net Assets in the case of Government Fund
and its net assets in the case of Bond Fund, and outstanding shares of
beneficial interest, as of such date, in conformity with generally accepted
accounting principles applied on a consistent basis.
(b) At the Closing, it will have good and marketable title to all of the
securities and other assets shown on the statement of assets and liabilities
referred to in "(a)" above, free and clear of all liens or encumbrances of any
nature whatsoever, except such imperfections of title or encumbrances as do not
materially detract from the value or use of the assets subject thereto, or
materially affect title thereto.
(c) Except as disclosed in its currently effective prospectus, there is
no material suit, judicial action, or legal or administrative proceeding
pending or threatened against it.
(d) There are no known actual or proposed deficiency assessments with
respect to any taxes payable by it.
(e) The execution, delivery, and performance of this Agreement and Plan
have been duly authorized by all necessary action of its Board of Trustees and
this Agreement and Plan constitutes a valid and binding obligation enforceable
in accordance with its terms.
(f) It anticipates that consummation of this Agreement and Plan will not
cause Bond Fund, in the case of Income Trust, and Government Fund, in the case
of Investment Trust, to fail to conform to the requirements of Subchapter M of
the Code for federal income taxation as a RIC at the end of its fiscal year.
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(g) It has the necessary power and authority to conduct Bond Fund's
business, in the case of Income Trust, and Government Fund's business, in the
case of the Investment Trust, as such business is now being conducted.
7. COVENANTS OF INVESTMENT TRUST AND INCOME TRUST.
(a) Investment Trust, on behalf of Government Fund, and Income Trust, on
behalf of Bond Fund, each covenant to operate their respective businesses as
presently conducted between the date hereof and the Closing.
(b) Investment Trust undertakes that it will not acquire Bond Fund Shares
for the purpose of making distributions thereof to anyone other than Government
Fund's shareholders.
(c) Investment Trust undertakes that, if this Agreement and Plan is
consummated, it will dissolve Government Fund and rescind the establishment of
Government Fund as a series of Investment Trust.
(d) Investment Trust and Income Trust each agree that, by the Closing,
all of their federal and other tax returns and reports required by law to be
filed by Investment Trust, on behalf of Government Fund, or by Income Trust, on
behalf of Bond Fund, on or before such date shall have been filed, and all
Federal and other taxes shown as due on said returns shall have either been
paid or adequate liability reserves shall have been provided for the payment of
such taxes.
(e) At the Closing, Investment Trust will provide Income Trust with a
copy of the shareholder ledger accounts of Government Fund, certified by its
transfer agent or its President to the best of its or his knowledge and belief,
for all the shareholders of record of Government Fund's shares as of 1:00 p.m.
Pacific time on the Closing Date who are to become shareholders of Bond Fund as
a result of the transfer of assets that is the subject of this Agreement and
Plan.
(f) Investment Trust agrees to mail to each shareholder of record
entitled to vote at the meeting of Government Fund's shareholders at which
action on this Agreement and Plan is to be considered, in sufficient time to
comply with requirements as to notice thereof, a Combined Prospectus and Proxy
Statement that complies in all material respects with the applicable provisions
of Section 14(a) of the Securities Exchange Act of 1934, as amended, and
Section 20(a) of the 1940 Act, and the rules and regulations, respectively,
thereunder.
(g) Income Trust will file with the U.S. Securities and Exchange
Commission a registration statement on Form N-14 under the 1933 Act relating to
Bond Fund Shares issuable hereunder ("Registration Statement"), and will use
its best efforts to provide that the Registration Statement becomes effective
as promptly as practicable. At the time it becomes effective, the Registration
Statement will (i) comply in all material respects with the applicable
provisions of the 1933 Act, and the rules and regulations promulgated
thereunder; and (ii) not contain any untrue statement of material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading. At the time the Registration Statement
becomes effective, at the time of Government Fund's shareholders' meeting, and
at the Closing Date, the prospectus and statement of additional information
included in the Registration Statement will not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
8. CONDITIONS PRECEDENT TO BE FULFILLED BY INVESTMENT TRUST AND INCOME TRUST.
The obligations of Investment Trust and Income Trust to effectuate this
Agreement and Plan hereunder shall be subject to the following respective
conditions:
(a) That: (i) all the representations and warranties of the other party
contained herein shall be true and correct as of the Closing with the same
effect as though made as of and at such date;
A-5
(ii) the other party shall have performed all obligations required by this
Agreement and Plan to be performed by it prior to the Closing; and (iii) the
other party shall have delivered to such party a certificate signed by the
President and by the Secretary or equivalent officer to the foregoing effect.
(b) That each party shall have delivered to the other party a copy of the
resolutions approving this Agreement and Plan adopted by its Board of Trustees,
certified by its Secretary or equivalent officer.
(c) That the U.S. Securities and Exchange Commission shall not have
issued an unfavorable management report under Section 25(b) of the 1940 Act or
instituted or threatened to institute any proceeding seeking to enjoin
consummation of the Plan of Reorganization under Section 25(c) of the 1940 Act.
And, further, no other legal, administrative or other proceeding shall have
been instituted or threatened that would materially affect the financial
condition of either party or would prohibit the transactions contemplated
hereby.
(d) That this Agreement and Plan and the Plan of Reorganization
contemplated hereby shall have been adopted and approved by the appropriate
action of the shareholders of Government Fund at an annual or special meeting
or any adjournment thereof.
(e) That each party shall have declared a distribution or distributions
prior to the Closing Date that, together with all previous distributions, shall
have the effect of distributing to its shareholders (i) all of its net
investment income and all of its net realized capital gains, if any, for the
period from the close of its last fiscal year to 1:00 p.m. Pacific time on the
Closing Date; and (ii) any undistributed net investment income and net realized
capital gains from any period to the extent not otherwise declared for
distribution.
(f) That there shall be delivered to Investment Trust and Income Trust an
opinion from Messrs. Stradley Ronon Stevens & Young, LLP, counsel to Investment
Trust and Income Trust, to the effect that, provided the acquisition
contemplated hereby is carried out in accordance with this Agreement and Plan
and based upon certificates of the officers of Investment Trust and Income
Trust with regard to matters of fact:
(1) The acquisition by Bond Fund of substantially all the assets of
Government Fund as provided for herein in exchange for Bond Fund Shares will
qualify as a reorganization within the meaning of Section 368(a)(1)(C) of the
Code, and Government Fund and Bond Fund will each be a party to the respective
reorganization within the meaning of Section 368(b) of the Code;
(2) No gain or loss will be recognized by Government Fund upon the
transfer of substantially all of its assets to Bond Fund in exchange solely for
voting shares of Bond Fund (Code Sections 361(a) and 357(a)). No opinion,
however, will be expressed as to whether any accrued market discount will be
required to be recognized as ordinary income pursuant to Section 1276 of the
Code;
(3) No gain or loss will be recognized by Bond Fund upon the receipt
of substantially all of the assets of Government Fund in exchange solely for
voting shares of Bond Fund (Code Section 1032(a));
(4) The basis of the assets of Government Fund received by Bond Fund
will be the same as the basis of such assets to Government Fund immediately
prior to the exchange (Code Section 362(b));
(5) The holding period of the assets of Government Fund received by
Bond Fund will include the period during which such assets were held by
Government Fund (Code Section 1223(2));
(6) No gain or loss will be recognized to the shareholders of
Government Fund upon the exchange of their shares in Government Fund for voting
shares of Bond Fund (Code Section 354(a));
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(7) The basis of Bond Fund Shares received by Government Fund's
shareholders shall be the same as the basis of the shares of Government Fund
exchanged therefor (Code Section 358(a)(1));
(8) The holding period of Bond Fund Shares received by Government
Fund's shareholders (including fractional shares to which they may be entitled)
will include the holding period of Government Fund's shares surrendered in
exchange therefor, provided that Government Fund's shares were held as a
capital asset on the date of the exchange (Code Section 1223(1)); and
(9) Bond Fund will succeed to and take into account as of the date of
the proposed transfer the items of Government Fund described in Section 381(c)
of the Code (as defined in Section 1.381(b)-1(b) of the Income Tax
Regulations), subject to the conditions and limitations specified in Sections
381(b) and (c), 382, 383 and 384 of the Code and the Income Tax Regulations
thereunder.
(g) That Income Trust shall have received an opinion in form and
substance satisfactory to it from Messrs. Stradley Ronon Stevens & Young, LLP,
counsel to Investment Trust, to the effect that, subject in all respects to the
effects of bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and other laws now or hereafter affecting generally the enforcement
of creditors' rights:
(1) Investment Trust was created as a business trust under the laws of
the State of Delaware on December 21, 1993, and is a validly existing business
trust and in good standing under the laws of that state;
(2) Investment Trust is authorized to issue an unlimited number of
shares of beneficial interest of Government Fund, par value $0.01 per share.
Assuming that the initial shares of beneficial interest were issued in
accordance with the 1940 Act and the Trust Instrument and By-laws of Investment
Trust, and that all other outstanding shares of Government Fund were sold,
issued and paid for in accordance with the terms of Government Fund's
prospectus in effect at the time of such sales, each such outstanding share is
fully paid, non-assessable, freely transferable and has full voting rights;
(3) Investment Trust is an open-end investment company of the
management type registered as such under the 1940 Act;
(4) Except as disclosed in Government Fund's currently effective
prospectus, such counsel does not know of any material suit, action, or legal
or administrative proceeding pending or threatened against Investment Trust,
the unfavorable outcome of which would materially and adversely affect
Investment Trust or Government Fund;
(5) All actions required to be taken by Investment Trust to authorize
this Agreement and Plan and to effect the Plan of Reorganization contemplated
hereby have been duly authorized by all necessary action on the part of
Investment Trust; and
(6) Neither the execution, delivery, nor performance of this Agreement
and Plan by Investment Trust violates any provision of its Trust Instrument or
By-laws, or the provisions of any agreement or other instrument known to such
counsel to which Investment Trust is a party or by which Investment Trust, on
behalf of Government Fund, is otherwise bound; this Agreement and Plan is the
legal, valid and binding obligation of Investment Trust and Government Fund and
is enforceable against Investment Trust and/or Government Fund in accordance
with its terms.
In giving the opinions set forth above, this counsel may state that it is
relying on certificates of the officers of Investment Trust with regard to
matters of fact, and certain certifications and written statements of
governmental officials with respect to the good standing of Investment Trust.
(h) That Investment Trust shall have received an opinion in form and
substance satisfactory to it from Messrs. Stradley Ronon Stevens & Young, LLP,
counsel to Income Trust, to the effect that,
A-7
subject in all respects to the effects of bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other laws now or
hereafter affecting generally the enforcement of creditors' rights:
(1) Income Trust was created as a business trust under the laws of the
Commonwealth of Massachusetts on June 16, 1986, and is a validly existing
business trust and in good standing under the laws of that commonwealth;
(2) Income Trust is authorized to issue an unlimited number of shares
of beneficial interest of Bond Fund, par value $0.01 per share. Assuming that
the initial shares of beneficial interest of Bond Fund were issued in
accordance with the 1940 Act, and the Declaration of Trust, as amended, and
By-laws of Income Trust, and that all other outstanding shares of Bond Fund
were sold, issued and paid for in accordance with the terms of Bond Fund's
prospectus in effect at the time of such sales, each such outstanding share of
Bond Fund is fully paid, non-assessable, freely transferable and has full
voting rights;
(3) Income Trust is an open-end investment company of the management
type registered as such under the 1940 Act;
(4) Except as disclosed in Bond Fund's currently effective prospectus,
such counsel does not know of any material suit, action, or legal or
administrative proceeding pending or threatened against Income Trust, the
unfavorable outcome of which would materially and adversely affect Income Trust
or Bond Fund;
(5) Bond Fund Shares to be issued pursuant to the terms of this
Agreement and Plan have been duly authorized and, when issued and delivered as
provided in this Agreement and Plan, will have been validly issued and fully
paid and will be non-assessable by Income Trust;
(6) All actions required to be taken by Income Trust to authorize this
Agreement and Plan and to effect the Plan of Reorganization contemplated hereby
have been duly authorized by all necessary action on the part of Income Trust;
(7) Neither the execution, delivery, nor performance of this Agreement
and Plan by Income Trust violates any provision of its Declaration of Trust, as
amended, or By-laws, or the provisions of any agreement or other instrument
known to such counsel to which Income Trust is a party or by which Income
Trust, on behalf of Bond Fund, is otherwise bound; this Agreement and Plan is
the legal, valid and binding obligation of Income Trust and is enforceable
against Income Trust and/or Bond Fund in accordance with its terms; and
(8) The registration statement of Income Trust, of which the
prospectus, dated January 1, 1999, as amended March 23, 1999, of Bond Fund is a
part (the "Prospectus"), is, at the time of the signing of this Agreement and
Plan, effective under the 1933 Act, and, to the best knowledge of such counsel,
no stop order suspending the effectiveness of such registration statement has
been issued, and no proceedings for such purpose have been instituted or are
pending before or threatened by the U.S. Securities and Exchange Commission
under the 1933 Act, and nothing has come to counsel's attention that causes it
to believe that, at the time the Prospectus became effective, or at the time of
the signing of this Agreement and Plan, or at the Closing, such Prospectus
(except for the financial statements and other financial and statistical data
included therein, as to which counsel need not express an opinion), contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and such counsel knows of no legal or government proceedings
required to be described in the Prospectus, or of any contract or document of a
character required to be described in the Prospectus that is not described as
required.
In giving the opinions set forth above, this counsel may state that it is
relying on certificates of the officers of Income Trust with regard to matters
of fact, and certain certifications and written statements of governmental
officials with respect to the good standing of Income Trust.
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(i) That Investment Trust shall have received a certificate from the
President and Secretary of Income Trust to the effect that the statements
contained in Bond Fund's Prospectus, at the time the Prospectus became
effective, at the date of the signing of this Agreement and Plan, and at the
Closing, did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
(j) That Income Trust's Registration Statement with respect to Bond Fund
Shares to be delivered to Government Fund's shareholders in accordance with
this Agreement and Plan shall have become effective, and no stop order
suspending the effectiveness of the Registration Statement or any amendment or
supplement thereto, shall have been issued prior to the Closing Date or shall
be in effect at Closing, and no proceedings for the issuance of such an order
shall be pending or threatened on that date.
(k) That Bond Fund Shares to be delivered hereunder shall be eligible for
sale by Income Trust with each state commission or agency with which such
eligibility is required in order to permit Bond Fund Shares lawfully to be
delivered to each Government Fund shareholder.
(l) That, at the Closing, Investment Trust, on behalf of Government Fund,
transfers to Income Trust aggregate Net Assets of Government Fund comprising at
least 90% in fair market value of the total net assets and 70% of the fair
market value of the total gross assets recorded on the books of Government Fund
on the Closing Date.
9. BROKERAGE FEES AND EXPENSES.
(a) Investment Trust and Income Trust each represents and warrants to the
other that there are no broker or finders' fees payable by it in connection
with the transactions provided for herein.
(b) The expenses of entering into and carrying out the provisions of this
Agreement and Plan shall be borne one-quarter by Government Fund, one-quarter
by Bond Fund, and one-half by Templeton Investment Counsel, Inc.
10. TERMINATION; POSTPONEMENT; WAIVER; ORDER.
(a) Anything contained in this Agreement and Plan to the contrary
notwithstanding, this Agreement and Plan may be terminated and the Plan of
Reorganization abandoned at any time (whether before or after approval thereof
by the shareholders of Government Fund) prior to the Closing or the Closing may
be postponed as follows:
(1) by mutual consent of Investment Trust and Income Trust;
(2) by Income Trust if any condition of its obligations set forth in
Section 8 has not been fulfilled or waived; or
(3) by Investment Trust if any condition of its obligations set forth
in Section 8 has not been fulfilled or waived.
An election by Investment Trust, on behalf of Government Fund, or Income
Trust, on behalf of Bond Fund, to terminate this Agreement and Plan and to
abandon the Plan of Reorganization shall be exercised, respectively, by the
Board of Trustees of Investment Trust or Income Trust.
(b) If the transactions contemplated by this Agreement and Plan have not
been consummated by January 31, 2000, the Agreement and Plan shall
automatically terminate on that date, unless a later date is agreed to by both
Income Trust and Investment Trust.
(c) In the event of termination of this Agreement and Plan pursuant to
the provisions hereof, the same shall become void and have no further effect,
and neither Investment Trust nor Income Trust, nor their trustees, officers,
agents or shareholders shall have any liability in respect of this Agreement
and Plan.
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(d) At any time prior to the Closing, any of the terms or conditions of
this Agreement and Plan may be waived by the party who is entitled to the
benefit thereof by action taken by that party's Board of Trustees, if, in the
judgment of such Board of Trustees, such action or waiver will not have a
material adverse effect on the benefits intended under this Agreement and Plan
to its shareholders, on behalf of whom such action is taken.
(e) The respective representations and warranties contained in Sections 4
to 6 hereof shall expire with and be terminated by the Plan of Reorganization,
and neither Investment Trust nor Income Trust, nor any of their officers,
trustees, agents or shareholders shall have any liability with respect to such
representations or warranties after the Closing. This provision shall not
protect any officer, trustee, agent or shareholder of Investment Trust or
Income Trust against any liability to the entity for which that officer,
trustee, agent or shareholder so acts or to its shareholders to which that
officer, trustee, agent or shareholder would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties in the conduct of such office.
(f) If any order or orders of the U.S. Securities and Exchange Commission
with respect to this Agreement and Plan shall be issued prior to the Closing
and shall impose any terms or conditions that are determined by action of the
Board of Trustees of Investment Trust or Income Trust to be acceptable, such
terms and conditions shall be binding as if a part of this Agreement and Plan
without further vote or approval of the shareholders of Government Fund, unless
such terms and conditions shall result in a change in the method of computing
the number of Bond Fund Shares to be issued to Government Fund in which event,
unless such terms and conditions shall have been included in the proxy
solicitation material furnished to the shareholders of Government Fund prior to
the meeting at which the transactions contemplated by this Agreement and Plan
shall have been approved, this Agreement and Plan shall not be consummated and
shall terminate unless Government Fund shall promptly call a special meeting of
shareholders at which such conditions so imposed shall be submitted for
approval.
11. ENTIRE AGREEMENT AND AMENDMENTS.
This Agreement and Plan embodies the entire agreement between the parties
and there are no agreements, understandings, restrictions, or warranties
between the parties other than those set forth herein or herein provided for.
This Agreement and Plan may be amended only by mutual consent of the parties in
writing. Neither this Agreement and Plan nor any interest herein may be
assigned without the prior written consent of the other party.
12. COUNTERPARTS.
This Agreement and Plan may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all such counterparts
together shall constitute but one instrument.
13. NOTICES.
Any notice, report, or demand required or permitted by any provision of
this Agreement and Plan shall be in writing and shall be deemed to have been
given if delivered or mailed, first class postage prepaid, addressed to
Templeton Income Trust at 500 East Broward Boulevard, Fort Lauderdale, FL
33394-3091, Attention: Secretary, or Templeton Global Investment Trust, at 500
East Broward Boulevard, Fort Lauderdale, FL 33394-3091, Attention: Secretary,
as the case may be.
14. GOVERNING LAW.
This Agreement and Plan shall be governed by and carried out in accordance
with the laws of the State of Delaware.
A-10
IN WITNESS WHEREOF, Templeton Income Trust, on behalf of Templeton Global
Bond Fund, and Templeton Global Investment Trust, on behalf of Templeton
Americas Government Securities Fund, have each caused this Agreement and Plan
to be executed on its behalf by its duly authorized officers, all as of the
date and year first-above written.
TEMPLETON INCOME TRUST, on behalf of
TEMPLETON GLOBAL BOND FUND
Attest:
/s/ BARBARA J. GREEN By: /s/ DEBORAH R. GATZEK
- ------------------------- -------------------------
Barbara J. Green Deborah R. Gatzek
Secretary Vice President
TEMPLETON GLOBAL INVESTMENT TRUST,on
behalf of TEMPLETON AMERICAS
GOVERNMENT SECURITIES FUND
Attest:
/s/ BARBARA J. GREEN By: /s/ DEBORAH R. GATZEK
- ------------------------ --------------------------
Barbara J. Green Deborah R. Gatzek
Secretary Vice President
A-11
416 PROXY
EXHIBIT B
/bullet/ 406 *P6
406 *PA4
SUPPLEMENT DATED MARCH 23, 1999
TO THE PROSPECTUSES OF
TEMPLETON GLOBAL BOND FUND
TEMPLETON GLOBAL BOND FUND - ADVISOR CLASS
DATED JANUARY 1, 1999
The prospectus is amended as follows:
I. The following paragraph is added to the end of the second paragraph in the
section "Principal Investments," under "Goal and Strategies":
The fund may invest up to 25% of its total assets in debt securities that are
rated below investment grade. Generally, lower rated securities pay higher
yields than more highly rated securities to compensate investors for the higher
risk.
II. The section "Credit" under "Main Risks" is replaced with the following:
CREDIT There is the possibility that an issuer will be unable to make interest
payments or repay principal. Changes in an issuer's financial strength or in a
security's credit rating may affect its value and, thus, impact the value of
fund shares and fund performance. Securities rated below investment grade,
sometimes called "junk bonds," generally have more risk than higher-rated
securities.
III. The section "Management" is replaced with the following:
Templeton Investment Counsel, Inc., (Investment Counsel), 500 East Broward
Blvd., Ft. Lauderdale, FL 33394-3091, through its Templeton Global Bond Managers
division (Global Bond Managers), is the fund's investment manager. Together,
Investment Counsel and its affiliates manage over $217 billion in assets.
A team from Global Bond Managers is responsible for the day-to-day management of
the fund.
The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended August 31, 1998, the fund paid
0.49% of its average daily net assets to the manager.
YEAR 2000 PROBLEM The fund's business operations depend on a worldwide network
of computer systems that contain date fields, including securities trading
systems, securities transfer agent operations and stock market links. Many of
the systems currently use a two digit date field to represent the date, and
unless these systems are changed or modified, they may not be able to
distinguish the Year 1900 from the Year 2000 (commonly referred to as the Year
2000 problem). In addition, the fact that the Year 2000 is a leap year may
create difficulties for some systems.
When the Year 2000 arrives, the fund's operations could be adversely affected if
the computer systems used by the manager, its service providers and other third
parties it does business with are not Year 2000 ready. For example, the fund's
portfolio and operational areas could be impacted, including securities trade
processing, interest and dividend payments, securities pricing, shareholder
account services, reporting, custody functions and others. The fund could
experience difficulties in effecting transactions if any of its foreign
subcustodians, or if foreign broker-dealers or foreign markets are not ready for
Year 2000.
The fund's manager and its affiliated service providers are making a concerted
effort to take steps they believe are reasonably designed to address their Year
2000 problems. Of course, the fund's ability to reduce the effects of the Year
2000 problem is also very much dependent upon the efforts of third parties over
which the fund and its manager may have no control.
Please keep this supplement for future reference.
PROSPECTUS
TEMPLETON
GLOBAL
BOND FUND
Class A & C
Investment Strategy
GLOBAL GROWTH
AND INCOME
January 1, 1999
[FRANKLIN TEMPLETON LOGO]
LIKE ALL MUTUAL FUND SHARES, THE SEC HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Contents
THE FUND
-----------------------------------------------------------------------------
INFORMATION ABOUT THE 2 Goal and Strategies
FUND YOU SHOULD KNOW
BEFORE INVESTING 3 Main Risks
6 Performance
7 Fees and Expenses
9 Management
11 Distributions and Taxes
12 Financial Highlights
YOUR ACCOUNT
- -------------------------------------------------------------------------------
INFORMATION ABOUT 13 Choosing a Share Class
SALES CHARGES, ACCOUNT
TRANSACTIONS AND 18 Buying Shares
SERVICES
20 Investor Services
23 Selling Shares
25 Account Policies
28 Questions
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
WHERE TO LEARN MORE Back Cover
ABOUT THE FUND
THE FUND
GOAL AND STRATEGIES
- -------------------------------------------------------------------------------
[BULLSEYE GRAPHIC]
GOAL The fund's investment goal is current income with capital appreciation and
growth of income.
- -------------------------------------------------------------------------------
The fund invests primarily in debt securities of companies and governments
located around the world.
- -------------------------------------------------------------------------------
PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
primarily in the debt securities of companies, governments and government
agencies located anywhere in the world. At least 65% of its total assets will be
invested in issuers located in at least three countries (including the U.S.).
Debt securities represent an obligation of the issuer to repay a loan of money
to it, and generally provide for the payment of interest. These include bonds,
notes and debentures. While the fund may buy securities rated in any category,
it focuses on "investment grade" debt securities. These are issues rated in the
top four rating categories by independent rating agencies such as Standard &
Poor's Corporation (S&P) or Moody's Investors Services, Inc. (Moody's) or, if
unrated, determined by the fund's manager to be comparable.
The fund may also invest in equity securities and American, European and Global
Depositary Receipts. Equity securities generally entitle the holder to
participate in a company's general operating results. These include common
stocks and preferred stocks. Depositary receipts are certificates typically
issued by a bank or trust company that give their holders the right to receive
securities issued by a foreign or domestic company.
The fund's manager allocates its assets based upon its assessment of changing
market, political and economic conditions. It will consider various factors,
including evaluation of interest and currency exchange rate changes and credit
risks.
TEMPORARY INVESTMENTS The manager may take a temporary defensive position when
it believes the markets or the economy are experiencing excessive volatility or
a prolonged general decline, or other adverse conditions exist. Under these
circumstances, the fund may be unable to pursue its investment goal, because it
may not invest or may invest less in global debt securities.
MAIN RISKS
- -------------------------------------------------------------------------------
[MINIATURE GRAPH GRAPHIC]
INTEREST RATE When interest rates rise, fixed-income security prices fall. The
opposite is also true: fixed-income security prices rise when interest rates
fall. Generally, interest rates rise during times of inflation or a growing
economy, and will fall during an economic slowdown or recession. Securities with
longer maturities usually are more sensitive to interest rate changes than
securities with shorter maturities.
CREDIT This is the possibility that an issuer will be unable to make interest
payments or repay principal. Changes in an issuer's financial strength or in a
security's credit rating may affect its value and, thus, impact the value of
fund shares.
- -------------------------------------------------------------------------------
Changes in global interest rates affect the prices of the fund's debt
securities. If rates rise, the value of the fund's debt securities will fall and
so too will the fund's share price. This means you could lose money.
- -------------------------------------------------------------------------------
FOREIGN SECURITIES Securities of companies and governments located outside the
U.S. may involve risks that can increase the potential for losses in the fund.
Investments in Depositary Receipts also involve some or all of the following
risks.
COUNTRY. General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns that
trade in that country. These movements will affect the fund's share price and
fund performance.
The political, economic and social structures of some countries the fund invests
in may be less stable and more volatile than those in the U.S. The risks of
investing in these countries include the possibility of the imposition of
exchange controls, currency devaluations, foreign ownership limitations,
expropriation, restrictions on removal of currency or other assets,
nationalization of assets, punitive taxes and certain custody and settlement
risks.
The fund's investments in developing or emerging markets are subject to all of
the risks of foreign investing generally, and have additional heightened risks
due to a lack of established legal, business and social frameworks to support
securities markets. Foreign securities markets, including emerging markets, may
have substantially lower trading volumes than U.S. markets, resulting in less
liquidity and more volatility than experienced in the U.S. While short-term
volatility in these markets can be disconcerting, declines in excess of 50% are
not unusual.
COMPANY. Foreign companies are not subject to the same disclosure, accounting,
auditing and financial reporting standards and practices as U.S. companies and
their securities may not be as liquid as securities of similar U.S. companies.
Foreign stock exchanges, trading systems, brokers and companies generally have
less government supervision and regulation than in the U.S. The fund may have
greater difficulty voting proxies, exercising shareholder rights, pursuing legal
remedies and obtaining judgments with respect to foreign investments in foreign
courts than with respect to U.S. companies in U.S. courts.
CURRENCY Many of the fund's investments are denominated in foreign currencies.
Changes in foreign currency exchange rates will affect the value of what the
fund owns and the fund's share price. Generally, when the U.S. dollar rises in
value against a foreign currency, an investment in that country loses value
because that currency is worth fewer U.S. dollars. Devaluation of currency by a
country's government or banking authority also has a significant impact on the
value of any securities denominated in that currency.
- -------------------------------------------------------------------------------
Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government. Mutual fund shares involve investment risks, including the possible
loss of principal.
- -------------------------------------------------------------------------------
EURO. On January 1, 1999, the European Monetary Union (EMU) plans to introduce a
new single currency, the euro, which will replace the national currency for the
eleven participating member countries. If the fund holds investments in
countries with currencies replaced by the euro, the investment process,
including trading, foreign exchange, payments, settlements, cash accounts,
custody and accounting will be impacted.
Because this change to a single currency is new and untested, the establishment
of the euro may result in market volatility. For the same reason, it is not
possible to predict the impact of the euro on the business or financial
condition of European issuers which the fund may hold in its portfolio, and
their impact on the value of fund shares and fund performance. To the extent the
fund holds non-U.S. dollar (euro or other) denominated securities, it will still
be exposed to currency risk due to fluctuations in those currencies versus the
U.S. dollar.
ILLIQUID SECURITIES The fund may invest up to 10% of its total assets in
restricted and other securities that are not readily marketable.
DIVERSIFICATION The fund is non-diversified under federal securities laws. It
may invest a greater portion of its assets in the securities of one issuer, and
therefore in a smaller number of individual issuers, than diversified funds.
Therefore, it may be more sensitive to economic, business, political or other
changes affecting similar issuers or securities. The fund intends, however, to
meet certain tax diversification requirements.
YEAR 2000 When evaluating current and potential portfolio positions, Year 2000
is one of the factors the fund's manager considers.
The manager will rely upon public filings and other statements made by companies
about their Year 2000 readiness. Issuers in countries outside the U.S.,
particularly in emerging markets, may not be required to make the same level of
disclosure about Year 2000 readiness as is required in the U.S. The manager, of
course, cannot audit any company and its major suppliers to verify their Year
2000 readiness.
If a company in which the fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its security will also be adversely
affected. A decrease in the value of one or more of the fund's portfolio
holdings will have a similar impact on the price of the fund's shares. Please
see page 10 for more information.
PORTFOLIO TURNOVER The manager's attempt to keep the fund's portfolio of debt
securities at an optimum level of interest rate sensitivity, may cause the
fund's portfolio turnover rate to be high. High turnover will increase the
fund's transaction costs and may increase your tax liability.
More detailed information about the fund, its policies and risks can be found in
the fund's Statement of Additional Information (SAI).
PERFORMANCE
- -------------------------------------------------------------------------------
[BULL & BEAR GRAPHIC]
This bar chart and table show the volatility of the fund's returns, which is one
indicator of the risks of investing in the fund. The bar chart shows changes in
the fund's returns from year to year over the past 10 calendar years. The table
shows how the fund's average annual total returns compare to those of a
broad-based securities market index. Of course, past performance cannot predict
or guarantee future results.
CLASS A ANNUAL TOTAL RETURNS(1)
Best
Quarter:
Q2 '92
7.23%
Worst
Quarter:
Q1 '94
- -3.51%
[BAR GRAPH]
<TABLE>
<CAPTION>
YEAR 88 89 90 91 92 93 94 95 96 97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7.07% 8.54% 9.89% 14.91% 3.12% 10.35% -3.58% 18.21% 11.20% 1.83%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1997
1 Year 5 Years 10 Years
------ ------- --------
Templeton Global Bond Fund - Class A(2) -2.46% 6.40% 7.52%
SB WGBI Index(3) 0.23% 7.47% 7.88%
Since
Inception
1 Year (5/1/95)
------ ---------
Templeton Global Bond Fund - Class C(2) -0.49% 8.67%
SB WGBI Index(3) 0.23% 3.44%
1. Figures do not reflect sales charges. If they did, returns would be lower. As
of September 30, 1998, the fund's year-to-date return was 4.33% for Class A.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains. On
January 1, 1993, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Salomon Brothers World
Government Bond Index (SB WGBI) tracks the performance of government bond
markets in 18 countries. It includes fixed-rate U.S. and foreign government
bonds with remaining maturities of one year or more. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.
FEES AND EXPENSES
- -------------------------------------------------------------------------------
[PERCENT GRAPHIC]
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund. It is based on the fund's expenses for the fiscal year ended
August 31, 1998.
SHAREHOLDER FEES (fees paid directly from your investment)
Class A(1) Class C(1)
---------- ----------
Maximum sales charge (Load) as a
percentage of offering price 4.25% 1.99%
Load imposed on purchases 4.25% 1.00%
Maximum Deferred Sales Charge (Load) None(2) 0.99%(3)
Exchange fee(4) None None
Please see "Choosing a Share Class" on page 13 for an explanation of how and
when these sales charges apply.
ANNUAL FUND OPERATING EXPENSES (expenses deducted from fund assets)
Class A(1) Class C(1)
---------- ----------
Management fees 0.49% 0.49%
Distribution and service (12b-1) fees(5) 0.25% 0.65%
Other expenses 0.42% 0.42%
---- ----
Total annual fund operating expenses 1.16%(6) 1.56%
==== ====
1. Before January 1, 1999, Class A shares were designated Class I and Class C
shares were designated Class II.
2. A contingent deferred sales charge (CDSC) of 1% may apply to purchases of $1
million or more sold within 12 months (see page 13) and to purchases by certain
retirement plans without an initial sales charge (see page 17).
3. This is equivalent to a charge of 1% based on net asset value.
4. There is a $5 fee for each exchange by a market timer (see page 26).
5. Because of the distribution and service (12b-1) fees, over the long term you
may indirectly pay more than the equivalent of the maximum permitted initial
sales charge.
6. Class A total annual fund operating expenses differ from the ratio of
expenses to average net assets shown on page 12 due to a timing difference
between the end of the 12b-1 plan year and the fund's fiscal year end.
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
The example assumes you invest $10,000 for the periods shown and then sell all
of your shares at the end of those periods. The example also assumes your
investment has a 5% return each year and the fund's operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
CLASS A $538(1) $778 $1,036 $1,774
CLASS C $355(2) $588 $ 941 $1,938
1. Assumes a contingent deferred sales charge (CDSC) will not apply.
2. For the same Class C investment, your costs would be $257 if you did not sell
your shares at the end of the first year. Your costs for the remaining periods
would be the same.
MANAGEMENT
- -------------------------------------------------------------------------------
[BRIEFCASE GRAPHIC]
Templeton Investment Counsel, Inc. through its Global Bond Managers division
(Global Bond Managers), Broward Financial Centre, Fort Lauderdale, FL
33394-3091, is the fund's investment manager. Together, Templeton Investment
Counsel, Inc. and its affiliates manage over $216 billion in assets.
The fund's lead portfolio manager is:
NEIL S. DEVLIN, EXECUTIVE VICE PRESIDENT OF GLOBAL BOND MANAGERS Mr. Devlin has
been a manager of the fund since 1994. He joined the Franklin Templeton Group in
1987.
The following individuals have secondary portfolio management responsibilities:
THOMAS J. DICKSON, PORTFOLIO MANAGER OF GLOBAL BOND MANAGERS Mr. Dickson has
been a manager of the fund since 1996. He joined the Franklin Templeton Group in
1994.
DR. UMRAN DEMIRORS, VICE PRESIDENT OF GLOBAL BOND MANAGERS Dr. Demirors has been
a manager of the fund since 1998. He joined the Franklin Templeton Group in
1996.
The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended August 31, 1998, the fund paid
0.49% of its average daily net assets to the manager.
YEAR 2000 PROBLEM The fund's business operations depend on a worldwide network
of computer systems that contain date fields, including securities trading
systems, securities transfer agent operations and stock market links. Many of
the systems currently use a two digit date field to represent the date, and
unless these systems are changed or modified, they may not be able to
distinguish the Year 1900 from the Year 2000 (commonly referred to as the Year
2000 problem). In addition, the fact that the Year 2000 is a non-standard leap
year may create difficulties for some systems.
When the Year 2000 arrives, the fund's operations could be adversely affected if
the computer systems used by the manager, its service providers and other third
parties it does business with are not Year 2000 ready. For example, the fund's
portfolio and operational areas could be impacted, including securities trade
processing, interest and dividend payments, securities pricing, shareholder
account services, reporting, custody functions and others. The fund could
experience difficulties in effecting transactions if any of its foreign
subcustodians, or if foreign broker-dealers or foreign markets are not ready for
Year 2000.
The fund's manager and its affiliated service providers are making a concerted
effort to take steps they believe are reasonably designed to address their Year
2000 problems. Of course, the fund's ability to reduce the effects of the Year
2000 problem is also very much dependent upon the efforts of third parties over
which the fund and its manager may have no control.
DISTRIBUTIONS AND TAXES
- -------------------------------------------------------------------------------
[COIN GRAPHIC]
INCOME AND CAPITAL GAINS DISTRIBUTIONS The fund intends to pay a monthly
dividend representing its net investment income. Capital gains, if any, may be
distributed annually. The amount of these distributions will vary and there is
no guarantee the fund will pay dividends.
To receive a distribution, you must be a shareholder on the record date. The
record dates for the fund's distributions will vary. Please keep in mind that if
you invest in the fund shortly before the record date of a distribution, any
distribution will lower the value of the fund's shares by the amount of the
distribution and you will receive some of your investment back in the form of a
taxable distribution. If you would like information on upcoming record dates for
the fund's distributions, please call 1-800/DIAL BEN.
TAX CONSIDERATIONS In general, fund distributions are taxable to you as either
ordinary income or capital gains. This is true whether you reinvest your
distributions in additional shares of the fund or receive them in cash. Any
capital gains the fund distributes are taxable to you as long-term capital gains
no matter how long you have owned your shares.
BACKUP WITHHOLDING
- -------------------------------------------------------------------------------
By law, the fund must withhold 31% of your taxable distributions and proceeds if
you do not provide your correct taxpayer identification number (TIN) or certify
that your TIN is correct, or if the IRS instructs the fund to do so.
- -------------------------------------------------------------------------------
Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
When you sell your shares, you may have a capital gain or loss. For tax
purposes, an exchange of your fund shares for shares of a different Franklin
Templeton Fund is the same as a sale. The individual tax rate on any gain from
the sale or exchange of your shares depends on how long you have held your
shares.
Fund distributions and gains from the sale or exchange of your shares generally
will be subject to state and local income tax. Any foreign taxes the fund pays
on its investments may be passed through to you as a foreign tax credit.
Non-U.S. investors may be subject to U.S. withholding and estate tax. You should
consult your tax advisor about federal, state, local or foreign tax consequences
of your investment in the fund.
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
[MONEY GRAPHIC]
This table presents the fund's financial performance for the past five years.
This information has been audited by McGladrey & Pullen, LLP.
<TABLE>
<CAPTION>
CLASS A Year ended August 31,
---------------------------------------------------------------------
1998 1997 1996 1995(1) 1994(2)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per share data ($)
Net asset value, beginning of year 9.82 9.76 9.32 9.05 9.96
------- ------- ------- ------- -------
Net investment income .60 .63 .69 .73 .72
Net realized and unrealized gains (losses) (.32) .03 .35 .17 (.91)
------- ------- ------- ------- -------
Total from investment operations .28 .66 1.04 .90 (.19)
------- ------- ------- ------- -------
Dividends from net investment income (.55) (.60) (.58) (.54) (.53)
Distributions from net realized gains (.06) -- -- -- (.07)
Tax basis return of capital -- -- (.02) (.09) (.12)
------- ------- ------- ------- -------
Total distributions (.61) (.60) (.60) (.63) (.72)
------- ------- ------- ------- -------
Net asset value, end of year 9.49 9.82 9.76 9.32 9.05
======= ======= ======= ======= =======
Total return (%)(3) 2.82 6.87 11.44 10.43 (2.01)
Ratios/supplemental data
Net assets, end of year ($ x 1,000) 189,898 198,131 185,596 191,301 205,482
Ratios to average net assets: (%)
Expenses 1.17 1.15 1.13 1.18 1.18
Net investment income 6.12 6.41 7.09 7.99 7.50
Portfolio turnover rate (%) 75.95 166.69 109.40 101.12 139.23
CLASS C
-------------------------------------------------------------------------------
Per share data ($)
Net asset value, beginning of year 9.83 9.77 9.31 9.05
------- ------- ------- -------
Net investment income .56 .57 .61 .21
Net realized and unrealized gains (losses) (.32) .05 .41 .24
------- ------- ------- -------
Total from investment operations .24 .62 1.02 .45
------- ------- ------- -------
Dividends from net investment income (.51) (.56) (.54) (.15)
Distributions from net realized gains (.06) -- -- --
Tax basis return of capital -- -- (.02) (.04)
------- ------- ------- -------
Total distributions (.57) (.56) (.56) (.19)
------- ------- ------- -------
Net asset value, end of year 9.50 9.83 9.77 9.31
======= ======= ======= =======
Total return (%)(3) 2.46 6.44 11.20 5.03
Ratios/supplemental data
Net assets, end of year ($ x 1,000) 20,404 16,629 6,563 2,043
Ratios to average net assets: (%)
Expenses 1.56 1.54 1.56 1.57(4)
Net investment income 5.73 5.96 6.69 7.47(4)
Portfolio turnover rate (%) 75.95 166.69 109.40 101.12
</TABLE>
1. Figures for Class C are for the period May 1, 1995 (effective date) through
August 31, 1995.
2. Based on weighted average shares outstanding.
3. Total return does not include sales charges, and is not annualized.
4. Annualized.
YOUR ACCOUNT
- -------------------------------------------------------------------------------
[PENCIL MARKING BOX GRAPHIC]
CHOOSING A SHARE CLASS
Each class has its own sales charge and expense structure, allowing you to
choose the class that best meets your situation. Your investment representative
can help you decide.
CLASS A
- Initial sales charge of 4.25% or less
- Deferred sales charge of 1% on purchases of $1 million or more
sold within 12 months
- Lower annual expenses than Class C due to lower distribution
fees
CLASS C
- Initial sales charge of 1%
- Deferred sales charge of 1% on shares you sell within 18
months
- Higher annual expenses than Class A due to higher distribution
fees.
Before January 1, 1999, Class A shares were designated Class I and Class C
shares were designated Class II.
SALES CHARGES - CLASS A
<TABLE>
<CAPTION>
the sales charge makes up which equals this %
when you invest this amount this % of the offering price of your net investment
<S> <C> <C>
Under $100,000 4.25 4.44
$100,000 but under $250,000 3.50 3.63
$250,000 but under $500,000 2.50 2.56
$500,000 but under $1 million 2.00 2.04
</TABLE>
INVESTMENTS OF $1 MILLION OR MORE If you invest $1 million or more, either as a
lump sum or through our cumulative quantity discount or letter of intent
programs (see page 15), you can buy Class A shares without an initial sales
charge. However, there is a 1% contingent deferred sales charge (CDSC) on any
shares you sell within 12 months of purchase. The way we calculate the CDSC is
the same for each class (please see page 14).
DISTRIBUTION AND SERVICE (12b-1) FEES Class A has a distribution plan, sometimes
known as a Rule 12b-1 plan, that allows the fund to pay distribution fees of up
to 0.25% per year to those who sell and distribute Class A shares and provide
other services to shareholders. Because these fees are paid out of Class A's
assets on an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
SALES CHARGES - CLASS C
<TABLE>
<CAPTION>
the sales charge makes up which equals this %
when you invest this amount this % of the offering price of your net investment
<S> <C> <C>
- ---------------------------------------------------------------------------------------------
Under $1 million 1.00 1.01
</TABLE>
We invest any investment of $1 million or more in Class A shares, since there is
no initial sales charge and Class A's annual expenses are lower.
CDSC There is a 1% contingent deferred sales charge (CDSC) on any Class C shares
you sell within 18 months of purchase. The way we calculate the CDSC is the same
for each class (please see below).
DISTRIBUTION AND SERVICE (12b-1) FEES Class C has a distribution plan, sometimes
known as a Rule 12b-1 plan, that allows the fund to pay distribution and other
fees of up to 0.65% per year for the sale of Class C shares and for services
provided to shareholders. Because these fees are paid out of Class C's assets on
an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
- -------------------------------------------------------------------------------
The HOLDING PERIOD FOR THE CDSC begins on the day you buy your shares. Your
shares will age one month on that same date the next month and each following
month.
For example, if you buy shares on the 18th of the month, they will age one month
on the 18th day of the next month and each following month.
- -------------------------------------------------------------------------------
CONTINGENT DEFERRED SALES CHARGE (CDSC) - CLASS A & C The CDSC for each class is
based on the current value of the shares being sold or their net asset value
when purchased, whichever is less. There is no CDSC on shares you acquire by
reinvesting your dividends.
To keep your CDSC as low as possible, each time you place a request to sell
shares we will first sell any shares in your account that are not subject to a
CDSC. If there are not enough of these to meet your request, we will sell the
shares in the order they were purchased. We will use this same method if you
exchange your shares into another Franklin Templeton Fund (please see page 21
for exchange information).
SALES CHARGE REDUCTIONS AND WAIVERS If you qualify for any of the sales charge
reductions or waivers below, please let us know at the time you make your
investment to help ensure you receive the lower sales charge.
QUANTITY DISCOUNTS We offer several ways for you to combine your purchases in
the Franklin Templeton Funds to take advantage of the lower sales charges for
large purchases of Class A shares.
- Cumulative Quantity Discount - lets you combine all of your shares
in the Franklin Templeton Funds for purposes of calculating the
sales charge. You may also combine the shares of your spouse, and
your children or grandchildren, if they are under the age of 21.
Certain company and retirement plan accounts may also be included.
- Letter of Intent (LOI) - expresses your intent to buy a stated
dollar amount of shares over a 13-month period and lets you receive
the same sales charge as if all shares had been purchased at one
time. We will reserve a portion of your shares to cover any
additional sales charge that may apply if you do not buy the amount
stated in your LOI.
To sign up for these programs, complete the appropriate section
of your account application.
- -------------------------------------------------------------------------------
The FRANKLIN TEMPLETON FUNDS include all of the Franklin Templeton U.S.
registered mutual funds, except Franklin Valuemark Funds, Templeton Capital
Accumulator Fund, Inc., and Templeton Variable Products Series Fund.
- -------------------------------------------------------------------------------
REINSTATEMENT PRIVILEGE If you sell shares of a Franklin Templeton Fund, you may
reinvest some or all of the proceeds within 365 days without an initial sales
charge. The proceeds must be reinvested within the same share class, except
proceeds from the sale of Class B shares will be reinvested in Class A shares.
If you paid a CDSC when you sold your Class A or C shares, we will credit your
account with the amount of the CDSC paid but a new CDSC will apply. For Class B
shares reinvested in Class A, a new CDSC will not apply, although your account
will not be credited with the amount of any CDSC paid when you sold your Class B
shares.
Proceeds immediately placed in a Franklin Bank Certificate of Deposit (CD) also
may be reinvested without an initial sales charge if you reinvest them within
365 days from the date the CD matures, including any rollover.
This privilege does not apply to shares you buy and sell under our exchange
program. Shares purchased with the proceeds from a money fund may be subject to
a sales charge.
WAIVERS FOR INVESTMENTS FROM CERTAIN PAYMENTS Class A shares may be purchased
without an initial sales charge or CDSC by investors who reinvest within 365
days:
- certain payments received under an annuity contract that offers a
Franklin Templeton insurance fund option
- distributions from an existing retirement plan invested in the
Franklin Templeton Funds
- dividend or capital gain distributions from a real estate investment
trust sponsored or advised by Franklin Properties, Inc.
- redemption proceeds from a repurchase of Franklin Floating Rate
Trust shares held continuously for at least 12 months
- redemption proceeds from Class A of any Templeton Global Strategy
Fund, if you are a qualified investor. If you paid a CDSC when you
sold your shares, we will credit your account with the amount of the
CDSC paid but a new CDSC will apply.
WAIVERS FOR CERTAIN INVESTORS Class A shares also may be purchased without an
initial sales charge or CDSC by various individuals and institutions, including:
- certain trust companies and bank trust departments investing $1
million or more in assets over which they have full or shared
investment discretion
- government entities that are prohibited from paying mutual fund
sales charges
- certain unit investment trusts and their holders reinvesting trust
distributions
- group annuity separate accounts offered to retirement plans
- employees and other associated persons or entities of Franklin
Templeton or of certain dealers
- Chilean retirement plans that meet the requirements for retirement
plans described below.
If you think you may be eligible for a sales charge waiver,
call your investment representative or call Shareholder Services
at 1-800/632-2301 for more information.
CDSC WAIVERS The CDSC for each class generally will be waived:
- to pay account fees
- to make payments through systematic withdrawal plans, up to 1%
monthly, 3% quarterly, 6% semiannually or 12% annually depending on
the frequency of your plan
- for redemptions by Franklin Templeton Trust Company employee benefit
plans or employee benefit plans serviced by ValuSelect(R)
- for IRA distributions due to death or disability or upon periodic
distributions based on life expectancy
- to return excess contributions (and earnings, if applicable) from
retirement plan accounts
- for redemptions following the death of the shareholder or beneficial
owner
- for participant initiated distributions from employee benefit plans
or participant initiated exchanges among investment choices in
employee benefit plans
RETIREMENT PLANS Certain retirement plans may buy Class A shares without an
initial sales charge. To qualify, the plan must be sponsored by an employer:
- with at least 100 employees, or
- with retirement plan assets of $1 million or more, or
- that agrees to invest at least $500,000 in the Franklin Templeton
Funds over a 13-month period
A CDSC may apply. Retirement plans other than SIMPLEs, SEPs, or plans that
qualify under section 401 of the Internal Revenue Code also must qualify under
our group investment program to buy Class A shares without an initial sales
charge. Any retirement plan that does not qualify to buy Class A shares without
an initial sales charge and that was a shareholder of the fund on or before
February 1, 1995, may buy Class A shares with a maximum initial sales charge of
4% (as a percentage of the offering price).
For more information, call your investment representative or
Retirement Plan Services at 1-800/527-2020.
GROUP INVESTMENT PROGRAM Allows established groups of 11 or more investors to
invest as a group. For sales charge purposes, the group's investments are added
together. There are certain other requirements and the group must have a purpose
other than buying fund shares at a discount.
BUYING SHARES
- -------------------------------------------------------------------------------
The FRANKLIN TEMPLETON FUNDS include all of the Franklin Templeton U.S.
registered mutual funds, except Franklin Valuemark Funds, Templeton Capital
Accumulator Fund, Inc., and Templeton Variable Products Series Fund.
- -------------------------------------------------------------------------------
[PEN WRITING ON PAGE GRAPHIC]
MINIMUM INVESTMENTS
- -------------------------------------------------------------------------------
Initial Additional
- -------------------------------------------------------------------------------
Regular accounts $1,000 $50
- -------------------------------------------------------------------------------
UGMA/UTMA accounts $ 100 $50
- -------------------------------------------------------------------------------
Retirement accounts
(other than IRAs, IRA rollovers,
Education IRAs or Roth IRAs) no minimum no minimum
- -------------------------------------------------------------------------------
IRAs, IRA rollovers, Education IRAs
or Roth IRAs $ 250 $50
- -------------------------------------------------------------------------------
Broker-dealer sponsored wrap account
programs $ 250 $50
- -------------------------------------------------------------------------------
Full-time employees, officers, trustees
and directors of Franklin Templeton
entities, and their immediate family
members $ 100 $50
- -------------------------------------------------------------------------------
ACCOUNT APPLICATION If you are opening a new account, please complete and sign
the enclosed account application. Make sure you indicate the share class you
have chosen. If you do not indicate a class, we will invest your purchase in
Class A shares. To save time, you can sign up now for services you may want on
your account by completing the appropriate sections of the application (see the
next page).
BUYING SHARES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Opening an account Adding to an account
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[HANDSHAKE Through your Contact your investment Contact your investment
GRAPHIC] investment representative representative
representative
- -----------------------------------------------------------------------------------------------------------------------
[LETTER By Mail Make your check payable to Make your check payable to
GRAPHIC] Templeton Global Bond Fund. Templeton Global Bond Fund. Include
your account number on the check.
Mail the check and your signed
application to Investor Services. Fill out the deposit slip from your
account statement. If you do not
have a slip, include a note with your
name, the fund name, and your
account number.
Mail the check and deposit slip or
note to Investor Services.
- -----------------------------------------------------------------------------------------------------------------------
[WIRE By Wire Call to receive a wire control Call to receive a wire control number
GRAPHIC] 1-800/632-2301 number and wire instructions. and wire instructions.
(or 1-650/312-2000
collect) Mail your signed application to To make a same day wire investment,
Investor Services. Please include the please call us by 1:00 p.m.
wire control number or your new pacific time and make sure your
account number on the application. wire arrives by 3:00 p.m.
To make a same day wire investment,
please call us by 1:00 p.m. pacific
time and make sure your wire arrives
by 3:00 p.m.
- -----------------------------------------------------------------------------------------------------------------------
[ARROW By Exchange Call Shareholder Services at the Call Shareholder Services at the
GRAPHIC] TeleFACTS(R) number below, or send signed number below or our automated
1-800/247-1753 written instructions. The TeleFACTS TeleFACTS system, or send signed
(around-the-clock system cannot be used to open a written instructions.
access) new account.
(Please see page 21 for information
(Please see page 21 for information on exchanges.)
on exchanges.)
</TABLE>
FRANKLIN TEMPLETON INVESTOR SERVICES 100 FOUNTAIN PARKWAY, P.O. BOX 33030,
ST. PETERSBURG, FL 33733-8030
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME)
INVESTOR SERVICES
- -------------------------------------------------------------------------------
[MAN WITH HEADSET GRAPHIC]
AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to invest in
the fund by automatically transferring money from your checking or savings
account each month to buy shares. The minimum investment to open an account with
an automatic investment plan is $50 ($25 for an Education IRA). To sign up,
complete the appropriate section of your account application.
DISTRIBUTION OPTIONS You may reinvest distributions you receive from the fund in
an existing account in the same share class* of the fund or another Franklin
Templeton Fund. Initial sales charges and CDSCs will not apply if you reinvest
your distributions within 365 days. You can also have your distributions
deposited in a bank account, or mailed by check. Deposits to a bank account may
be made by electronic funds transfer.
Please indicate on your application the distribution option you have chosen,
otherwise we will reinvest your distributions in the same share class of the
fund.
*Class C shareholders may reinvest their distributions in Class A shares of any
Franklin Templeton money fund.
- -------------------------------------------------------------------------------
For Franklin Templeton Trust Company retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.
- -------------------------------------------------------------------------------
RETIREMENT PLANS Franklin Templeton offers a variety of retirement plans for
individuals and businesses. These plans require separate applications and their
policies and procedures may be different than those described in this
prospectus. For more information, including a free retirement plan brochure or
application, please call Retirement Plan Services at 1-800/527-2020.
TeleFACTS(R) Our TeleFACTS system offers around-the-clock access to information
about your account or any Franklin Templeton Fund. This service is available
from touch-tone phones at 1-800/247-1753. For a free TeleFACTS brochure, call
1-800/DIAL BEN.
TELEPHONE PRIVILEGES You will automatically receive telephone privileges when
you open your account, allowing you and your investment representative to sell
or exchange your shares and make certain other changes to your account by phone.
For accounts with more than one registered owner, telephone privileges also
allow the fund to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For all
other transactions and changes, all registered owners must sign the
instructions.
As long as we take certain measures to verify telephone requests, we will not be
responsible for any losses that may occur from unauthorized requests. Of course,
you can decline telephone exchange or redemption privileges on your account
application.
EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton Funds
within the same class*, generally without paying any additional sales charges.
If you exchange shares held for less than six months, however, you may be
charged the difference between the initial sales charge of the two funds if the
difference is more than 0.25%. If you exchange shares from a money fund, a sales
charge may apply no matter how long you have held the shares.
- -------------------------------------------------------------------------------
For Franklin Templeton Trust Company retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.
Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee. Any CDSC will
continue to be calculated from the date of your initial investment and will not
be charged at the time of the exchange. The purchase price for determining a
CDSC on exchanged shares will be the price you paid for the original shares. If
you exchange shares subject to a CDSC into a Class A money fund, the time your
shares are held in the money fund will not count towards the CDSC holding
period.
- -------------------------------------------------------------------------------
An EXCHANGE is really two transactions: a sale of one fund and the purchase of
another. In general, the same policies that apply to purchases and sales apply
to exchanges. Exchanges also have the same tax consequences as ordinary sales
and purchases.
- -------------------------------------------------------------------------------
Frequent exchanges can interfere with fund management or operations and drive up
costs for all shareholders. To protect shareholders, there are limits on the
number and amount of exchanges you may make (please see "Market Timers" on page
26).
*Certain Class Z shareholders of Franklin Mutual Series Fund Inc. may exchange
into Class A without any sales charge.
SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. A CDSC may apply to
withdrawals that exceed certain amounts. Certain terms and minimums apply. To
sign up, complete the appropriate section of your application.
SELLING SHARES
- -------------------------------------------------------------------------------
[CERTIFICATE GRAPHIC]
You can sell your shares at any time.
SELLING SHARES IN WRITING Requests to sell $100,000 or less can generally be
made over the phone or with a simple letter. Sometimes, however, to protect you
and the fund we will need written instructions signed by all registered owners,
with a signature guarantee for each owner, if:
- you are selling more than $100,000 worth of shares
- you want your proceeds paid to someone who is not a registered
owner
- you want to send your proceeds somewhere other than the
address of record, or preauthorized bank or brokerage firm
account
- you have changed the address on your account by phone within
the last 15 days
We may also require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the fund
against potential claims based on the instructions received.
- -------------------------------------------------------------------------------
A SIGNATURE GUARANTEE helps protect your account against fraud. You can obtain a
signature guarantee at most banks and securities dealers.
A notary public CANNOT provide a signature guarantee.
- -------------------------------------------------------------------------------
SELLING RECENTLY PURCHASED SHARES If you sell shares recently purchased with a
check or draft, we may delay sending you the proceeds until your check or draft
has cleared, which may take seven business days or more. A certified or
cashier's check may clear in less time.
REDEMPTION PROCEEDS Your redemption check will be sent within seven days after
we receive your request in proper form. We are not able to receive or pay out
cash in the form of currency. Redemption proceeds may be delayed if we have not
yet received your signed account application.
RETIREMENT PLANS Before you can sell shares in a Franklin Templeton Trust
Company retirement plan, you may need to complete additional forms. For
participants under age 59 1/2, tax penalties may apply. Call Retirement Plan
Services at 1-800/527-2020 for details.
SELLING SHARES
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
To sell some or all of your shares
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
[HANDSHAKE Through your Contact your investment representative
GRAPHIC] investment
representative
- --------------------------------------------------------------------------------------------------------------------------
[LETTER By Mail Send written instructions and endorsed share certificates (if you hold share
GRAPHIC] certificates) to Investor Services. Corporate, partnership or trust accounts
may need to send additional documents.
Specify the fund, the account number and the dollar value or number of shares
you wish to sell. Be sure to include all necessary signatures and any additional
documents, as well as signature guarantees if required.
A check will be mailed to the name(s) and address on the account, or otherwise
according to your written instructions.
- --------------------------------------------------------------------------------------------------------------------------
[TELEPHONE By Phone As long as your transaction is for $100,000 or less, you do not hold share
GRAPHIC] certificates and you have not changed your address by phone within the last 15
1-800/632-2301 days, you can sell your shares by phone.
A check will be mailed to the name(s) and address on the account. Written
instructions, with a signature guarantee, are required to send the check to
another address or to make it payable to another person.
- --------------------------------------------------------------------------------------------------------------------------
[WIRE By Wire You can call or write to have redemption proceeds of $1,000 or more wired to a
GRAPHIC] bank or escrow account. See the policies above for selling shares by mail or
phone.
Before requesting a wire, please make sure we have your bank account information
on file. If we do not have this information, you will need to send written
instructions with your bank's name and address, your bank account number, the
ABA routing number, and a signature guarantee.
Requests received in proper form by 1:00 p.m. pacific time will be wired the
next business day.
- --------------------------------------------------------------------------------------------------------------------------
[ARROW By Exchange Obtain a current prospectus for the fund you are considering.
GRAPHIC]
TeleFACTS(R) Call Shareholder Services at the number below or our automated TeleFACTS system,
1-800/247-1753 or send signed written instructions. See the policies above for selling shares
by mail or phone.
(around-the-clock
access)
If you hold share certificates, you will need to return them to the fund before
your exchange can be processed.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
FRANKLIN TEMPLETON INVESTOR SERVICES 100 FOUNTAIN PARKWAY, P.O. BOX 33030,
ST. PETERSBURG, FL 33733-8030
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME)
ACCOUNT POLICIES
- -------------------------------------------------------------------------------
[PEN & PAPER GRAPHIC]
CALCULATING SHARE PRICE The fund calculates the net asset value per share (NAV)
each business day at the close of trading on the New York Stock Exchange
(normally 1:00 p.m. pacific time). Each class's NAV is calculated by dividing
its net assets by the number of its shares outstanding.
- -------------------------------------------------------------------------------
When you buy shares, you pay the offering price. The offering price is the NAV
plus any applicable sales charge.
When you sell shares, you receive the NAV minus any applicable contingent
deferred sales charge (CDSC).
- -------------------------------------------------------------------------------
The fund's assets are generally valued at their market value. If market prices
are unavailable, or if an event occurs after the close of the trading market
that materially affects the values, assets may be valued at their fair value. If
the fund holds securities listed primarily on a foreign exchange that trades on
days when the fund is not open for business, the value of your shares may change
on days that you cannot buy or sell shares.
Requests to buy and sell shares are processed at the NAV next calculated after
we receive your request in proper form.
ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250 ($50
for employee and UGMA/UTMA accounts) because you sell some of your shares, we
may mail you a notice asking you to bring the account back up to its applicable
minimum investment amount. If you choose not to do so within 30 days, we may
close your account and mail the proceeds to the address of record. You will not
be charged a CDSC if your account is closed for this reason.
STATEMENTS AND REPORTS You will receive confirmations and account statements
that show your account transactions. You will also receive the fund's financial
reports every six months. To reduce fund expenses, we try to identify related
shareholders in a household and send only one copy of the financial reports. If
you need additional copies, please call 1-800/DIAL BEN.
If there is a dealer or other investment representative of record on your
account, he or she will also receive confirmations, account statements and other
information about your account directly from the fund.
STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have an
agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.
JOINT ACCOUNTS Unless you specify a different registration, accounts with two or
more owners are registered as "joint tenants with rights of survivorship" (shown
as "Jt Ten" on your account statement). To make any ownership changes to a joint
account, all owners must agree in writing, regardless of the law in your state.
MARKET TIMERS The fund may restrict or refuse exchanges by market timers. If
accepted, each exchange by a market timer will be charged $5. You will be
considered a market timer if you have (i) requested an exchange out of the fund
within two weeks of an earlier exchange request, or (ii) exchanged shares out of
the fund more than twice in a calendar quarter, or (iii) exchanged shares equal
to at least $5 million, or more than 1% of the fund's net assets, or (iv)
otherwise made large or frequent exchanges. Shares under common ownership or
control are combined for these limits.
ADDITIONAL POLICIES Please note that the fund maintains additional policies and
reserves certain rights, including:
- - The fund may refuse any order to buy shares, including any purchase under the
exchange privilege.
- - At any time, the fund may change its investment minimums or waive or lower its
minimums for certain purchases.
- - The fund may modify or discontinue the exchange privilege on 60 days' notice.
- - You may only buy shares of a fund eligible for sale in your state or
jurisdiction.
- - In unusual circumstances, we may temporarily suspend redemptions, or postpone
the payment of proceeds, as allowed by federal securities laws.
- - For redemptions over a certain amount, the fund reserves the right to make
payments in securities or other assets of the fund, in the case of an
emergency or if the payment by check would be harmful to existing
shareholders.
- - To permit investors to obtain the current price, dealers are responsible for
transmitting all orders to the fund promptly.
DEALER COMPENSATION Qualifying dealers who sell fund shares may receive sales
commissions and other payments. These are paid by Franklin Templeton
Distributors, Inc. (Distributors) from sales charges, distribution and service
(12b-1) fees and its other resources.
Class A Class C
------- -------
Commission (%) -- 2.00
Investment under $100,000 4.00 --
$100,000 but under $250,000 3.25 --
$250,000 but under $500,000 2.25 --
$500,000 but under $1 million 1.85 --
$1 million or more up to 0.75(1) --
12b-1 fee to dealer 0.25 0.65(2)
A dealer commission of up to 1% may be paid on Class A NAV purchases by certain
retirement plans(1) and up to 0.25% on Class A NAV purchases by certain trust
companies and bank trust departments, eligible governmental authorities, and
broker-dealers or others on behalf of clients participating in comprehensive fee
programs. For certain retirement plans that do not qualify to buy Class A shares
at NAV but that qualify to buy Class A shares with a maximum initial sales
charge of 4%, a dealer commission of 3.2% may be paid.
1. During the first year after purchase, dealers may not be eligible to receive
the 12b-1 fee.
2. Dealers may be eligible to receive up to 0.15% during the first year after
purchase and may be eligible to receive the full 12b-1 fee starting in the 13th
month.
QUESTIONS
- -------------------------------------------------------------------------------
[QUESTION MARK GRAPHIC]
If you have any questions about the fund or your account, you can write to us at
100 Fountain Parkway, P.O. Box 33030, St. Petersburg, FL 33733-8030. You can
also call us at one of the following numbers. For your protection and to help
ensure we provide you with quality service, all calls may be monitored or
recorded.
Hours (pacific time,
Department Name Telephone Number Monday through Friday)
- -------------------------------------------------------------------------------
Shareholder Services 1-800/ 632-2301 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/ DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/ 342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Plan Services 1-800/ 527-2020 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/ 524-4040 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/ 321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/ 851-0637 5:30 a.m. to 5:00 p.m.
FOR MORE INFORMATION
You can learn more about the fund in the following documents:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes a discussion of recent market conditions and fund strategies, financial
statements, detailed performance information, portfolio holdings, and the
auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more information about the fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).
For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.
FRANKLIN(R)TEMPLETON(R)
1-800/DIAL BEN(R) (1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
www.franklin-templeton.com
You can also obtain information about the fund by visiting the SEC's Public
Reference Room in Washington D.C. (phone 1-800/SEC-0330) or by sending your
request and a duplicating fee to the SEC's Public Reference Section, Washington,
DC 20549-6009. You can also visit the SEC's Internet site at http://www.sec.gov.
Investment Company Act file #811-4706 406 P 01/99
EXHIBIT C
ANNUAL REPORT
[PHOTO]
TEMPLETON GLOBAL BOND FUND
AUGUST 31, 1998
[LOGO] FRANKLIN TEMPLETON
PAGE
[CELEBRATING 50 YEARS GRAPHIC]
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective, and remember that all securities markets move
both up and down, as do mutual fund share prices. We appreciate your past
support and look forward to serving your investment needs in the years ahead.
In 1992, Sir John Templeton retired after a 50-year career of helping investors
manage their money. Currently he devotes all of his time and efforts to the John
Templeton Foundation. A major portion of his assets remain invested in the
Templeton funds which are managed by many of the investment professionals he
selected and trained.
[PHOTO OF THOMAS J. LATTA]
THOMAS J. LATTA
Portfolio Manager
Templeton Global Bond Fund
SHAREHOLDER LETTER
Your Fund's Objective: Templeton Global Bond Fund seeks current income with
capital appreciation and growth of income, through a flexible policy of
investing primarily in debt securities of companies, governments and government
agencies of various nations throughout the world. The Fund may also invest in
preferred stock, common stocks which pay dividends, income-producing securities
convertible into common stock of such companies, and depository receipts.
Dear Shareholder:
This annual report of Templeton Global Bond Fund covers the fiscal year ended
August 31, 1998. For global bond investors, the period was marked by three
trends: one, the continued decline in prices of raw materials and commodities,
which contributed to a favorable global inflation environment; two, the
emergence of periodic but persistent crises in developing countries; and three,
increasing bond prices in the world's major developed markets.
During the period, much of the world experienced relatively healthy economic
growth. In the U.S., for example, expansion continued for the sixth consecutive
year, and unemployment fell to levels not seen since the early 1970s. European
economies
You will find a complete listing of the Fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 21 of
this report.
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Shareholder Letter ............. 1
Performance Summaries
Class I ..................... 6
Class II .................... 10
Advisor Class ............... 14
Financial Highlights &
Statement of Investments ....... 18
Financial Statements ........... 24
Notes to Financial
Statements ..................... 27
Independent Auditor's Report ... 32
Tax Designation ................ 33
</TABLE>
[PYRAMID GRAPH]
GEOGRAPHIC DISTRIBUTION
BASED ON TOTAL NET ASSETS
8/31/98
<TABLE>
<S> <C>
UNITED STATES 39.5%
EUROPE 37.1%
CANADA 7.0%
LATIN AMERICA 5.0%
AUSTRALIA &
NEW ZEALAND 5.0%
ASIA 0.6%
SHORT-TERM
INVESTMENTS &
OTHER NET ASSETS 5.8%
</TABLE>
began to emerge from a sluggish growth environment. Those of Finland, Spain and
the Netherlands grew quite rapidly during the fiscal year, as the delayed impact
of low long-term interest rates began to stimulate economic activity. By the end
of the reporting period, accelerating growth had spread to Germany, France, and
Italy. Many continental European markets also benefited from a convergence in
interest rates in countries seeking membership in the European Economic Union.
Inflation in Europe and the U.S. was tame during the period, which surprised
many economists because growth in the two regions was relatively rapid. This
benign inflation environment was largely responsible for the decline in global
interest rates and corresponding rise in bond prices. For example, 10-year U.S.
Treasury bond yields declined from 6.30% to 5.05% during the reporting period,
while yields on similar government bonds in Germany declined from 5.69% to
4.22%.(1)
Japan, where banks were hamstrung by an enormous load of bad debt, presented a
different picture. Japanese government policy makers struggled throughout the
reporting period to restructure their economy, but they failed and Japan
remained in a recession. Its poor demand for products from other Asian markets
and the yen's persistent weakness put enormous pressure on the economies of
developing Asian countries.
Toward the end of the reporting period, Russia also came under tremendous
pressure because of its precarious debt financing. In order to establish at
least a semblance of stability, it devalued the ruble and declared a moratorium
on debt service. These conditions influenced debt instruments of other emerging
markets, including those of Latin America. These crises also affected developed
economies that were highly dependent on commodity exports or trade with emerging
economies. Canada, Australia and New Zealand were influenced in this manner and,
by the close of the period, experienced rising interest rates and moderate
declines in their currencies relative to the U.S. dollar.
1. Source: Bloomberg.
Responding to these conditions, global bond investors progressively reduced
their holdings of emerging market debt securities and looked for a "safe haven"
in higher quality, developed market government bonds. Within this environment,
Templeton Global Bond Fund - Class I produced a 2.82% cumulative total return
for the one-year period ended August 31, 1998, as discussed in the Performance
Summary on page 6.
During the period, we attempted to maximize the Fund's return by allocating
about 95% of total net assets to intermediate- and long-term bonds in developed
markets and less than 5% to what we believed to be the highest quality and most
liquid bonds available in emerging markets. In our opinion, this combination
appeared to offer the possibility of higher long-term returns with modestly
higher short-term volatility. However, our allocation to emerging market bonds
did hamper the Fund's performance modestly as these bonds generally
underperformed higher-quality bonds from developed markets.
The Fund's geographic distribution was relatively stable throughout the
reporting period. Our allocations to North American and European regions were
approximately 52% and 37%, respectively, on August 31, 1998. Within Europe, the
Fund's allocation in Italy was reduced by about 2% to 6.5% of total net assets
and in the United Kingdom was increased by over 3% to 8.2%. We also initiated a
small position of 1.6% of total net assets in New Zealand.
PORTFOLIO BREAKDOWN
BASED ON TOTAL NET ASSETS
8/31/98
<TABLE>
<S> <C>
GOVERNMENT BONDS 87.2%
CORPORATE BONDS 5.4%
COMMON STOCKS 1.5%
LIMITED PARTNERSHIPS 0.1%
SHORT-TERM INVESTMENTS
& OTHER NET ASSETS 5.8%
</TABLE>
Near the end of the reporting period, we increased our use of foreign currency
hedging because we believed that the U.S. dollar would rise in value against
other currencies as investors sought a "safe haven" during Russia's and Japan's
economic crises. Our hedging activities were undertaken in an effort to minimize
the loss of value arising from changes in currency exchange rates for the Fund's
European currency-denominated bonds. At the end of the period, the Fund's net
U.S. dollar exposure was 86.1%, up from 52.1% at the end of the previous fiscal
year. The net exposure to European currencies stood at only 8.0% on August 31,
1998, down from 34.9% on August 31, 1997.
From our vantage point, the crisis in the emerging markets is not over. We
believe that there is likely to be continued volatility in both emerging and
developed markets until the impact of the crisis is better understood. But
increased volatility in lower-rated bond issues may present an opportunity for
investors with medium- to long-term investment horizons and the willingness to
tolerate moderately higher risk. In our opinion, another critical issue for
global interest rates will be the balance between global growth and inflation.
We believe global economic growth is likely to decline modestly and global
inflation may be quite tame in the near future. In our opinion, this would be an
excellent environment for high quality bonds and contributes to our positive
long-term outlook for the Fund.
Please remember this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However, market
and economic conditions are changing constantly, which can be expected to affect
our strategies and the Fund's portfolio composition. Although historical
performance is no guarantee of future results, these insights may help you
better understand our investment and management philosophy.
It is important to remember that there are special risks involved with global
investing related to market, currency, economic, social, political, and other
factors, in addition to the heightened risks associated with the relatively
small size and lesser liquidity of emerging markets. These special risks and
other considerations are discussed in the Fund's prospectus.
We thank you for your participation in Templeton Global Bond Fund and look
forward to serving your investment needs in the months and years to come.
Sincerely,
/s/THOMAS J. LATTA
Thomas J. Latta
Portfolio Manager
Templeton Global Bond Fund
PERFORMANCE SUMMARY
CLASS I
Templeton Global Bond Fund - Class I produced a 2.82% cumulative total return
for the one-year period ended August 31, 1998. Cumulative total return measures
the change in value of an investment, assuming reinvestment of all
distributions, and does not include the initial sales charge. While we expect
market volatility in the short term, we have always maintained a long-term
perspective when managing the Fund, and we encourage shareholders to view their
investments in a similar manner. As you can see from the table on page 9, the
Fund's Class I shares delivered a 143.67% cumulative total return since
inception on September 18, 1986.
The Fund's share price, as measured by net asset value, decreased 33 cents
($0.33), from $9.82 on August 31, 1997, to $9.49 on August 31, 1998. During the
reporting period, shareholders received per-share distributions of 55.0 cents
($0.5500) in income dividends and 5.5 cents ($0.0550) in long-term capital
gains. Distributions will vary depending on income earned by the Fund and any
profits realized from the sale of securities in the portfolio, as well as the
level of the Fund's operating expenses.
Past performance is not predictive of future results.
The graph on page 8 compares the performance of the Fund's Class I shares over a
10-year period with that of the unmanaged Salomon Brothers World Government Bond
Index and the Consumer Price Index (CPI), a commonly used measure of inflation.
Please remember, the Fund's performance differs from that of an index because an
index is not managed according to any investment strategy, does not contain cash
(the Fund generally carries a certain percentage of cash at any given time), and
includes no sales charges or management or operating expenses. Of course, one
cannot invest directly in an index, nor is an index representative of the Fund's
portfolio.
Past performance is not predictive of future results.
CLASS I
TOTAL RETURN INDEX COMPARISON
$10,000 INVESTMENT (9/1/88 - 8/31/98)
[LINE GRAPH]
The following line compares the performance of Templeton Global Bond Fund's
Class I shares to that of the Salomon Brothers World Government Bond Index and
to the Consumer Price Index based on a $10,000 investment from 9/1/88 to
8/31/98.
<TABLE>
<CAPTION>
Templeton Global Bond Salomon CPI
Fund -Class I* World Gov't
Bond Index
- ----------------------------------------------------------------------
<S> <C> <C> <C>
9/1/88 $9,574 $10,000 $10,000
Sep 88 $9,739 $10,258 $10,068
Oct-88 $9,973 $10,732 $10,101
Nov-88 $10,096 $10,896 $10,110
Dec-88 $10,032 $10,785 $10,127
Jan-89 $10,236 $10,628 $10,178
Feb-89 $10,110 $10,635 $10,218
Mar-89 $10,160 $10,487 $10,277
Apr-89 $10,272 $10,626 $10,345
May-89 $10,221 $10,401 $10,404
Jun-89 $10,324 $10,610 $10,429
Jul-89 $10,641 $11,094 $10,455
Aug-89 $10,662 $10,722 $10,472
Sep-89 $10,736 $10,924 $10,505
Oct-89 $10,758 $11,016 $10,556
Nov-89 $10,769 $11,116 $10,580
Dec-89 $10,888 $11,253 $10,597
Jan-90 $10,762 $11,104 $10,706
Feb-90 $10,723 $10,933 $10,756
Mar-90 $10,701 $10,825 $10,815
Apr-90 $10,645 $10,792 $10,833
May-90 $10,933 $11,151 $10,857
Jun-90 $11,178 $11,356 $10,916
Jul-90 $11,540 $11,712 $10,958
Aug-90 $11,580 $11,620 $11,058
Sep-90 $11,586 $11,749 $11,151
Oct-90 $11,756 $12,274 $11,218
Nov-90 $11,856 $12,478 $11,243
Dec-90 $11,965 $12,602 $11,243
Jan-91 $12,189 $12,917 $11,311
Feb-91 $12,279 $12,921 $11,327
Mar-91 $12,003 $12,452 $11,344
Apr-91 $12,226 $12,643 $11,360
May-91 $12,313 $12,627 $11,393
Jun-91 $12,188 $12,496 $11,428
Jul-91 $12,302 $12,763 $11,445
Aug-91 $12,557 $13,011 $11,478
Sep-91 $13,018 $13,519 $11,529
Oct-91 $13,199 $13,661 $11,546
Nov-91 $13,199 $13,876 $11,579
Dec-91 $13,749 $14,596 $11,588
Jan-92 $13,498 $14,335 $11,604
Feb-92 $13,419 $14,254 $11,647
Mar-92 $13,339 $14,103 $11,705
Apr-92 $13,501 $14,203 $11,722
May-92 $13,893 $14,639 $11,738
Jun-92 $14,303 $15,049 $11,781
Jul-92 $14,647 $15,400 $11,806
Aug-92 $14,674 $15,831 $11,839
Sep-92 $14,103 $15,989 $11,873
Oct-92 $14,243 $15,555 $11,915
Nov-92 $14,102 $15,307 $11,931
Dec-92 $14,177 $15,399 $11,924
Jan-93 $14,280 $15,666 $11,983
Feb-93 $14,547 $15,974 $12,024
Mar-93 $14,816 $16,219 $12,067
Apr-93 $15,085 $16,562 $12,100
May-93 $15,176 $16,728 $12,117
Jun-93 $15,070 $16,693 $12,134
Jul-93 $15,162 $16,740 $12,133
Aug-93 $15,409 $17,243 $12,167
Sep-93 $15,363 $17,448 $12,192
Oct-93 $15,596 $17,418 $12,243
Nov-93 $15,298 $17,293 $12,251
Dec-93 $15,644 $17,441 $12,251
Jan-94 $16,073 $17,581 $12,285
Feb-94 $15,674 $17,466 $12,328
Mar-94 $15,095 $17,441 $12,370
Apr-94 $15,047 $17,461 $12,386
May-94 $14,965 $17,308 $12,394
Jun-94 $14,736 $17,558 $12,436
Jul-94 $14,917 $17,698 $12,469
Aug-94 $15,066 $17,636 $12,521
Sep-94 $15,017 $17,764 $12,554
Oct-94 $15,184 $18,049 $12,563
Nov-94 $15,083 $17,801 $12,579
Dec-94 $15,083 $17,850 $12,579
Jan-95 $15,118 $18,224 $12,629
Feb-95 $15,359 $18,691 $12,679
Mar-95 $15,481 $19,801 $12,721
Apr-95 $15,846 $20,168 $12,763
May-95 $16,356 $20,735 $12,789
Jun-95 $16,390 $20,857 $12,814
Jul-95 $16,567 $20,906 $12,814
Aug-95 $16,657 $20,188 $12,848
Sep-95 $16,979 $20,639 $12,872
Oct-95 $17,285 $20,792 $12,915
Nov-95 $17,447 $21,028 $12,906
Dec-95 $17,830 $21,248 $12,897
Jan-96 $17,903 $20,985 $12,973
Feb-96 $17,774 $20,878 $13,015
Mar-96 $17,811 $20,849 $13,082
Apr-96 $17,903 $20,766 $13,132
May-96 $18,015 $20,771 $13,157
Jun-96 $18,260 $20,934 $13,166
Jul-96 $18,316 $21,335 $13,191
Aug-96 $18,562 $21,418 $13,216
Sep-96 $18,848 $21,505 $13,258
Oct-96 $19,288 $21,908 $13,300
Nov-96 $19,788 $22,196 $13,325
Dec-96 $19,827 $22,017 $13,325
Jan-97 $19,574 $21,428 $13,367
Feb-97 $19,515 $21,268 $13,407
Mar-97 $19,339 $21,106 $13,441
Apr-97 $19,379 $20,921 $13,457
May-97 $19,517 $21,490 $13,449
Jun-97 $19,776 $21,746 $13,465
Jul-97 $19,856 $21,577 $13,481
Aug-97 $19,836 $21,564 $13,506
Sep-97 $20,160 $22,023 $13,540
Oct-97 $20,242 $22,480 $13,574
Nov-97 $20,200 $22,135 $13,566
Dec-97 $20,190 $22,068 $13,550
Jan-98 $20,211 $22,283 $13,574
Feb-98 $20,314 $22,464 $13,601
Mar-98 $20,314 $22,241 $13,629
Apr-98 $20,440 $22,596 $13,653
May-98 $20,482 $22,650 $13,678
Jun-98 $20,503 $22,683 $13,694
Jul-98 $20,482 $22,713 $13,710
Aug-98 $20,396 $23,332 $13,727
</TABLE>
THE HISTORICAL DATA SHOWN PERTAIN ONLY TO THE FUND'S CLASS I SHARES. THE FUND
OFFERS OTHER SHARE CLASSES SUBJECT TO DIFFERENT FEES AND EXPENSES, WHICH AFFECT
THEIR PERFORMANCE. SEE THE PROSPECTUS FOR DETAILS.
*Performance figures represent the change in value of an investment over the
period shown, and have been restated to include the current, maximum 4.25%
initial sales charge, assuming reinvestment of distributions at net asset value.
Prior to July 1, 1994, Fund shares were offered at a higher initial sales
charge; thus, actual total returns would have been lower. On January 1, 1993,
the Fund implemented a Rule 12b-1 plan, which affects subsequent performance.
Past performance is not predictive of future results.
**Source: Salomon Brothers. Index is unmanaged and includes reinvested interest.
One cannot invest directly in an index.
***Source: Bureau of Labor Statistics (8/31/98).
Past performance is not predictive of future results.
CLASS I
PERIODS ENDED 8/31/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR 10-YEAR (9/18/86)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CUMULATIVE TOTAL RETURN(1) 2.82% 32.51% 113.04% 143.67%
AVERAGE ANNUAL TOTAL RETURN(2) -1.58% 4.86% 7.39% 7.35%
VALUE OF $10,000 INVESTMENT(3) $9,842 $12,677 $20,396 $23,331
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and has been restated to include the
current, maximum 4.25% initial sales charge. Prior to July 1, 1994, Fund shares
were offered at a higher initial sales charge; thus, actual total returns would
have been lower.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and have been restated to include the current,
maximum 4.25% initial sales charge. Prior to July 1, 1994, Fund shares were
offered at a higher initial sales charge; thus, actual total returns would have
been lower.
On January 1, 1993, the Fund implemented a Rule 12b-1 plan, which affects
subsequent performance. All calculations assume reinvestment of distributions at
net asset value. Since markets can go down as well as up, investment return and
principal value will fluctuate with market conditions, currency volatility, and
the economic, social, and political climates of countries where the Fund
invests. Emerging markets involve heightened risks related to the same factors,
in addition to those associated with their relatively small size and lesser
liquidity. Also, as a non-diversified investment company, the Fund may invest in
a relatively small number of issuers and, as a result, be subject to greater
risk of loss with respect to its portfolio securities. You may have a gain or
loss when you sell your shares.
Past performance is not predictive of future results.
CLASS II
Templeton Global Bond Fund - Class II produced a 2.46% cumulative total return
for the one-year period ended August 31, 1998. Cumulative total return measures
the change in value of an investment, assuming reinvestment of all
distributions, and does not include sales charges.
The Fund's share price, as measured by net asset value, decreased 33 cents
($0.33), from $9.83 on August 31, 1997, to $9.50 on August 31, 1998. During the
reporting period, shareholders received per-share distributions of 51.5 cents
($0.5150) in income dividends and 5.5 cents ($0.0550) in long-term capital
gains. Distributions will vary depending on income earned by the Fund and any
profits realized from the sale of securities in the portfolio, as well as the
level of the Fund's operating expenses.
Past performance is not predictive of future results.
The graph on page 12 compares the performance of the Fund's Class II shares
since their inception with that of the unmanaged Salomon Brothers World
Government Bond Index and the Consumer Price Index (CPI), a commonly used
measure of inflation. Please remember, the Fund's performance differs from that
of an index because an index is not managed according to any investment
strategy, does not contain cash (the Fund generally carries a certain percentage
of cash at any given time), and includes no sales charges or management or
operating expenses. Of course, one cannot invest directly in an index, nor is an
index representative of the Fund's portfolio.
Past performance is not predictive of future results.
CLASS II
Total Return Index Comparison
$10,000 Investment (5/1/95 - 8/31/98)
[LINE GRAPH]
he following line graph compares the performance of Templeton Global Bond
Fund's Class II shares to that of the Salomon Brothers World Government Bond
Index and to the Consumer Price Index based on a $10,000 investment from 5/1/95
to 8/31/98.
<TABLE>
<CAPTION>
Templeton Global Bond Salomon World CPI
Fund -Class II* Gov't Bond
Index
<S> <C> <C> <C>
- -------------------------------------------------------------------
5/1/95 $9,902 $10,000 $10,000
May 95 $10,209 $10,281 $10,020
Jun-95 $10,229 $10,342 $10,040
Jul-95 $10,337 $10,366 $10,040
Aug-95 $10,377 $10,010 $10,067
Sep-95 $10,585 $10,234 $10,086
Oct-95 $10,772 $10,310 $10,119
Nov-95 $10,869 $10,426 $10,112
Dec-95 $11,103 $10,536 $10,105
Jan-96 $11,156 $10,405 $10,164
Feb-96 $11,084 $10,352 $10,197
Mar-96 $11,103 $10,338 $10,250
Apr-96 $11,145 $10,297 $10,289
May-96 $11,199 $10,299 $10,309
Jun-96 $11,347 $10,380 $10,316
Jul-96 $11,379 $10,579 $10,335
Aug-96 $11,539 $10,620 $10,355
Sep-96 $11,700 $10,663 $10,388
Oct-96 $11,982 $10,863 $10,421
Nov-96 $12,288 $11,006 $10,441
Dec-96 $12,308 $10,917 $10,441
Jan-97 $12,147 $10,625 $10,473
Feb-97 $12,094 $10,546 $10,505
Mar-97 $11,981 $10,465 $10,531
Apr-97 $12,014 $10,374 $10,544
May-97 $12,095 $10,656 $10,537
Jun-97 $12,239 $10,783 $10,550
Jul-97 $12,285 $10,699 $10,563
Aug-97 $12,282 $10,692 $10,583
Sep-97 $12,478 $10,920 $10,609
Oct-97 $12,512 $11,147 $10,636
Nov-97 $12,489 $10,976 $10,629
Dec-97 $12,485 $10,942 $10,617
Jan-98 $12,481 $11,049 $10,636
Feb-98 $12,541 $11,139 $10,657
Mar-98 $12,549 $11,028 $10,678
Apr-98 $12,610 $11,204 $10,697
May-98 $12,632 $11,231 $10,717
Jun-98 $12,654 $11,247 $10,730
Jul-98 $12,636 $11,262 $10,742
Aug-98 $12,584 $11,569 $10,755
</TABLE>
THE HISTORICAL DATA SHOWN PERTAIN ONLY TO THE FUND'S CLASS II SHARES. THE FUND
OFFERS OTHER SHARE CLASSES SUBJECT TO DIFFERENT FEES AND EXPENSES, WHICH AFFECT
THEIR PERFORMANCE. SEE THE PROSPECTUS FOR DETAILS.
*Performance figures represent the change in value of an investment over the
periods shown, assuming reinvestment of distributions at net asset value. Past
performance is not predictive of future results.
**Source: Salomon Brothers. Index is unmanaged and includes reinvested interest.
One cannot invest directly in an index.
***Source: Bureau of Labor Statistics (8/31/98).
Past performance is not predictive of future results.
CLASS II
Periods ended 8/31/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 3-YEAR (5/1/95)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) 2.46% 21.27% 27.08%
Average Annual Total Return(2) 0.44% 6.30% 7.13%
Value of $10,000 Investment(3) $10,044 $12,011 $12,584
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and 1.0% contingent deferred sales charge, applicable to shares redeemed
within 18 months of investment.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the period indicated and include sales charges.
All calculations assume reinvestment of distributions at net asset value. Since
markets can go down as well as up, investment return and principal value will
fluctuate with market conditions, currency volatility, and the economic, social,
and political climates of countries where the Fund invests. Emerging markets
involve heightened risks related to the same factors, in addition to those
associated with their relatively small size and lesser liquidity. Also, as a
non-diversified investment company, the Fund may invest in a relatively small
number of issuers and, as a result, be subject to greater risk of loss with
respect to its portfolio securities. You may have a gain or loss when you sell
your shares.
Past performance is not predictive of future results.
ADVISOR CLASS
Templeton Global Bond Fund - Advisor Class produced a 3.08% cumulative total
return for the one-year period ended August 31, 1998. Cumulative total return
measures the change in value of an investment, assuming reinvestment of all
distributions.
The Fund's share price, as measured by net asset value, decreased 33 cents
($0.33), from $9.82 on August 31, 1997, to $9.49 on August 31, 1998. During the
reporting period, shareholders received per-share distributions of 57.33 cents
($0.5733) in income dividends and 5.5 cents ($0.0550) in long-term capital
gains. Distributions will vary depending on income earned by the Fund and any
profits realized from the sale of securities in the portfolio, as well as the
level of the Fund's operating expenses.
Past performance is not predictive of future results.
The graph on page 16 compares the performance of Templeton Global Bond Fund -
Advisor Class over a 10-year period with that of the unmanaged Salomon Brothers
World Government Bond Index and the Consumer Price Index (CPI), a commonly used
measure of inflation. Please remember, the Fund's performance differs from that
of an index because an index is not managed according to any investment
strategy, does not contain cash (the Fund generally carries a certain percentage
of cash at any given time), and includes no management or operating expenses. Of
course, one cannot invest directly in an index, nor is an index representative
of the Fund's portfolio.
Past performance is not predictive of future results.
ADVISOR CLASS
Total Return Index Comparison
$10,000 Investment (9/1/88 - 8/31/98)
[LINE GRAPH]
The following line graph compares the performance of Templeton Global Bond
Fund's Advisor Class shares to that of the Salomon Brothers World Government
Bond Index and to the Consumer Price Index based on a $10,000 investment from
9/1/88 to 8/31/98.
<TABLE>
<CAPTION>
Templeton Global Bond Fund Salomon World Gov't CPI
- Advisor Class Bond Index
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
9/1/88 $10,000 $10,000 $10,000
Sep 88 $10,172 $10,258 $10,068
Oct-88 $10,417 $10,732 $10,101
Nov-88 $10,545 $10,896 $10,110
Dec-88 $10,478 $10,785 $10,127
Jan-89 $10,691 $10,628 $10,178
Feb-89 $10,560 $10,635 $10,218
Mar-89 $10,612 $10,487 $10,277
Apr-89 $10,729 $10,626 $10,345
May-89 $10,676 $10,401 $10,404
Jun-89 $10,783 $10,610 $10,429
Jul-89 $11,115 $11,094 $10,455
Aug-89 $11,137 $10,722 $10,472
Sep-89 $11,214 $10,924 $10,505
Oct-89 $11,236 $11,016 $10,556
Nov-89 $11,248 $11,116 $10,580
Dec-89 $11,373 $11,253 $10,597
Jan-90 $11,241 $11,104 $10,706
Feb-90 $11,200 $10,933 $10,756
Mar-90 $11,177 $10,825 $10,815
Apr-90 $11,118 $10,792 $10,833
May-90 $11,419 $11,151 $10,857
Jun-90 $11,676 $11,356 $10,916
Jul-90 $12,054 $11,712 $10,958
Aug-90 $12,096 $11,620 $11,058
Sep-90 $12,102 $11,749 $11,151
Oct-90 $12,279 $12,274 $11,218
Nov-90 $12,384 $12,478 $11,243
Dec-90 $12,497 $12,602 $11,243
Jan-91 $12,731 $12,917 $11,311
Feb-91 $12,825 $12,921 $11,327
Mar-91 $12,537 $12,452 $11,344
Apr-91 $12,770 $12,643 $11,360
May-91 $12,860 $12,627 $11,393
Jun-91 $12,730 $12,496 $11,428
Jul-91 $12,849 $12,763 $11,445
Aug-91 $13,115 $13,011 $11,478
Sep-91 $13,597 $13,519 $11,529
Oct-91 $13,786 $13,661 $11,546
Nov-91 $13,786 $13,876 $11,579
Dec-91 $14,360 $14,596 $11,588
Jan-92 $14,098 $14,335 $11,604
Feb-92 $14,016 $14,254 $11,647
Mar-92 $13,933 $14,103 $11,705
Apr-92 $14,101 $14,203 $11,722
May-92 $14,512 $14,639 $11,738
Jun-92 $14,939 $15,049 $11,781
Jul-92 $15,298 $15,400 $11,806
Aug-92 $15,326 $15,831 $11,839
Sep-92 $14,731 $15,989 $11,873
Oct-92 $14,877 $15,555 $11,915
Nov-92 $14,729 $15,307 $11,931
Dec-92 $14,808 $15,399 $11,924
Jan-93 $14,915 $15,666 $11,983
Feb-93 $15,194 $15,974 $12,024
Mar-93 $15,475 $16,219 $12,067
Apr-93 $15,756 $16,562 $12,100
May-93 $15,851 $16,728 $12,117
Jun-93 $15,741 $16,693 $12,134
Jul-93 $15,837 $16,740 $12,133
Aug-93 $16,094 $17,243 $12,167
Sep-93 $16,046 $17,448 $12,192
Oct-93 $16,290 $17,418 $12,243
Nov-93 $15,978 $17,293 $12,251
Dec-93 $16,340 $17,441 $12,251
Jan-94 $16,788 $17,581 $12,285
Feb-94 $16,371 $17,466 $12,328
Mar-94 $15,767 $17,441 $12,370
Apr-94 $15,716 $17,461 $12,386
May-94 $15,631 $17,308 $12,394
Jun-94 $15,391 $17,558 $12,436
Jul-94 $15,580 $17,698 $12,469
Aug-94 $15,737 $17,636 $12,521
Sep-94 $15,685 $17,764 $12,554
Oct-94 $15,860 $18,049 $12,563
Nov-94 $15,755 $17,801 $12,579
Dec-94 $15,754 $17,850 $12,579
Jan-95 $15,790 $18,224 $12,629
Feb-95 $16,042 $18,691 $12,679
Mar-95 $16,170 $19,801 $12,721
Apr-95 $16,551 $20,168 $12,763
May-95 $17,083 $20,735 $12,789
Jun-95 $17,119 $20,857 $12,814
Jul-95 $17,304 $20,906 $12,814
Aug-95 $17,398 $20,188 $12,848
Sep-95 $17,734 $20,639 $12,872
Oct-95 $18,054 $20,792 $12,915
Nov-95 $18,224 $21,028 $12,906
Dec-95 $18,623 $21,248 $12,897
Jan-96 $18,699 $20,985 $12,973
Feb-96 $18,565 $20,878 $13,015
Mar-96 $18,603 $20,849 $13,082
Apr-96 $18,700 $20,766 $13,132
May-96 $18,817 $20,771 $13,157
Jun-96 $19,072 $20,934 $13,166
Jul-96 $19,131 $21,335 $13,191
Aug-96 $19,387 $21,418 $13,216
Sep-96 $19,686 $21,505 $13,258
Oct-96 $20,146 $21,908 $13,300
Nov-96 $20,668 $22,196 $13,325
Dec-96 $20,709 $22,017 $13,325
Jan-97 $20,449 $21,428 $13,368
Feb-97 $20,391 $21,268 $13,408
Mar-97 $20,211 $21,106 $13,441
Apr-97 $20,256 $20,921 $13,457
May-97 $20,425 $21,490 $13,449
Jun-97 $20,660 $21,746 $13,465
Jul-97 $20,747 $21,577 $13,481
Aug-97 $20,751 $21,564 $13,507
Sep-97 $21,094 $22,023 $13,541
Oct-97 $21,163 $22,480 $13,575
Nov-97 $21,133 $22,135 $13,566
Dec-97 $21,141 $22,068 $13,550
Jan-98 $21,146 $22,283 $13,575
Feb-98 $21,258 $22,464 $13,602
Mar-98 $21,285 $22,241 $13,629
Apr-98 $21,399 $22,596 $13,654
May-98 $21,448 $22,650 $13,678
Jun-98 $21,497 $22,683 $13,694
Jul-98 $21,457 $22,713 $13,711
Aug-98 $21,390 $23,332 $13,727
</TABLE>
THE HISTORICAL DATA SHOWN PERTAIN ONLY TO THE FUND'S ADVISOR CLASS SHARES. THE
FUND OFFERS OTHER SHARE CLASSES SUBJECT TO DIFFERENT FEES AND EXPENSES, WHICH
AFFECT THEIR PERFORMANCE. SEE THE PROSPECTUS FOR DETAILS.
*Performance figures represent the change in value of an investment over the
periods shown, assuming reinvestment of distributions at net asset value. On
January 2, 1997, the Fund began selling Advisor Class shares to certain eligible
investors as described in the prospectus. This share class does not have sales
charges or a Rule 12b-1 plan. Performance quotations have been calculated as
follows: (a) For periods prior to January 2, 1997, figures reflect the Fund's
Class I performance, excluding the effect of the Class I sales charge, but
including the effect of Class I expenses, containing Rule 12b-1 fees; and (b)
for periods after January 1, 1997, figures reflect actual Advisor Class
performance, including the deduction of all fees and expenses applicable only to
that class. Past performance is not predictive of future results.
**Source: Salomon Brothers. Index is unmanaged and includes reinvested interest.
One cannot invest directly in an index.
***Source: Bureau of Labor Statistics (8/31/98).
Past performance is not predictive of future results.
ADVISOR CLASS
Periods ended 8/31/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR* 5-YEAR* 10-YEAR* (9/18/86)*
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) 3.08% 32.90% 113.90% 144.65%
Average Annual Total Return(1) 3.08% 5.85% 7.90% 7.77%
Value of $10,000 Investment(2) $10,308 $13,290 $21,390 $24,465
</TABLE>
*On January 2, 1997, the Fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
the Fund's Class I performance, excluding the effect of the Class I sales
charge, but including the effect of Class I expenses, containing Rule 12b-1
fees; and (b) for periods after January 1, 1997, figures reflect actual Advisor
Class performance, including deduction of all fees and expenses applicable only
to that class. Since January 2, 1997 (commencement of sales), the cumulative
total return of Advisor Class shares was 3.90%.
1. Cumulative total return represents the change in value of an investment over
the periods indicated. Average annual total return represents the average annual
change in value of an investment over the periods indicated.
2. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.
All calculations assume reinvestment of distributions at net asset value. Since
markets can go down as well as up, investment return and principal value will
fluctuate with market conditions, currency volatility, and the economic, social,
and political climates of countries where the Fund invests. Emerging markets
involve heightened risks related to the same factors, in addition to those
associated with their relatively small size and lesser liquidity. Also, as a
non-diversified investment company, the Fund may invest in a relatively small
number of issuers and, as a result, be subject to greater risk of loss with
respect to its portfolio securities. You may have a gain or loss when you sell
your shares.
Past performance is not predictive of future results.
TEMPLETON GLOBAL BOND FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS I
--------------------------------------------------------
YEAR ENDED AUGUST 31,
--------------------------------------------------------
1998 1997 1996 1995 1994+
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year......................... $9.82 $9.76 $9.32 $9.05 $9.96
--------------------------------------------------------
Income from investment operations:
Net investment income..................................... .60 .63 .69 .73 .72
Net realized and unrealized gains (losses)................ (.32) .03 .35 .17 (.91)
--------------------------------------------------------
Total from investment operations........................... .28 .66 1.04 .90 (.19)
--------------------------------------------------------
Less distributions from:
Net investment income..................................... (.55) (.60) (.58) (.54) (.53)
Net realized gains........................................ (.06) -- -- -- (.07)
Tax return of capital..................................... -- -- (.02) (.09) (.12)
--------------------------------------------------------
Total distributions........................................ (.61) (.60) (.60) (.63) (.72)
--------------------------------------------------------
Net asset value, end of year............................... $9.49 $9.82 $9.76 $9.32 $9.05
--------------------------------------------------------
--------------------------------------------------------
Total Return*.............................................. 2.82% 6.87% 11.44% 10.43% (2.01)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................ $189,898 $198,131 $185,596 $191,301 $205,482
Ratios to average net assets:
Expenses.................................................. 1.17% 1.15% 1.13% 1.18% 1.18%
Net investment income..................................... 6.12% 6.41% 7.09% 7.99% 7.50%
Portfolio turnover rate.................................... 75.95% 166.69% 109.40% 101.12% 139.23%
</TABLE>
*Total return does not reflect sales commissions.
+Based on weighted average shares outstanding.
TEMPLETON GLOBAL BOND FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS II
----------------------------------------
YEAR ENDED AUGUST 31,
----------------------------------------
1998 1997 1996 1995+
----------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $9.83 $9.77 $9.31 $9.05
----------------------------------------
Income from investment operations:
Net investment income...................................... .56 .57 .61 .21
Net realized and unrealized gains (losses)................. (.32) .05 .41 .24
----------------------------------------
Total from investment operations............................ .24 .62 1.02 .45
----------------------------------------
Less distributions from:
Net investment income...................................... (.51) (.56) (.54) (.15)
Net realized gains......................................... (.06) -- -- --
Tax return of capital...................................... -- -- (.02) (.04)
----------------------------------------
Total distributions......................................... (.57) (.56) (.56) (.19)
----------------------------------------
Net asset value, end of year................................ $9.50 $9.83 $9.77 $9.31
========================================
Total Return*............................................... 2.46% 6.44% 11.20% 5.03%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $20,404 $16,629 $6,563 $2,043
Ratios to average net assets:
Expenses................................................... 1.56% 1.54% 1.56% 1.57%**
Net investment income...................................... 5.73% 5.96% 6.69% 7.47%**
Portfolio turnover rate..................................... 75.95% 166.69% 109.40% 101.12%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge and is not annualized.
**Annualized.
+For the period May 1, 1995 (effective date) to August 31, 1995.
TEMPLETON GLOBAL BOND FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
ADVISOR CLASS
------------------------
YEAR ENDED AUGUST 31,
------------------------
1998 1997+
------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $9.82 $10.16
------------------------
Income from investment operations:
Net investment income...................................... .62 .42
Net realized and unrealized losses......................... (.32) (.34)
------------------------
Total from investment operations............................ .30 .08
------------------------
Less distributions from:
Net investment income...................................... (.57) (.42)
Net realized gains......................................... (.06) --
------------------------
Total distributions......................................... (.63) (.42)
------------------------
Net asset value, end of year................................ $9.49 $9.82
========================
Total Return*............................................... 3.08% .80%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $11,330 $12,742
Ratios to average net assets:
Expenses................................................... .91% .88%**
Net investment income...................................... 6.38% 6.76%**
Portfolio turnover rate..................................... 75.95% 166.69%
</TABLE>
*Total return is not annualized.
**Annualized.
+For the period January 2, 1997 (effective date) to August 31, 1997.
See Notes to Financial Statements.
TEMPLETON GLOBAL BOND FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 94.2%
ARGENTINA 1.9%
Perez Companc SA, 144A, 8.125%, 7/15/07..................... $ 5,000,000 $ 3,425,000
Republic of Argentina:
8.375%, 12/20/03.......................................... 480,000 355,200
11.00%, 10/09/06.......................................... 460,000 336,375
------------
4,116,575
------------
AUSTRALIA 3.4%
Government of Australia, 7.50%, 7/15/05..................... 12,035,000AUD 7,518,974
------------
CANADA 7.0%
Government of Canada:
10.50%, 7/01/00........................................... 10,600,000CAD 7,316,585
10.50%, 3/01/01........................................... 6,235,000CAD 4,417,217
10.00%, 5/01/02........................................... 5,135,000CAD 3,737,324
------------
15,471,126
------------
CHILE 1.6%
Compania Sud Americana de Vapores SA:
7.375%, 12/08/03.......................................... 1,500,000 1,372,500
144A, 7.375%, 12/08/03.................................... 2,500,000 2,287,500
------------
3,660,000
------------
COLOMBIA .9%
Republic of Colombia, 7.25%, 2/23/04........................ 2,500,000 1,955,750
------------
DENMARK 2.0%
Kingdom of Denmark:
8.00%, 5/15/03............................................ 19,995,000DKK 3,401,118
9.00%, 11/15/00........................................... 6,605,000DKK 1,072,856
------------
4,473,974
------------
GERMANY 9.8%
Federal Republic of Germany:
Bundesrep, 7.75%, 2/21/00................................. 20,705,000DEM 12,439,437
5.25%, 2/21/01............................................ 250,000DEM 147,250
8.00%, 7/22/02............................................ 8,605,000DEM 5,630,456
Hypothekenbank In Essen AG, 5.25%, 1/22/08.................. 5,790,000DEM 3,435,914
------------
21,653,057
------------
INDIA .1%
Essar Steel Ltd., FRN, Reg. S, 8.40%, 7/20/99............... 315,000 266,175
------------
INDONESIA .2%
PT Astra International, 9.75%, 4/29/01...................... 2,000,000 450,000
------------
</TABLE>
TEMPLETON GLOBAL BOND FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1998 (CONT.)
<TABLE>
<CAPTION>
SHARES/
PRINCIPAL AMOUNT** VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
ITALY 6.5%
Buoni Poliennali del Tesoro:
12.00%, 1/17/99........................................... 2,900,000,000ITL $ 1,698,385
10.50%, 7/15/00........................................... 1,270,000,000ITL 809,503
10.50%, 11/01/00.......................................... 3,530,000,000ITL 2,286,495
10.50%, 9/01/05........................................... 12,290,000,000ITL 9,538,086
------------
14,332,469
------------
MEXICO .2%
United Mexican States, 9.75%, 2/06/01....................... 460,000 414,000
------------
NEW ZEALAND 1.6%
Government of New Zealand, 6.50%, 2/15/00................... 7,240,000NZD 3,587,381
------------
SOUTH KOREA .3%
Pohang Iron & Steel, 6.625%, 7/01/03........................ 1,000,000 753,392
------------
SPAIN 7.1%
Government of Spain:
12.25%, 3/25/00........................................... 952,710,000ESP 7,157,173
10.10%, 2/28/01........................................... 522,900,000ESP 4,002,272
10.90%, 8/30/03........................................... 520,500,000ESP 4,511,127
------------
15,670,572
------------
SWEDEN 3.5%
Kingdom of Sweden, 10.25%, 5/05/03.......................... 51,400,000SEK 7,854,769
------------
UNITED KINGDOM 8.2%
United Kingdom:
8.00%, 12/07/00........................................... 5,825,000GBP 10,119,790
7.00%, 11/06/01........................................... 1,175,000GBP 2,021,656
conv. stk., 9.50%, 4/18/05................................ 2,960,000GBP 6,020,655
------------
18,162,101
------------
UNITED STATES 39.5%
+*Acadia Partners LP........................................ 999,667 155,628
+Penobscot Partners LP...................................... 333 3,800
+Texas Utilities Holding Co................................. 70,000 2,975,000
U.S. Treasury Bond, 6.375%, 8/15/27......................... 6,170,000 7,028,019
U.S. Treasury Notes:
6.125%, 7/31/00........................................... 5,950,000 6,076,443
6.625%, 3/31/02........................................... 22,505,000 23,644,316
6.375%, 8/15/02........................................... 11,960,000 12,531,844
6.25%, 2/15/03............................................ 4,900,000 5,149,594
</TABLE>
TEMPLETON GLOBAL BOND FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1998 (CONT.)
<TABLE>
<CAPTION>
SHARES/
PRINCIPAL AMOUNT** VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
UNITED STATES (CONT.)
7.875%, 11/15/04.......................................... $ 14,038,000 $ 16,156,861
6.625%, 5/15/07........................................... 12,262,000 13,553,342
+Washington Mutual Inc...................................... 10,475 335,184
------------
87,610,031
------------
VENEZUELA .4%
Venezuela Front Load Interest Reduction Bond, A, 6.625%,
3/31/07................................................... 2,142,852 886,605
------------
TOTAL LONG TERM INVESTMENTS (COST $220,409,836)............. 208,836,951
------------
(a)REPURCHASE AGREEMENT 4.7%
Morgan Stanley Inc., 5.75%, 9/01/98 (Maturity Value
$10,415,663) (COST $10,414,000) Collateralized by U.S.
Treasury Notes and Bonds.................................. 10,414,000 10,414,000
------------
TOTAL INVESTMENTS (COST $230,823,836) 98.9%................. 219,250,951
NET EQUITY IN FORWARD CONTRACTS (.4%)....................... (851,645)
OTHER ASSETS, LESS LIABILITIES 1.5%......................... 3,232,717
------------
TOTAL NET ASSETS 100.0%..................................... $221,632,023
============
</TABLE>
CURRENCY ABBREVIATIONS:
<TABLE>
<S> <C>
AUD -- Australian Dollar
CAD -- Canadian Dollar
DEM -- German Mark
DKK -- Danish Krone
ESP -- Spanish Peseta
GBP -- British Pound
ITL -- Italian Lira
NZD -- New Zealand Dollar
SEK -- Swedish Krona
</TABLE>
*Non-income producing.
**Securities traded in U.S. dollars unless otherwise indicated.
(a)At August 31, 1998, all repurchase agreements held by the Fund had been
entered into on that date.
+Securities represent equity investments.
See Notes to Financial Statements.
TEMPLETON GLOBAL BOND FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $220,409,836).... $208,836,951
Repurchase agreement, at value and cost.................... 10,414,000
Cash....................................................... 959
Receivables:
Investment securities sold................................ 201,691,629
Fund shares sold.......................................... 454,560
Dividends and interest.................................... 4,891,670
Unrealized gain on forward exchange contracts (Note 6)..... 812,378
------------
Total assets.......................................... 427,102,147
------------
Liabilities:
Payables:
Investment securities purchased........................... 201,855,791
Fund shares redeemed...................................... 1,640,850
To affiliates............................................. 208,245
Unrealized loss on forward exchange contracts (Note 6)..... 1,664,023
Accrued liabilities........................................ 101,215
------------
Total liabilities..................................... 205,470,124
------------
Net assets, at value........................................ $221,632,023
============
Net assets consist of:
Undistributed net investment income........................ $ 785,814
Net unrealized depreciation................................ (12,419,017)
Accumulated net realized loss.............................. (131,258)
Beneficial shares.......................................... 233,396,484
------------
Net assets, at value........................................ $221,632,023
============
CLASS I:
Net asset value per share ($189,898,066 / 20,001,184 shares
outstanding).............................................. $9.49
============
Maximum offering price per share ($9.49 / 95.75%).......... $9.91
============
CLASS II:
Net asset value per share ($20,404,127 / 2,147,450 shares
outstanding)*............................................. $9.50
============
Maximum offering price per share ($9.50 / 99.00%).......... $9.60
============
ADVISOR CLASS:
Net asset value and maximum offering price per share
($11,329,830 / 1,194,022 shares outstanding).............. $9.49
============
</TABLE>
*Redemption price per share is equal to net asset value less any applicable
sales charge.
See Notes to Financial Statements.
TEMPLETON GLOBAL BOND FUND
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1998
<TABLE>
<S> <C> <C>
Investment Income:
Dividends.................................................. $ 326,354
Interest................................................... 16,518,993
-----------
Total investment income............................... $16,845,347
Expenses:
Management fees (Note 3)................................... 1,139,351
Administrative fees (Note 3)............................... 340,429
Distribution fees (Note 3)
Class I................................................... 509,684
Class II.................................................. 125,086
Transfer agent fees (Note 3)............................... 288,060
Custodian fees............................................. 34,438
Reports to shareholders.................................... 156,400
Registration and filing fees............................... 55,000
Professional fees.......................................... 66,000
Trustees' fees and expenses................................ 27,000
Other...................................................... 1,853
-----------
Total expenses........................................ 2,743,301
-----------
Net investment income........................... 14,102,046
-----------
Realized and unrealized gains (losses):
Net realized gain from:
Investments............................................... 132,821
Foreign currency transactions............................. 764,874
-----------
Net realized gain..................................... 897,695
Net unrealized depreciation on:
Investments............................................... (7,028,441)
Translation of assets and liabilities denominated in
foreign currencies....................................... (1,459,986)
-----------
Net unrealized depreciation........................... (8,488,427)
-----------
Net realized and unrealized loss............................ (7,590,732)
-----------
Net increase in net assets resulting from operations........ $ 6,511,314
===========
</TABLE>
See Notes to Financial Statements.
TEMPLETON GLOBAL BOND FUND
Financial Statements (continued)
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 14,102,046 $ 13,445,285
Net realized gain from investments and foreign currency
transactions............................................ 897,695 2,556,246
Net unrealized depreciation on investments and translation
of assets and liabilities denominated in foreign
currencies............................................... (8,488,427) (2,361,748)
-------------------------------
Net increase in net assets resulting from operations.... 6,511,314 13,639,783
Distributions to shareholders from:
Net investment income:
Class I.................................................. (11,190,365) (11,873,359)
Class II................................................. (1,004,165) (653,900)
Advisor Class............................................ (803,082) (175,160)
Net realized gains:
Class I.................................................. (1,112,297) --
Class II................................................. (115,925) --
Advisor Class............................................ (67,412) --
Capital share transactions (Note 2):
Class I.................................................. (1,581,970) 11,375,603
Class II................................................. 4,463,377 10,137,187
Advisor Class............................................ (970,039) 12,893,491
-------------------------------
Net increase (decrease) in net assets................... (5,870,564) 35,343,645
Net assets:
Beginning of year.......................................... 227,502,587 192,158,942
-------------------------------
End of year................................................ $221,632,023 $227,502,587
===============================
Undistributed net investment income included in net assets:
End of year................................................ $ 785,814 $ 742,866
===============================
</TABLE>
See Notes to Financial Statements.
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements
1. SUMMARY OF ACCOUNTING POLICIES
Templeton Global Bond Fund (the Fund), is a separate, non-diversified series of
Templeton Income Trust (the Trust), which is an open-end investment company
registered under the Investment Company Act of 1940. The Fund seeks current
income with capital appreciation and growth of income, through a flexible policy
of investing 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 depository receipts. The
following summarizes the Fund's significant accounting policies.
a. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Trustees.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date. When
the Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to the settlement date of such transactions.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
c. INCOME TAXES:
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.
d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements (continued)
1. SUMMARY OF ACCOUNTING POLICIES (CONT.)
d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONT.)
information is available to the Fund. Interest income and estimated expenses are
accrued daily. Dividend income and distributions to shareholders are recorded on
the ex-dividend date.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
e. FORWARD EXCHANGE CONTRACTS:
The Fund may enter into forward exchange contracts to hedge against foreign
exchange risks. These contracts are valued daily and the Fund's equity therein
is included in the Statement of Assets and Liabilities. Realized and unrealized
gains and losses are included in the Statement of Operations.
f. ACCOUNTING ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. BENEFICIAL SHARES
The Fund offers three classes of shares: Class I, Class II and Advisor Class
shares. The shares differ by their initial sales load, distribution fees, voting
rights on matters affecting a single class of shares and the exchange privilege
of each class.
At August 31, 1998, there were an unlimited number of shares of beneficial
interest authorized ($.01 par value). Transactions in the Fund's shares were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------------------------------------
1998 1997
-------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS I SHARES:
Shares sold................................................ 5,805,764 $ 56,610,214 8,683,958 $ 86,215,013
Shares issued on reinvestment of distributions............. 935,877 9,102,189 817,138 8,116,791
Shares redeemed............................................ (6,908,185) (67,294,373) (8,348,405) (82,956,201)
-------------------------------------------------------------
Net increase (decrease).................................... (166,544) $ (1,581,970) 1,152,691 $ 11,375,603
=============================================================
</TABLE>
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements (continued)
2. BENEFICIAL SHARES (CONT.)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------------------
1998 1997
-----------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS II SHARES:
Shares sold................................................. 910,441 $ 8,897,295 1,214,404 $12,072,843
Shares issued on reinvestment of distributions.............. 100,468 976,732 56,414 559,590
Shares redeemed............................................. (555,304) (5,410,650) (250,933) (2,495,246)
-----------------------------------------------------------
Net increase................................................ 455,605 $ 4,463,377 1,019,885 $10,137,187
===========================================================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------------------
1998 1997*
-----------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------
<S> <C> <C> <C> <C>
ADVISOR CLASS SHARES:
Shares sold................................................. 957,957 $ 9,380,180 1,727,048 $17,132,789
Shares issued on reinvestment of distributions.............. 18,458 178,859 5,975 58,875
Shares redeemed............................................. (1,080,092) (10,529,078) (435,324) (4,298,173)
-----------------------------------------------------------
Net increase (decrease)..................................... (103,677) $ (970,039) 1,297,699 $12,893,491
============================================================
</TABLE>
*Effective date of Advisor Class Shares was January 2, 1997.
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Fund are also officers of Templeton Investment Counsel,
Inc. (TICI), Franklin Templeton Services, Inc. (FT Services), Franklin/Templeton
Distributors, Inc. (Distributors) and Franklin/Templeton Investor Services, Inc.
(Investor Services), the Fund's investment manager, administrative manager,
principal underwriter and transfer agent, respectively.
The Fund pays an investment management fee to TICI based on the average daily
net assets of the Fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- -----------------------------------------------------------------
<S> <C>
0.50% First $200 million
0.45% Over $200 million, up to and including $1.3 billion
0.40% Over $1.3 billion
</TABLE>
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
The Fund pays its allocated share of an administrative fee to FT Services based
on the Trust's aggregate average daily net assets as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- ---------------------------------------
<S> <C>
0.15% First $200 million
0.135% Next $500 million
0.10% Next $500 million
0.075% Over $1.2 billion
</TABLE>
The Fund reimburses Distributors up to 0.25% and 0.65% per year of the average
daily net assets of Class I and Class II shares, respectively, for costs
incurred in marketing the Fund's Class I and Class II shares. Under the Class I
distribution plan, costs exceeding the maximum may be reimbursed in subsequent
periods. At August 31, 1998, unreimbursed cost were $73,567. Distributors
received net commissions on sales of the Fund's shares and received contingent
deferred sales charges for the year of $777 and $12,258, respectively.
Legal fees of $26,326 were paid to a law firm in which a partner is an officer
of the Trust.
4. INCOME TAXES
The cost of securities for income tax purposes is the same as that shown in the
Statement of Investments. At August 31, 1998, the net unrealized depreciation
based on the cost of investments for income tax purposes was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 2,584,129
Unrealized depreciation..................................... (14,157,014)
------------
Net unrealized depreciation................................. $(11,572,885)
============
</TABLE>
Net realized capital gains differ for financial statement and tax purposes
primarily due to differing treatments of foreign currency transactions.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended August 31, 1998 aggregated $173,601,321 and $161,032,640, respectively.
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Fund has been a party to financial instruments with off-balance sheet risk,
primarily forward exchange contracts, in order to minimize the impact on the
Fund from adverse changes in the relationship between the U.S. dollar and
foreign currencies and interest rates. These instruments involve market risk in
excess of the amount recognized on the Statement of Assets and Liabilities. Some
of these risks have been minimized by offsetting contracts. Risks arise from the
possible inability of counterparties to meet the terms of their contracts,
future movement in currency values
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements (continued)
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
and interest rates and contract positions that are not exact offsets. The
contract amount indicates the extent of the Fund's involvement in such
contracts.
A forward exchange contract is an agreement between two parties to exchange
different currencies at a specific rate at an agreed future date. The contracts
are reported in the financial statements at the Fund's net equity, as measured
by the difference between the forward exchange rates at the reporting date and
the forward exchange rates at the day of entry into the contract.
As of August 31, 1998, the Fund had the following forward exchange contracts
outstanding:
<TABLE>
<CAPTION>
IN SETTLEMENT UNREALIZED
CONTRACTS TO SELL: EXCHANGE FOR DATE GAIN/(LOSS)
- -------------- ---------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
1,540,000 Australian Dollars.......................................... U.S. $ 935,180 9/8/98 U.S. $ 53,822
1,000,000 Australian Dollars.......................................... 604,800 9/9/98 32,482
2,200,000 Australian Dollars.......................................... 1,331,550 9/10/98 72,433
3,080,000 Australian Dollars.......................................... 1,833,216 9/15/98 70,335
1,540,000 Australian Dollars.......................................... 915,145 9/18/98 33,669
4,027,000 New Zealand Dollars......................................... 2,021,554 9/14/98 25,887
504,500 New Zealand Dollars......................................... 259,010 9/3/98 8,964
----------- -----------
U.S. $ 7,900,455 297,592
=========== -----------
Net unrealized gain on offsetting forward exchange contracts........ 514,786
-----------
Unrealized gain on forward exchange contracts..................... 812,378
-----------
CONTRACTS TO BUY:
- --------------
540,000 New Zealand Dollars......................................... U.S. $ 318,168 9/15/98 (9,091)
=========== -----------
CONTRACTS TO SELL:
- --------------
3,027,000 British Pounds.............................................. U.S. $ 4,893,176 11/24/98 (153,156)
1,000,000 British Pounds.............................................. 1,618,160 11/27/98 (48,699)
9,350,000 Canadian Dollars............................................ 5,958,545 9/30/98 (17,805)
29,000,000 Deutschemarks............................................... 16,273,850 9/17/98 (187,700)
21,500,000 Deutschemarks............................................... 11,905,026 9/21/98 (302,193)
32,000,000 Deutschemarks............................................... 17,706,264 9/21/98 (462,619)
21,500,000 Deutschemarks............................................... 11,971,047 9/24/98 (238,398)
----------- -----------
U.S. $70,326,068 (1,410,570)
===========
Net unrealized loss on offsetting forward exchange contracts........ (244,362)
-----------
Unrealized loss on forward exchange contracts..................... (1,664,023)
-----------
Net unrealized loss on forward exchange contracts............... U.S. $ (851,645)
============
</TABLE>
TEMPLETON GLOBAL BOND FUND
Independent Auditor's Report
THE BOARD OF TRUSTEES AND SHAREHOLDERS
TEMPLETON GLOBAL BOND FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Templeton Global Bond Fund, a series of
Templeton Income Trust, as of August 31, 1998, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
the period indicated in the accompanying financial statements. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1998, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Templeton Global Bond Fund as of August 31, 1998, the results of its operations,
the changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles.
/s/McGladrey & Pullen, LLP
New York, New York
September 29, 1998
TEMPLETON GLOBAL BOND FUND
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates the following amount as a capital gain dividend for the fiscal year
ended August 31, 1998:
<TABLE>
<S> <C>
20% Rate Gain............................................... $1,290,241
----------
</TABLE>
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates
1.22% of the ordinary income dividends as income qualifying for the dividends
received deduction for the fiscal year ended August 31, 1998.
33
PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404-1585
1-800/DIAL BEN(R)
www.franklin-templeton.com
SHAREHOLDER SERVICES
1-800/632-2301
FUND INFORMATION
1-800/342-5236
This report must be preceded or accompanied by the current prospectus
of Templeton Global Bond Fund, which contains more complete information
including risk factors, charges and expenses. Like any investment in securities,
the value of the Fund's portfolio will be subject to the risk of loss from
market, currency, economic, political and other factors, as well as investment
decisions by the Investment Manager, which will not always be profitable or
wise. The Fund and its investors are not protected from such losses by the
Investment Manager. Therefore, investors who cannot accept this risk should not
invest in shares of the Fund.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
determined by the presence of a regular beeping tone.
406 A98 10/98 [Recycle Logo] Printed on recycled paper
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN
YOUR PROXY TODAY
Please detach at perforation before mailing.
PROXY PROXY
SPECIAL SHAREHOLDERS' MEETING OF
TEMPLETON AMERICAS GOVERNMENT SECURITIES FUND
OCTOBER 1, 1999
The undersigned hereby revokes all previous proxies for his or her shares and
appoints BARBARA J. GREEN, JAMES R. BAIO AND BRUCE S. ROSENBERG, and each of
them, proxies of the undersigned with full power of substitution to each of
them, to vote all shares of Templeton Americas Government Securities Fund
("Americas Government Securities Fund") that the undersigned is entitled to vote
at Americas Government Securities Fund's Special Meeting to be held at 500 East
Broward Boulevard, Fort Lauderdale, FL 33394-3091 at 10:00 a.m., Eastern time on
October 1, 1999, including any adjournment(s) thereof upon such business as may
properly be brought before the Special Meeting.
IMPORTANT: PLEASE SEND IN YOUR PROXY TODAY.
YOU ARE URGED TO DATE AND SIGN THE ATTACHED PROXY AND RETURN IT PROMPTLY. THIS
WILL SAVE THE EXPENSE OF FOLLOW-UP LETTERS TO SHAREHOLDERS WHO HAVE NOT
RESPONDED.
Note: Please sign exactly as your name
appears on the proxy. If signing for
estates, trusts or corporations, title or
capacity should be stated. If shares are
held jointly, each holder must sign.
_________________________________________
Signature
_________________________________________
Signature
_________________________________________
Date
(Please see reverse side)
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
Please detach at perforation before mailing.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF TEMPLETON GLOBAL
INVESTMENT TRUST, ON BEHALF OF ITS SERIES, TEMPLETON AMERICAS GOVERNMENT
SECURITIES FUND. IT WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE,
THIS PROXY SHALL BE VOTED IN FAVOR OF PROPOSAL 1, REGARDING THE REORGANIZATION
OF TEMPLETON AMERICAS GOVERNMENT SECURITIES FUND PURSUANT TO THE AGREEMENT AND
PLAN OF REORGANIZATION WITH TEMPLETON INCOME TRUST, ON BEHALF OF ITS SERIES,
TEMPLETON GLOBAL BOND FUND. IF ANY OTHER MATTERS PROPERLY COME BEFORE THE
SPECIAL MEETING ABOUT WHICH THE PROXYHOLDERS WERE NOT AWARE PRIOR TO THE TIME OF
THE SOLICITATION, AUTHORIZATION IS GIVEN THE PROXYHOLDERS TO VOTE IN ACCORDANCE
WITH THE VIEWS OF MANAGEMENT ON SUCH MATTERS. MANAGEMENT IS NOT AWARE OF ANY
SUCH MATTERS.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR PROPOSAL 1.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----- --------- --------
<S> <C> <C> <C>
1. To approve an Agreement and Plan of
Reorganization between Templeton Global |_| |_| |_|
Investment Trust, on behalf of its series,
Templeton Americas Government Securities Fund
("Americas Government Securities Fund"), and
Templeton Income Trust, on behalf of its series,
Templeton Global Bond Fund ("Global Bond Fund"),
that provides for the acquisition of substantially
all of the assets of Americas Government Securities
Fund in exchange for Class A shares of Global Bond
Fund, the distribution of such shares to the
shareholders of Americas Government Securities
Fund, and the dissolution of Americas Government
Securities Fund (the"Reorganization").
FOR AGAINST ABSTAIN
----- --------- --------
2. To grant the proxyholders the authority to |_| |_| [_]
vote upon any other business that may
legally come before the Special Meeting or
any adjournment(s) thereof.
</TABLE>
IMPORTANT: PLEASE SIGN AND MAIL IN YOUR PROXY. . . TODAY
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO POSTAGE
REQUIRED IF MAILED IN THE U.S.
STATEMENT OF ADDITIONAL INFORMATION
FOR
TEMPLETON INCOME TRUST -- TEMPLETON GLOBAL BOND FUND
DATED August 9, 1999
Acquisition of the Assets of
TEMPLETON AMERICAS GOVERNMENT SECURITIES FUND,
a series of Templeton Global Investment Trust
By and in exchange for Class A shares of the
TEMPLETON GLOBAL BOND FUND,
a series of Templeton Income Trust
This Statement of Additional Information (SAI) relates specifically to
the proposed delivery of substantially all of the assets of Templeton Americas
Government Securities Fund for Class A shares of Templeton Global Bond Fund.
This SAI consists of this Cover Page and the following documents. Each
of these documents is attached to and is legally considered to be a part of this
SAI:
1. Statement of Additional Information of Templeton Income Trust --
Templeton Global Bond Fund Class A & C dated January 1, 1999, as
supplemented April 1, 1999.
2. Annual Report of Templeton Americas Government Securities Fund,
containing financial information regarding Americas Government
Securities Fund for the fiscal year ended March 31, 1999.
3. SemiAnnual Report of Templeton Global Bond Fund, containing financial
information regarding Templeton Global Bond Fund for the six months
ended February 28, 1999.
4. Projected after Transaction financials.
This SAI is not a Prospectus; you should read this SAI in conjunction
with the Prospectus/Proxy Statement dated August 9, 1999, relating to the
above-referenced transaction. Audited financial information for Templeton Global
Bond Fund is contained in that fund's Annual Report to Shareholders dated August
31, 1998, which is enclosed with and considered a part of the Prospectus/Proxy
Statement. You can request a copy of the Prospectus/Proxy Statement by calling
1-800/DIAL BEN(R) or by writing to either fund at 100 Fountain Parkway, P.O.
Box 33030, St. Petersburg, FL 33733-8030.
/bullet/ 406 *SA1
SUPPLEMENT DATED APRIL 1, 1999
TO THE STATEMENT OF ADDITIONAL INFORMATION OF
TEMPLETON GLOBAL BOND FUND
DATED JANUARY 1, 1999
The Statement of Additional Information is amended as follows:
I. The third paragraph under "Goal and Strategies - Debt securities" is replaced
with the following:
Independent ratings organizations rate debt securities based upon their
assessment of the financial soundness of the issuer. The fund may buy securities
rated in any category. It may invest up to 25% of its total assets in debt
securities that are rated below investment grade. Investment grade debt
securities are rated in the top four ratings categories by independent ratings
organizations such as Standard & Poor's Corporation (S&P) and Moody's Investors
Service, Inc. (Moody's). Generally, lower rated securities pay higher yields
than more highly rated securities to compensate investors for the higher risk.
The average maturity of the debt securities in the fund's portfolio will
fluctuate depending on the manager's judgement as to future interest rate
changes.
II. The following category is added to the section "CDSC waivers" found under
"Buying and Selling Shares - Contingent deferred sales charge (CDSC)":
/bullet/ Redemptions of Class A shares by investors who purchased $1 million
or more without an initial sales charge if the securities dealer of
record waived its commission in connection with the purchase
Please keep this supplement for future reference.
TEMPLETON GLOBAL BOND FUND
TEMPLETON INCOME TRUST -
CLASS A & C
STATEMENT OF
ADDITIONAL INFORMATION
JANUARY 1, 1999 [GRAPHIC OMITTED]
100 FOUNTAIN PARKWAY, P.O. BOX 33030
ST. PETERSBURG, FL 33733-8030 1-800/DIAL BEN(R)
- --------------------------------------------------------------------------------
This Statement of Additional Information (SAI) is not a prospectus. It contains
information in addition to the information in the fund's prospectus. The fund's
prospectus, dated January 1, 1999, which we may amend from time to time,
contains the basic information you should know before investing in the fund. You
should read this SAI together with the fund's prospectus.
The audited financial statements and auditor's report in the fund's Annual
Report to Shareholders, for the fiscal year ended August 31, 1998, are
incorporated by reference (are legally a part of this SAI).
For a free copy of the current prospectus or annual report, contact your
investment representative or call 1-800/DIAL BEN (1-800/342-5236).
CONTENTS
Goal and Strategies.......................................... 2
Risks........................................................ 7
Officers and Trustees......................................... 12
Management and Other Services................................. 17
Portfolio Transactions........................................ 19
Distributions and Taxes....................................... 19
Organization, Voting Rights and
Principal Holders............................................ 21
Buying and Selling Shares..................................... 22
Pricing Shares................................................ 28
The Underwriter............................................... 29
Performance................................................... 31
Miscellaneous Information..................................... 33
Description of Bond Ratings................................... 34
---------------------------------------------------------
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
/bullet/ ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY OF THE
U.S. GOVERNMENT;
/bullet/ ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK;
/bullet/ ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
---------------------------------------------------------
406 SAI 01/99
GOAL AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment goal is current income with capital appreciation and
growth of income. This goal is fundamental, which means it may not be changed
without shareholder approval.
The fund tries to achieve its goal by investing primarily in the debt securities
of companies, governments and their agencies located anywhere in the world,
including emerging markets.
Although the fund's principal investments are in debt securities, it may also
invest in equity securities including preferred stock and common stocks which
pay dividends, in income-producing securities convertible into common stock and
in American, European and Global Depositary Receipts.
The fund may invest in any industry although it will not concentrate (invest
more than 25% of its total assets) in any one industry. As a non-fundamental
policy approved by the fund's board of trustees, the fund's manager will select
securities for purchase by the fund from many industries that it believes to be
productive and beneficial.
The fund may invest up to 5% of its total assets in securities that may not be
resold without registration ("restricted securities"). There may be a lapse of
time between the fund's decision to sell any restricted security and the
registration of the security. During this period, the price of the security will
be subject to market fluctuations. The fund may invest up to 10% of its total
assets in restricted securities and securities which are not otherwise readily
marketable.
The fund may invest up to 100% of its total assets in emerging markets,
including up to 5% of its total assets in Russian securities.
DEBT SECURITIES represent an obligation of the issuer to repay a loan of money
to it, and generally, provide for the payment of interest. These include bonds,
notes and debentures; commercial paper; time deposits; bankers' acceptances; and
structured investments. A debt security typically has a fixed payment schedule
which obligates the issuer to pay interest to the lender and to return the
lender's money over a certain time period. A company typically meets its payment
obligations associated with its outstanding debt securities before it declares
and pays any dividend to holders of its equity securities. Bonds, notes,
debentures and commercial paper differ in the length of the issuer's payment
schedule, with bonds carrying the longest repayment schedule and commercial
paper the shortest.
The market value of debt securities generally varies in response to changes in
interest rates and the financial condition of each issuer. During periods of
declining interest rates, the value of debt securities generally increases.
Conversely, during periods of rising interest rates, the value of such
securities generally declines. These changes in market value will be reflected
in the fund's net asset value.
Independent rating organizations rate debt securities based upon their
assessment of the financial soundness of the issuer. Generally, a lower rating
indicates higher risk. As an operating policy, the fund will not invest more
than 5% of its total assets in non-investment grade securities (rated lower than
BBB by Standard & Poor's Corporation (S&P) or Baa by Moody's Investors Service,
Inc. (Moody's)). The average maturity of the debt securities in the fund's
portfolio will fluctuate depending upon the manager's judgment as to future
interest rate changes.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS") are fixed-income securities which
are collateralized by pools of mortgage loans created by commercial banks,
savings and loan institutions, private mortgage insurance companies, mortgage
bankers and other issuers in the U.S. In effect, CMOs "pass through" the monthly
payments made by individual borrowers on their mortgage loans. Timely payment of
interest and principal (but not the market value) of these pools is supported by
various forms of insurance or guarantees issued by U.S. government agencies,
private issuers and the mortgage poolers. The fund may buy CMOs without
insurance or guarantees if, in the opinion of the manager, the sponsor is
creditworthy. Prepayments of the mortgages included in the mortgage pool may
influence the yield of the CMO. In addition, prepayments usually increase when
interest rates are decreasing, thereby decreasing the life of the pool. As a
result, reinvestment of prepayments may be at a lower rate than that on the
original CMO.
U.S. GOVERNMENT SECURITIES 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 commerical 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.
STRUCTURED INVESTMENTS Included among the issuers of debt securities in which
the fund may invest are entities organized and operated solely for the purpose
of restructuring the investment characteristics of various securities. These
entities are typically organized by investment banking firms which receive fees
in connection with establishing each entity and arranging for the placement of
its securities. This type of restructuring involves the deposit with or purchase
by an entity, such as a corporation or trust, of specified instruments and the
issuance by that entity of one or more classes of securities ("structured
investments") backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be apportioned
among the newly issued structured investments to create securities with
different investment characteristics such as varying maturities, payment
priorities or interest rate provisions; the extent of the payments made with
respect to structured investments is dependent on the extent of the cash flow on
the underlying instruments. Because structured investments of the type in which
the fund anticipates investing typically involve no credit enhancement, their
credit risk will generally be equivalent to that of the underlying instruments.
The fund is permitted to invest in a class of structured investments that is
either subordinated or unsubordinated to the right of payment of another class.
Subordinated structured investments typically have higher yields and present
greater risks than unsubordinated structured investments. Although the fund's
purchase of subordinated structured investments would have a similar economic
effect to that of borrowing against the underlying securities, the purchase will
not be deemed to be leverage for purposes of the limitations placed on the
extent of the fund's assets that may be used for borrowing activities.
Certain issuers of structured investments may be deemed to be "investment
companies" as defined in the Investment Company Act of 1940 (1940 Act). As a
result, the fund's investment in these structured investments may be limited by
the restrictions contained in the 1940 Act. Structured investments are typically
sold in private placement transactions, and there currently is no active trading
market for structured investments. To the extent such investments are illiquid,
they will be subject to the fund's restrictions on investments in illiquid
securities.
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.
EQUITY SECURITIES generally entitle the holder to participate in a company's
general operating results. These include common stock; preferred stock;
convertible securities; warrants or rights. The purchaser of an equity security
typically receives an ownership interest in the company as well as certain
voting rights. The owner of an equity security may participate in a company's
success through the receipt of dividends which are distributions of earnings by
the company to its owners. Equity security owners may also participate in a
company's success or lack of success through increases or decreases in the value
of the company's shares as traded in the public trading market for such shares.
Equity securities generally take the form of common stock or preferred stock.
Preferred stockholders typically receive greater dividends but may receive less
appreciation than common stockholders and may have greater voting rights as
well. Equity securities may also include convertible securities, warrants or
rights. Convertible securities typically are debt securities or preferred stocks
which are convertible into common stock after certain time periods or under
certain circumstances. Warrants or rights give the holder the right to purchase
a common stock at a given time for a specified price.
DEPOSITARY RECEIPTS are certificates that give their holders the right to
receive securities (a) of a foreign issuer deposited in a U.S. bank or trust
company (American Depositary Receipts, "ADRs"); or (b) of a foreign or U.S.
issuer deposited in a foreign bank or trust company (Global Depositary Receipts,
"GDRs" or European Depositary Receipts, "EDRs").
REPURCHASE AGREEMENTS The fund will generally have a portion of its assets in
cash or cash equivalents for a variety of reasons including waiting for a
special investment opportunity or taking a defensive position. To earn income on
this portion of its assets, the fund may enter into repurchase agreements with
certain banks and broker-dealers. Under a repurchase agreement, the fund agrees
to buy a U.S. government security from one of these issuers and then to sell the
security back to the issuer after a short period of time (generally, less than
seven days) at a higher price. The bank or broker-dealer must transfer to the
fund's custodian, securities with an initial value of at least 102% of the
dollar amount invested by the fund in each repurchase agreement.
Repurchase agreements may involve risks in the event of default or insolvency of
the seller, including possible delays or restrictions upon the fund's ability to
dispose of the underlying securities. The fund will enter into repurchase
agreements only with parties who meet creditworthiness standards approved by the
fund's board, I.E., banks or broker-dealers that have been determined by the
manager to present no serious risk of becoming involved in bankruptcy
proceedings within the time frame contemplated by the repurchase transaction.
LOANS OF PORFOLIO 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.
FUTURES CONTRACTS Although the fund has the authority to buy and sell financial
futures contracts, it does not currently intend to enter into such transactions.
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. Currently, futures
contracts are available on several types of fixed-income securities including:
U.S. Treasury bonds, notes and bills, commercial paper and certificates of
deposit.
Although some financial futures contracts call for making or taking delivery of
the underlying securities, in most cases these obligations are closed out before
the settlement date. The closing of a contractual obligation is accomplished by
purchasing or selling an identical offsetting futures contract. Other financial
futures contracts by their terms call for cash settlements.
The fund may also buy and sell index futures contracts with respect to any stock
or bond index traded on a recognized stock exchange or board of trade. An index
futures contract is a contract to buy or sell units of an index at a specified
future date at a price agreed upon when the contract is made. The stock index
futures contract specifies that no delivery of the actual stocks making up the
index will take place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the difference between
the contract price and the actual level of the stock index at the expiration of
the contract.
At the time the fund purchases a futures contract, an amount of cash, U.S.
government securities, or other highly liquid debt securities equal to the
market value of the contract will be deposited in a segregated account with the
fund's custodian. When selling a stock index futures contract, the fund will
maintain with its custodian liquid assets that, when added to the amounts
deposited with a futures commission merchant or broker as margin, are equal to
the market value of the instruments underlying the contract. Alternatively, the
fund may "cover" its position by owning the instruments underlying the contract
or, in the case of a stock index futures contract, owning a portfolio with a
volatility substantially similar to that of the index on which the futures
contract is based, or holding a call option permitting the fund to purchase the
same futures contract at a price no higher than the price of the contract
written by the fund (or at a higher price if the difference is maintained in
liquid assets with the fund's custodian). The fund may not commit more than 5%
of its total assets to initial margin deposits on future contracts.
OPTIONS ON SECURITIES, INDICES AND FUTURES Although the fund has the authority
to sell covered put and call options and buy put and call options on securities,
securities indices and futures contracts that are traded on U.S. and foreign
exchanges and in the over-the-counter markets, it does not currently intend to
enter into such transactions.
An option on a security or a futures contract is a contract that gives the
purchaser of the option, in return for the premium paid, the right to buy a
specified security or futures contract (in the case of a call option) or to sell
a specified security or futures contract (in the case of a put option) from or
to the writer of the option at a designated price during the term of the option.
An option on a securities index gives the purchaser of the option, in return for
the premium paid, the right to receive from the seller cash equal to the
difference between the closing price of the index and the exercise price of the
option.
The fund may write a call or put option only if the option is "covered." A call
option on a security or futures contract written by the fund is "covered" if the
fund owns the underlying security or futures contract covered by the call or has
an absolute and immediate right to acquire that security without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other securities held in its
portfolio. A call option on a security or futures contract is also covered if
the fund holds a call on the same security or futures contract and in the same
principal amount as the call written where the exercise price of the call held
(a) is equal to or less than the exercise price of the call written or (b) is
greater than the exercise price of the call written if the difference is
maintained by the fund in cash or high grade U.S. government securities in a
segregated account with its custodian. A put option on a security or futures
contract written by the fund is "covered" if the fund maintains cash or fixed
income securities with a value equal to the exercise price in a segregated
account with its custodian, or else holds a put on the same security or futures
contract and in the same principal amount as the put written where the exercise
price of the put held is equal to or greater than the exercise price of the put
written.
The fund will cover call options on securities indices that it writes by owning
securities whose price changes, in the opinion of the manager, are expected to
be similar to those of the index, or in such other manner as may be in
accordance with the rules of the exchange on which the option is traded and
applicable laws and regulations. Nevertheless, where the fund covers a call
option on a securities index through ownership of securities, such securities
may not match the composition of the index. In that event, the fund will not be
fully covered and could be subject to risk of loss in the event of adverse
changes in the value of the index. The fund will cover put options on securities
indices that it writes by segregating assets equal to the option's exercise
price, or in such other manner as may be in accordance with the rules of the
exchange on which the option is traded and applicable laws and regulations.
The fund will receive a premium from writing a put or call option, which
increases its gross income in the event the option expires unexercised or is
closed out at a profit. If the value of a security, index or futures contract on
which the fund has written a call option falls or remains the same, the fund
will realize a profit in the form of the premium received (less transaction
costs) that could offset all or a portion of any decline in the value of the
portfolio securities being hedged. If the value of the underlying security,
index or futures contract rises, however, the fund will realize a loss in its
call option position, which will reduce the benefit of any unrealized
appreciation in its investments. By writing a put option, the fund assumes the
risk of a decline in the underlying security, index or futures contract. To the
extent that the price changes of the portfolio securities being hedged correlate
with changes in the value of the underlying security, index or futures contract,
writing covered put options will increase the fund's losses in the event of a
market decline, although such losses will be offset in part by the premium
received for writing the option.
The fund may also buy put options to hedge its investments against a decline in
value. By purchasing a put option, the fund will seek to offset a decline in the
value of the portfolio securities being hedged through appreciation of the put
option. If the value of the fund's investments does not decline as anticipated,
or if the value of the option does not increase, its loss will be limited to the
premium paid for the option plus related transaction costs. The success of this
strategy will depend, in part, on the accuracy of the correlation between the
changes in value of the underlying security, index or futures contract and the
changes in value of the fund's security holdings being hedged.
The fund may buy call options on individual securities or futures contracts to
hedge against an increase in the price of securities or futures contracts that
it anticipates buying in the future. Similarly, the fund may buy call options on
a securities index to attempt to reduce the risk of missing a broad market
advance, or an advance in an industry or market segment, at a time when the fund
holds uninvested cash or short-term debt securities awaiting investment. When
buying call options, the fund will bear the risk of losing all or a portion of
the premium paid if the value of the underlying security, index or futures
contract does not rise.
There can be no assurance that a liquid market will exist when the fund seeks to
close out an option position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers,
or the options exchange could suspend trading after the price has risen or
fallen more than the maximum specified by the exchange. Although the fund may be
able to offset to some extent any adverse effects of being unable to liquidate
an option position, it may experience losses in some cases as a result of such
inability. The value of over-the-counter options purchased by the fund, as well
as the cover for options written by the fund, are considered not readily
marketable and are subject to the fund's limitation on investments in securities
that are not readily marketable. See "Investment restrictions."
FOREIGN CURRENCY HEDGING TRANSACTIONS In order to hedge against foreign currency
exchange rate risks, the fund may enter into forward foreign currency exchange
contracts and foreign currency futures contracts, as well as purchase put or
call options on foreign currencies, as described below. The fund may also
conduct its foreign currency exchange transactions on a spot (I.E., cash) basis
at the spot rate prevailing in the foreign currency exchange market.
The fund may enter into forward foreign currency exchange contracts ("forward
contracts") to attempt to reduce the risk to the fund from adverse changes in
the relationship between the U.S. dollar and foreign currencies. A forward
contract is an obligation to purchase or sell a specific currency for an agreed
price at a future date which is individually negotiated and privately traded by
currency traders and their customers. The fund may enter into a forward
contract, for example, when it enters into a contract for the purchase or sale
of a security denominated in a foreign currency in order to "lock in" the U.S.
dollar price of the security. In addition, for example, when the fund believes
that a foreign currency may suffer or enjoy a substantial movement against
another currency, it may enter into a forward contract to sell an amount of the
former foreign currency approximating the value of some or all of its portfolio
securities denominated in such foreign currency. This second investment practice
is generally referred to as "cross-hedging." Because in connection with the
fund's forward contracts an amount of its assets equal to the amount of the
purchase will be held aside or segregated to be used to pay for the commitment,
the fund will always have cash, cash equivalents or high quality debt securities
available in an amount sufficient to cover any commitments under these contracts
or to limit any potential risk. The segregated account will be marked-to-market
on a daily basis. While these contracts are not presently regulated by the
Commodity Futures Trading Commission, it may in the future assert authority to
regulate forward contracts. In such event, the fund's ability to utilize forward
contracts in the manner set forth above may be restricted. Forward contracts may
limit potential gain from a positive change in the relationship between the U.S.
dollar and foreign currencies. Unanticipated changes in currency prices may
result in poorer overall performance for the fund than if it had not engaged in
such contracts.
The fund may purchase and write put and call options on foreign currencies for
the purpose of protecting against declines in the dollar value of foreign
portfolio securities and against increases in the dollar cost of foreign
securities to be acquired. As is the case with other kinds of options, however,
the writing of an option on foreign currency will constitute only a partial
hedge up to the amount of the premium received, and the fund could be required
to purchase or sell foreign currencies at disadvantageous exchange rates,
thereby incurring losses. The purchase of an option on foreign currency may
constitute an effective hedge against fluctuation in exchange rates, although,
in the event of rate movements adverse to its position, the fund may forfeit the
entire amount of the premium plus related transaction costs. Options on foreign
currencies to be written or purchased by the fund will be traded on U.S. and
foreign exchanges or over-the-counter.
The fund may enter into exchange-traded contracts for the purchase or sale for
future delivery of foreign currencies ("foreign currency futures"). This
investment technique will be used only to hedge against anticipated future
changes in exchange rates which otherwise might adversely affect the value of
the fund's portfolio securities or adversely affect the prices of securities
that the fund intends to purchase at a later date. The successful use of foreign
currency futures will usually depend on the manager's ability to forecast
currency exchange rate movements correctly. Should exchange rates move in an
unexpected manner, the fund may not achieve the anticipated benefits of foreign
currency futures or may realize losses.
TEMPORARY INVESTMENTS When the manager believes that the securities trading
markets or the economy are experiencing excessive volatility or a prolonged
general decline, or other adverse conditions exist, it may invest the fund's
portfolio in a temporary defensive manner. Under such circumstances, the fund
may invest up to 100% of its assets in (1) U.S. government securities maturing
in 13 months or less; (2) commercial paper; (3) bank time deposits with less
than seven days remaining to maturity; and (4) bankers' acceptances.
INVESTMENT RESTRICTIONS The fund has adopted the following restrictions as
fundamental policies. This means they may only be changed if the change is
approved by (i) more than 50% of the fund's outstanding shares or (ii) 67% or
more of the fund's shares present at a shareholder meeting if more than 50% of
the fund's outstanding shares are represented at the meeting in person or by
proxy, whichever is less.
The fund may not:
1. Invest in real estate or mortgages on real estate (although the fund may
invest in marketable securities secured by real estate or interests
therein); invest in other open-end investment companies(except in
connection with a merger, consolidation, acquisition or reorganization);
invest in interests (other than publicly issued debentures or equity stock
interests) in oil, gas or other mineral exploration or development
programs; purchase or sell commodity contracts (except futures contracts as
described in the fund's prospectus).
2. Purchase or retain securities of any company in which trustees or officers
of the trust or of the manager, individually owning more than 1/2 of 1% of
the securities of such company, in the aggregate own more than 5% of the
securities of such company.
3. Invest in any company for the purpose of exercising control or management.
4. Act as an underwriter; issue senior securities; or purchase on margin or
sell short, except that the fund may make margin payments in connection
with futures, options and currency transactions.
5. Loan money, except that the fund may purchase a portion of an issue of
publicly distributed bonds, debentures, notes and other evidences of
indebtedness.
6. Invest more than 5% of the value of its total assets in securities of
issuers which have been in continuous operation less than three years.
7. Invest more than 15% of its total assets in securities of foreign companies
that are not listed on a recognized U.S. or foreign securities exchange,
including no more than 5% of its total assets in restricted securities and
no more than 10% of its total assets in restricted securities and other
securities (including repurchase agreements having more than seven days
remaining to maturity) which are not restricted but which are not readily
marketable (I.E., trading in the security is suspended or, in the case of
unlisted securities, market makers do not exist or will not entertain bids
or offers).
8. Invest more than 25% of its total assets in a single industry.
9. Borrow money, except that the fund may borrow money in amounts up to 30% of
the value of the fund's net assets. In addition, the fund may not pledge,
mortgage or hypothecate its assets for any purpose, except that the fund
may do so to secure such borrowings and then only to an extent not greater
than 15% of its total assets. Arrangements with respect to margin for
futures contracts are not deemed to be a pledge of assets.
10. Participate on a joint or a joint and several basis in any trading account
in securities. (See "Portfolio Transactions" as to transactions in the same
securities for the fund, other clients and/or other mutual funds within the
Franklin Templeton Group of Funds.)
11. Invest more than 5% of its net assets in warrants whether or not listed on
the New York Stock Exchange (NYSE) or American Stock Exchange, and more
than 2% of its net assets in warrants that are not listed on those
exchanges. Warrants acquired in units or attached to securities are not
included in this restriction.
The fund may also be subject to investment limitations imposed by foreign
jurisdictions in which the fund sells its shares.
If a bankruptcy or other extraordinary event occurs concerning a particular
security the fund owns, the fund may receive stock, real estate, or other
investments that the fund would not, or could not, buy. If this happens, the
fund intends to sell such investments as soon as practicable while maximizing
the return to shareholders.
If a percentage restriction is met at the time of investment, a later increase
or decrease in the percentage due to a change in the value or liquidity of
portfolio securities or the amount of assets will not be considered a violation
of any of the foregoing restrictions.
RISKS
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INTEREST RATE Because the fund invests primarily in debt securities, changes in
interest rates in any country where the fund is invested will affect the value
of the fund's portfolio and, consequently, its share price. Rising interest
rates, which often occur during times of inflation or a growing economy, are
likely to cause the face value of a debt security to decrease, having a negative
effect on the value of the fund's shares. Of course, interest rates have
increased and decreased, sometimes very dramatically, in the past. These changes
are likely to occur again in the future at unpredictable times.
FOREIGN SECURITIES The fund has an unlimited right to purchase securities in any
foreign country, developed or developing, if they are listed on an exchange, as
well as a limited right to purchase such securities if they are unlisted.
Investors should consider carefully the substantial risks involved in securities
of companies and governments of foreign nations, which are in addition to the
usual risks inherent in domestic investments.
There may be less publicly available information about foreign companies
comparable to the reports and ratings published about companies in the U.S.
Foreign companies are not generally subject to uniform accounting or financial
reporting standards, and auditing practices and requirements may not be
comparable to those applicable to U.S. companies. The fund, therefore, may
encounter difficulty in obtaining market quotations for purposes of valuing its
portfolio and calculating its net asset value. Foreign markets have
substantially less volume than the NYSE and securities of some foreign companies
are less liquid and more volatile than securities of comparable U.S. companies.
Commission rates in foreign countries, which are generally fixed rather than
subject to negotiation as in the U.S., are likely to be higher. In many foreign
countries there is less government supervision and regulation of stock
exchanges, brokers and listed companies than in the U.S.
EMERGING MARKETS. Investments in companies domiciled in developing countries may
be subject to potentially higher risks than investments in developed countries.
These risks include (i) less social, political and economic stability; (ii) the
small current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict the
fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests; (iv) foreign taxation; (v)
the absence of developed structures governing private or foreign investment or
allowing for judicial redress for injury to private property; (vi) the absence,
until recently in many developing countries, of a capital market structure or
market-oriented economy; and (vii) the possibility that recent favorable
economic developments in some developing countries may be slowed or reversed by
unanticipated political or social events in such countries.
In addition, many countries in which the fund may invest have experienced
substantial and, in some periods, extremely high rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some developing countries may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross domestic product, rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Investments in developing countries may involve risks of nationalization,
expropriation and confiscatory taxation. For example, the Communist governments
of a number of Eastern European countries expropriated large amounts of private
property in the past, in many cases without adequate compensation, and there can
be no assurance that such expropriation will not occur in the future. In the
event of expropriation, the fund could lose a substantial portion of any
investments it has made in the affected countries. Further, no accounting
standards exist in certain developing countries. Finally, even though the
currencies of some developing countries, such as certain Eastern European
countries may be convertible into U.S. dollars, the conversion rates may be
artificial to the actual market values and may be adverse to the fund
shareholders.
RUSSIAN SECURITIES. Investing in Russian companies involves a high degree of
risk and special considerations not typically associated with investing in the
U.S. securities markets, and should be considered highly speculative. Such risks
include, together with Russia's continuing political and economic instability
and the slow-paced development of its market economy, the following: (a) delays
in settling portfolio transactions and risk of loss arising out of Russia's
system of share registration and custody; (b) the risk that it may be impossible
or more difficult than in other countries to obtain and/or enforce a judgment;
(c) pervasiveness of corruption, insider trading, and crime in the Russian
economic system; (d) currency exchange rate volatility and the lack of available
currency hedging instruments; (e) higher rates of inflation (including the risk
of social unrest associated with periods of hyper-inflation); (f) controls on
foreign investment and local practices disfavoring foreign investors and
limitations on repatriation of invested capital, profits and dividends, and on
the fund's ability to exchange local currencies for U.S. dollars; (g) the risk
that the government of Russia or other executive or legislative bodies may
decide not to continue to support the economic reform programs implemented since
the dissolution of the Soviet Union and could follow radically different
political and/or economic policies to the detriment of investors, including
non-market-oriented policies such as the support of certain industries at the
expense of other sectors or investors, a return to the centrally planned economy
that existed prior to the dissolution of the Soviet Union, or the
nationalization of privatized enterprises; (h) the risks of investing in
securities with substantially less liquidity and in issuers having significantly
smaller market capitalizations, when compared to securities and issuers in more
developed markets; (i) the difficulties associated with obtaining accurate
market valuations of many Russian securities, based partly on the limited amount
of publicly available information; (j) the financial condition of Russian
companies, including large amounts of inter-company debt which may create a
payments crisis on a national scale; (k) dependency on exports and the
corresponding importance of international trade; (l) the risk that the Russian
tax system will not be reformed to prevent inconsistent, retroactive and/or
exorbitant taxation or, in the alternative, the risk that a reformed tax system
may result in the inconsistent and unpredictable enforcement of the new tax
laws; (m) possible difficulty in identifying a purchaser of securities held by
the fund due to the underdeveloped nature of the securities markets; (n) the
possibility that pending legislation could restrict the levels of foreign
investment in certain industries, thereby limiting the number of investment
opportunities in Russia; (o) the risk that pending legislation would confer to
Russian courts the exclusive jurisdiction to resolve disputes between foreign
investors and the Russian government, instead of bringing such disputes before
an internationally-accepted third-country arbitrator; and (p) the difficulty in
obtaining information about the financial condition of Russian issuers, in light
of the different disclosure and accounting standards applicable to Russian
companies.
There is little long-term historical data on Russian securities markets because
they are relatively new and a substantial proportion of securities transactions
in Russia are privately negotiated outside of stock exchanges. Because of the
recent formation of the securities markets as well as the underdeveloped state
of the banking and telecommunications systems, settlement, clearing and
registration of securities transactions are subject to significant risks.
Ownership of shares (except where shares are held through depositories that meet
the requirements of the 1940 Act) is defined according to entries in the
company's share register and normally evidenced by extracts from the register or
by formal share certificates. However, there is no central registration system
for shareholders and these services are carried out by the companies themselves
or by registrars located throughout Russia. These registrars are not necessarily
subject to effective state supervision nor are they licensed with any
governmental entity and it is possible for the fund to lose its registration
through fraud, negligence or even mere oversight. While the fund will endeavor
to ensure that its interest continues to be appropriately recorded either by
itself or through a custodian or other agent inspecting the share register and
by obtaining extracts of share registers through regular confirmations, these
extracts have no legal enforceability and it is possible that subsequent illegal
amendment or other fraudulent act may deprive the fund of its ownership rights
or improperly dilute its interests. In addition, while applicable Russian
regulations impose liability on registrars for losses resulting from their
errors, it may be difficult for the fund to enforce any rights it may have
against the registrar or issuer of the securities in the event of loss of share
registration. Furthermore, although a Russian public enterprise with more than
500 shareholders is required by law to contract out the maintenance of its
shareholder register to an independent entity that meets certain criteria, in
practice this regulation has not always been strictly enforced. Because of this
lack of independence, management of a company may be able to exert considerable
influence over who can purchase and sell the company's shares by illegally
instructing the registrar to refuse to record transactions in the share
register. In addition, so-called "financial-industrial groups" have emerged in
recent years that seek to deter outside investors from interfering in the
management of companies they control. These practices may prevent the fund from
investing in the securities of certain Russian companies deemed suitable by the
manager. Further, this also could cause a delay in the sale of Russian company
securities by the fund if a potential purchaser is deemed unsuitable, which may
expose the fund to potential loss on the investment.
CURRENCY The fund's management endeavors to buy and sell foreign currencies on
as favorable a basis as practicable. Some price spread on currency exchange (to
cover service charges) may be incurred, particularly when the fund changes
investments from one country to another or when proceeds of the sale of shares
in U.S. dollars are used for the purchase of securities in foreign countries.
Also, some countries may adopt policies which would prevent the fund from
transferring cash out of the country or withhold portions of interest and
dividends at the source. There is the possibility of cessation of trading on
national exchanges, expropriation, nationalization or confiscatory taxation,
withholding and other foreign taxes on income or other amounts, foreign exchange
controls (which may include suspension of the ability to transfer currency from
a given country), default in foreign government securities, political or social
instability, or diplomatic developments which could affect investments in
securities of issuers in foreign nations.
The fund may be affected either unfavorably or favorably by fluctuations in the
relative rates of exchange between the currencies of different nations, by
exchange control regulations and by indigenous economic and political
developments. Some countries in which the fund may invest may also have fixed or
managed currencies that are not free-floating against the U.S. dollar. Further,
certain currencies have experienced a steady devaluation relative to the U.S.
dollar. Any devaluations in the currencies in which the fund's portfolio
securities are denominated may have a detrimental impact on the fund. Through
the fund's flexible policy, management endeavors to avoid unfavorable
consequences and to take advantage of favorable developments in particular
nations where from time to time it places the fund's investments.
The exercise of this flexible policy may include decisions to buy securities
with substantial risk characteristics and other decisions such as changing the
emphasis on investments from one nation to another and from one type of security
to another. Some of these decisions may later prove profitable and others may
not. No assurance can be given that profits, if any, will exceed losses.
EURO. On January 1, 1999, the European Monetary Union (EMU) plans to introduce a
new single currency, the euro, which will replace the national currency for
participating member countries. The transition and the elimination of currency
risk among EMU countries may change the economic environment and behavior of
investors, particularly in European markets.
Franklin Resources, Inc. has created an interdepartmental team to handle all
euro-related changes to enable the Franklin Templeton Funds to process
transactions accurately and completely with minimal disruption to business
activities. While the implementation of the euro could have a negative effect on
the fund, the fund's manager and its affiliated services providers are taking
steps they believe are reasonably designed to address the euro issue.
DIVERSIFICATION. The fund is a "non-diversified" investment company, which means
the fund is not limited in the proportion of its assets that may be invested in
the securities of a single issuer. However, the fund intends to conduct its
operations so as to qualify as a "regulated investment company" for purposes of
the Internal Revenue Code, which generally will relieve the fund of any
liablility for federal income tax to the extent its earnings are distributed to
shareholders. See "Distributions and Taxes". 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 company, and may be more susceptible to any single
economic, political or regulatory occurance, an investment in the fund may
present greater risk to an investor than an investment in a diversified company.
LOWER-RATED SECURITIES Although they may offer higher yields than do higher
rated securities, high risk, low rated and unrated debt securities generally
involve greater volatility of price and risk of principal and income, including
the possibility of default by, or bankruptcy of, the issuers of the securities.
In addition, the markets in which low rated and unrated debt securities are
traded are more limited than those in which higher rated securities are traded.
The existence of limited markets for particular securities may diminish the
fund's ability to sell the securities at fair value either to meet redemption
requests or to respond to a specific economic event such as a deterioration in
the creditworthiness of the issuer. Reduced secondary market liquidity for
certain low rated or unrated debt securities may also make it more difficult for
the fund to obtain accurate market quotations for the purposes of valuing the
fund's portfolio. Market quotations are generally available on many low rated or
unrated securities only from a limited number of dealers and may not necessarily
represent firm bids of such dealers or prices for actual sales.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of low rated debt securities,
especially in a thinly traded market. Analysis of the creditworthiness of
issuers of low rated debt securities may be more complex than for issuers of
higher rated securities, and the ability of the fund to achieve its investment
goal may, to the extent of investment in low rated debt securities, be more
dependent upon such creditworthiness analysis than would be the case if the fund
were investing in higher rated securities.
Low rated debt securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade securities.
The prices of low rated debt securities have been found to be less sensitive to
interest rate changes than higher rated investments, but more sensitive to
adverse economic downturns or individual corporate developments. A projection of
an economic downturn or of a period of rising interest rates, for example, could
cause a decline in low rated debt securities prices because the advent of a
recession could lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If the issuer of low
rated debt securities defaults, the fund may incur additional expenses seeking
recovery.
The fund may accrue and report interest income on high yield bonds, such as zero
coupon bonds or pay-in-kind securities, even though it receives no cash interest
until the security's maturity or payment date. In order to qualify for
beneficial tax treatment afforded regulated investment companies, and to be
relieved of federal tax liabilities, the fund must distribute substantially all
of its net income and gains to shareholders (see "Distributions and Taxes")
generally on an annual basis. Thus, the fund may have to dispose of portfolio
securities under disadvantageous circumstances to generate cash or leverage
itself by borrowing cash in order to satisfy the distribution requirement.
DERIVATIVE SECURITIES are those whose values are dependent upon the performance
of one or more other securities or investments or indices; in contrast to common
stock, for example, whose value is dependent upon the operations of the issuer.
Stock index futures contracts and options on securities indices are considered
derivative investments. To the extent the fund enters into these transactions,
their success will depend upon the manager's ability to predict pertinent market
movements.
Some of the risks involved in stock index futures transactions relate to the
fund's ability to reduce or eliminate its futures positions, which will depend
upon the liquidity of the secondary markets for such futures. The fund intends
to purchase or sell futures only on exchanges or boards of trade where there
appears to be an active secondary market, but there is no assurance that a
liquid secondary market will exist for any particular contract at any particular
time. Use of stock index futures for hedging may involve risks because of
imperfect correlations between movements in the prices of the stock index
futures on the one hand and movements in the prices of the securities being
hedged or of the underlying stock index on the other. Successful use of stock
index futures by the fund for hedging purposes also depends upon the manager's
ability to predict correctly movements in the direction of the market, as to
which no assurance can be given.
There are several risks associated with transactions in options on securities
indices. For example, there are significant differences between the securities
and options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. A decision
as to whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events. There can be no
assurance that a liquid market will exist when the fund seeks to close out an
option position. If the fund were unable to close out an option that it had
purchased on a securities index, it would have to exercise the option in order
to realize any profit or the option may expire worthless. If trading were
suspended in an option purchased by the fund, it would not be able to close out
the option. If restrictions on exercise were imposed, the fund might be unable
to exercise an option it has purchased. Except to the extent that a call option
on an index written by the fund is covered by an option on the same index
purchased by the fund, movements in the index may result in a loss to the fund;
however, such losses may be mitigated by changes in the value of the fund's
securities during the period the option was outstanding.
OFFICERS AND TRUSTEES
- --------------------------------------------------------------------------------
The trust has a board of trustees. The board is responsible for the overall
management of the trust, including general supervision and review of the fund's
investment activities. The board, in turn, elects the officers of the trust who
are responsible for administering the trust's day-to-day operations. The board
also monitors the fund to ensure no material conflicts exist among share
classes. While none is expected, the board will act appropriately to resolve any
material conflict that may arise.
The affiliations of the officers and board members and their principal
occupations for the past five years are shown below.
<TABLE>
<CAPTION>
POSITION(S) HELD
NAME, AGE AND ADDRESS WITH THE TRUST PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Harris J. Ashton (66) Trustee Director, RBC Holdings, Inc. (bank holding company)
191 Clapboard Ridge Road and Bar-S Foods (meat packing company): director
Greenwich, CT 06830 or trustee, as the case may be, of 49 of the investment
companies in the Franklin Templeton Group of Funds; and
FORMERLY, President, Chief Executive Officer and Chairman
of the Board, General Host Corporation (nursery and craft
centers.)
- ------------------------------------------------------------------------------------------------------------------------------------
* Nicholas F. Brady (68) Trustee Chairman, Templeton Emerging Markets Investment Trust
The Bullitt House PLC, Templeton Latin America Investment Trust PLC,
102 East Dover Street Darby Overseas Investments, Ltd. and Darby Emerging
Easton, MD 21601 Markets Investments LDC (investment firms) (1994-present);
Director, Templeton Global Strategy Funds, Amerada Hess
Corporation (exploration and refining of natural gas),
Christiana Companies, Inc. (operating and investment
companies), and H.J. Heinz Company (processed foods and
allied products); director or trustee, as the case may be,
of 21 of the investment companies in the Franklin Templeton
Group of Funds; and FORMERLY, Secretary of the United States
Department of the Treasury (1988-1993) and Chairman of the
Board, Dillon, Read & Co., Inc. (investment banking) prior to
1988.
- ------------------------------------------------------------------------------------------------------------------------------------
S. Joseph Fortunato (66) Trustee Member of the law firm of Pitney, Hardin, Kipp & Szuch;
Park Avenue at Morris County and director of trustee, as the case may be, of 51 of
P.O. Box 1945 the investment companies in the Franklin Templeton Group
Morristown, NJ 07962-1945 of Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
John Wm. Galbraith (77) Trustee President, Galbraith Properties, Inc. (personal investment
360 Central Avenue company); Director Emeritus, Gulf West Banks, Inc. (bank holding
Suite 1300 company) (1995-present); director or trustee, as the case may be,
St. Petersburg, FL 33701 of 20 of the investment companies in the Franklin Templeton
Group of Funds; and FORMERLY, Director, Mercantile Bank
(1991-1995), Vice Chairman, Templeton, Galbraith & Hansberger Ltd.
(1986-1992), and Chairman, Templeton Funds Management, Inc.
(1974-1991).
- ------------------------------------------------------------------------------------------------------------------------------------
POSITION(S) HELD
NAME, AGE AND ADDRESS WITH THE TRUST PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Andrew H. Hines, Jr. (75) Trustee Consultant for the Triangle Consulting Group;
150 2nd Avenue N. Executive-in-Residence of Eckerd College (1991-present); director
St. Petersburg, FL 33701 or trustee, as the case may be, of 22 of the investment companies
in the Franklin Templeton Group of Funds; and FORMERLY,
Chairman and Director, Precise Power Corporation (1990-1997),
Director, Checkers Drive-In Restaurant, Inc. (1994-1997), and
Chairman of the Board and Chief Executive Officer, Florida
Progress Corporation (holding company in the energy area)
(1982-1990) and director of various of its subsidiaries.
- ------------------------------------------------------------------------------------------------------------------------------------
* Charles B. Johnson (65) Chairman President, Chief Executive Officer and Director, Franklin
777 Mariners Island Blvd. of the Board Resources, Inc.; Chairman of the Board and Director, Franklin
San Mateo, CA 94404 and Vice President Advisers, Inc., Franklin Advisory Services, Inc., Franklin
Investment Advisory Services, Inc. and Franklin Templeton
Distributors, Inc.; Director, Franklin/Templeton Investor
Services, Inc. and Franklin Templeton Services Inc.; officer
and/or director or trustee, as the case may be, of most of the
other subsidiaries of Franklin Resources, Inc. and of 50 of the
investment companies in the Franklin Templeton Group of Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Betty P. Krahmer (69) Trustee Director or trustee of various civic associations; director or
2201 Kentmere Parkway trustee, as the case may be, of 21 of the investment companies in
Wilmington, DE 19806 the Franklin Templeton Group of Funds; and FORMERLY, Economic
Analyst, U.S. Government.
- ------------------------------------------------------------------------------------------------------------------------------------
Gordon S. Macklin (70) Trustee Director, Fund American Enterprises Holdings, Inc.; Martek
8212 Burning Tree Road Biosciences Corporation, MCI WorldCom (information services),
Bethesda, MD 20817 MedImmune, Inc. (biotechnology), Spacehab, Inc. (aerospace
services) and Real 3D (software); director or trustee, as the
case may be, of 49 of the investment companies in the
Franklin Templeton Group of Funds; and FORMERLY, Chairman, White
River Corporation (financial services) and Hambrecht and Quist
Group (investment banking), and President, National Association of
Securities Dealers, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Fred R. Millsaps (69) Trustee Manager of personal investments (1978-present); director of
2665 N.E. 37th Drive various business and nonprofit organizations; director or
Fort Lauderdale, FL 33308 trustee, as the case may be, of 22 of the investment companies in
the Franklin Templeton Group of Funds; and FORMERLY, Chairman
and Chief Executive Officer, Landmark Banking Corporation
(1969-1978), Financial Vice President, Florida Power and Light
(1965-1969), and Vice President, Federal Reserve Bank of Atlanta
(1958-1965).
- ------------------------------------------------------------------------------------------------------------------------------------
POSITION(S) HELD
NAME, AGE AND ADDRESS WITH THE TRUST PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gregory E. McGowan (49) President Director and Executive Vice President, Templeton Investment
500 East Broward Blvd. Counsel, Inc.; Executive Vice President-International Development
Fort Lauderdale, FL and Chief International Counsel, Templeton Worldwide, Inc.;
33394-3091 Executive Vice President, Director and General Counsel, Templeton
International, Inc.; Executive Vice President and Secretary,
Templeton Global Advisors Limited; President of other Templeton
Funds; officer of 4 of the investment companies in the Franklin
Templeton Group of Funds; and FORMERLY, Senior Attorney, U.S.
Securities and Exchange Commission.
- -----------------------------------------------------------------------------------------------------------------------------------
Rupert H. Johnson, Jr. (58) Vice President Executive Vice President and Director, Franklin Resources, Inc.
777 Mariners Island Blvd. and Franklin Templeton Distributors, Inc.; President and Director,
San Mateo, CA 94404 Franklin Advisers, Inc; Senior Vice President and Director,
Franklin Advisory Services, Inc. and Franklin Investment Advisory
Services, Inc.; Director, Franklin/Templeton Investor Services,
Inc.; and officer and/or director or trustee, as the case may be,
of most of the other subsidiaries of Franklin Resources, Inc. and
of 53 of the investment companies in the Franklin Templeton Group
of Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Harmon E. Burns (53) Vice President Executive Vice President and Director, Franklin Resources, Inc.,
777 Mariners Island Blvd. Franklin Templeton Distributors, Inc. and Franklin Templeton
San Mateo, CA 94404 Services, Inc.; Executive Vice President, Franklin Advisers, Inc.;
Director, Franklin/Templeton Investor Services, Inc; and officer
and/or director or trustee, as the case may be, of most of the
other subsidiaries of Franklin Resources, Inc. and 53 of the
investment companies in the Franklin Templeton Group of Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Charles E. Johnson (42) Vice President Senior Vice President and Director, Franklin Resources, Inc.
500 East Broward Blvd. Senior Vice President, Franklin Templeton Distributors, Inc.;
Fort Lauderdale, FL President and Director, Templeton Worldwide, Inc.; Chairman and
33394-3091 Director, Templeton Investment Counsel, Inc.; Vice President,
Franklin Advisers, Inc.; officer and/or director of some of the
other subsidiaries of Franklin Resources, Inc.; and
officer and/or director or trustee, as the case may be, of 34
of the investment companies in the Franklin Templeton Group of
Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Deborah R. Gatzek (50) Vice President Senior Vice President and General Counsel, Franklin Resources,
777 Mariners Island Blvd. Inc.; Senior Vice President, Franklin Templeton Services, Inc. and
San Mateo, CA 94404 Franklin Templeton Distributors, Inc.; Executive Vice President,
Franklin Advisers, Inc.; Vice President, Franklin Advisory
Services, Inc., Vice President, Chief Legal Officer and Chief
Operating Officer, Franklin Investment Advisory Services,
Inc.; and officer of 53 of the investment companies in the
Franklin Templeton Group of Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
POSITION(S) HELD
NAME, AGE AND ADDRESS WITH THE TRUST PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Martin L. Flanagan (38) Vice President Senior Vice President and Chief Financial Officer, Franklin
777 Mariners Island Blvd. Resources, Inc.; Executive Vice President and Director, Templeton
San Mateo, CA 94404 Worldwide, Inc.; Executive Vice President, Chief Operating Officer
and Director, Templeton Investment Counsel, Inc.; Executive Vice
President and Chief Financial Officer, Franklin Advisers, Inc.;
Chief Financial Officer, Franklin Advisory Services, Inc. and
Franklin Investment Advisory Services, Inc.; President and
Director, Franklin Templeton Services, Inc.; Senior Vice President
and Chief Financial Officer, Franklin/Templeton Investor Services,
Inc.; officer and/or director of some of the other subsidiaries
of Franklin Resources, Inc.; and officer and/or director or
trustee, as the case may be, of 53 of the investment companies in
the Franklin Templeton Group of Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Mark G. Holowesko (38) President President, Templeton Global Advisors Limited; Chief Investment
Lyford Cay Officer, Global Equity Group; Executive Vice President and
Nassau, Bahamas Director, Templeton Worldwide, Inc.; officer of 21 of the
investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Investment Administrator, RoyWest Trust Corporation
(Bahamas) Limited (1984-1985).
- -----------------------------------------------------------------------------------------------------------------------------------
John R. Kay (58) Vice President Vice President and Treasurer, Templeton Worldwide, Inc.; Assistant
500 East Broward Blvd. Vice President, Franklin Templeton Distributors, Inc.; officer
Fort Lauderdale, FL of 25 of the investment companies in the Franklin Templeton Group
33394-3091 Group of Funds; and FORMERLY, Vice President and Controller,
Keystone Group, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Samuel J. Forester, Jr. (50) Vice President Managing Director, Templeton Worldwide, Inc.; Vice President of 10
500 East Broward Blvd. of the investment companies in the Franklin Templeton Group of
Fort Lauderdale, FL Funds; Director, Closed Joint-Stock Company Templeton and Templeton
33394-3091 Trust Services Pvt. Ltd.; and FORMERLY, President, Templeton Global
Bond Managers, a division of Templeton Investment Counsel, Inc.,
Founder and Partner, Forster, Hairston Investment Management, Inc.
(1989-1990), Managing Director (Mid-East Region), Merrill Lynch,
Pierce, Fenner & Smith Inc. (1987-1988), and Advisor for Saudi
Arabian Monetary Agency (1982-1987).
- -----------------------------------------------------------------------------------------------------------------------------------
Neil S. Devlin (41) Vice President Executive Vice President and Chief Investment Officer, Templeton
500 East Broward Blvd. Global Bond Managers, a division of Templeton Investment Counsel,
Fort Lauderdale, FL Inc.; officer of 4 of the investment companies in the Franklin
33394-3091 Templeton Group of Funds; and FORMERLY, Portfolio Manager and Bond
Analyst, Constitution Capital Management (1985-1987) and Bond
Trader and Research Analyst, Bank of New England (1982-1985).
- -----------------------------------------------------------------------------------------------------------------------------------
POSITION(S) HELD
NAME, AGE AND ADDRESS WITH THE TRUST PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Elizabeth M. Knoblock (43) Vice President- General Counsel, Secretary and Senior Vice President, Templeton
500 East Broward Blvd. Compliance Investment Counsel, Inc.; Senior Vice President, Templeton Global
Fort Lauderdale, FL Investors, Inc.; officer of 21 of the investment companies in the
33394-3091 Franklin Templeton Group of Funds; and FORMERLY, Vice President
and Associate General Counsel, Kidder Peabody & Co.; (1989-1990),
Assistant General Counsel, Gruntal & Co., Inc. (1988), Vice
President and Associate General Counsel, Shearson Lehman Hutton
Inc. (1988), Vice President and Assistant General Counsel, E.F.
Hutton & Co. Inc. (1986-1988), and Special Counsel of the Division
of Investment Management, U.S. Securities and Exchange Commission
(1984-1986).
- -----------------------------------------------------------------------------------------------------------------------------------
James R. Baio (44) Treasurer Certified Public Accountant; Treasurer, Franklin Mutual Advisers,
500 East Broward Blvd. Inc.; Senior Vice President, Templeton Worldwide, Inc., Templeton
Fort Lauderdale, FL Global Investors, Inc. and Templeton Funds Trust Company; officer
33394-3091 of 22 of the investment companies in the Franklin Templeton
Group of Funds; and FORMERLY, Senior Tax Manager, Ernst & Young
(certified public accountants) (1977-1989).
- -----------------------------------------------------------------------------------------------------------------------------------
Barbara J. Green (51) Secretary Senior Vice President, Templeton Worldwide, Inc. and Templeton
500 East Broward Blvd. Global Investors, Inc.; officer of 21 of the investment companies
Fort Lauderdale, FL in the Franklin Templeton Group of Funds; and FORMERLY, Deputy
33394-3091 Director of the Division of Investment Management, Executive
Assistant and Senior Advisor to the Chairman, Counselor to the
Chairman, Special Counsel and Attorney Fellow, U.S. Securities and
Exchange Commission (1986-1995), Attorney, Roger & Wells, and
Judicial Clerk, U.S. District Court (District of Massachusetts).
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This board member is considered an "interested person" under federal
securities laws. Mr. Brady's status as an interested person results from his
business affiliations with Franklin Resources, Inc. and Templeton Global
Advisors Limited. Mr. Brady and Franklin Resources, Inc. are both limited
partners of Darby Overseas Partners, L.P. (Darby Overseas). In addition, Darby
Overseas and Templeton Global Advisors Limited are limited partners of Darby
Emerging Markets Fund, L.P.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the father
and uncle, respectively, of Charles E. Johnson.
The trust pays noninterested board members and Mr. Brady an annual retainer of
$2,000 and a fee of $200 per board meeting attended. Board members who serve on
the audit committee of the trust and other funds in the Franklin Templeton Group
of Funds receive a flat fee of $2,000 per committee meeting attended, a portion
of which is allocated to the trust. Members of a committee are not compensated
for any committee meeting held on the day of a board meeting. Noninterested
board members may also serve as directors or trustees of other funds in the
Franklin Templeton Group of Funds and may receive fees from these funds for
their services. The following table provides the total fees paid to
noninterested board members and Mr. Brady by the trust and by the Franklin
Templeton Group of Funds.
<TABLE>
<CAPTION>
NUMBER OF BOARDS
TOTAL FEES IN THE FRANKLIN
TOTAL FEES RECEIVED FROM THE TEMPLETON GROUP
RECEIVED FROM FRANKLIN TEMPLETON OF FUNDS ON WHICH
NAME THE TRUST(1) GROUP OF FUNDS(2) EACH SERVES(3)
- ------------------------------ --------------- -------------------- ------------------
<S> <C> <C> <C>
Harris J. Ashton ............. $3,675 $361,157 49
Nicholas F. Brady ............ 3,675 140,975 21
S. Joseph Fortunato .......... 3,675 367,835 51
John Wm. Galbraith ........... 3,485 134,425 20
Andrew H. Hines, Jr. ......... 3,685 208,075 22
Betty P. Krahmer ............. 3,675 141,075 21
Gordon S. Macklin ............ 3,675 361,157 49
Fred R. Millsaps ............. 3,685 210,075 22
</TABLE>
- -------------------------
1. For the fiscal year ended August 31, 1998. During the period from September
1, 1997 through February 27, 1998, an annual retainer of $2,500 and fees at the
rate of $200 per board meeting attended were in effect.
2. For the calendar year ended December 31, 1998.
3. We base the number of boards on the number of registered investment companies
in the Franklin Templeton Group of Funds. This number does not include the total
number of series or funds within each investment company for which the board
members are responsible. The Franklin Templeton Group of Funds currently
includes 54 registered investment companies, with approximately 168 U.S. based
funds or series.
Noninterested board members and Mr. Brady are reimbursed for expenses incurred
in connection with attending board meetings, paid pro rata by each fund in the
Franklin Templeton Group of Funds for which they serve as director or trustee.
No officer or board member received any other compensation, including pension or
retirement benefits, directly or indirectly from the fund or other funds in the
Franklin Templeton Group of Funds. Certain officers or board members who are
shareholders of Franklin Resources, Inc. may be deemed to receive indirect
remuneration by virtue of their participation, if any, in the fees paid to its
subsidiaries.
Board members historically have followed a policy of having substantial
investments in one or more of the funds in the Franklin Templeton Group of
Funds, as is consistent with their individual financial goals. In February 1998,
this policy was formalized through adoption of a requirement that each board
member invest one-third of fees received for serving as a director or trustee of
a Templeton fund in shares of one or more Templeton funds and one-third of fees
received for serving as a director or trustee of a Franklin fund in shares of
one or more Franklin funds until the value of such investments equals or exceeds
five times the annual fees paid such board member. Investments in the name of
family members or entities controlled by a board member constitute fund holdings
of such board member for purposes of this policy, and a three year phase-in
period applies to such investment requirements for newly elected board members.
In implementing such policy, a board member's fund holdings existing on February
27, 1998, are valued as of such date with subsequent investments valued at cost.
MANAGEMENT AND OTHER SERVICES
- --------------------------------------------------------------------------------
MANAGER AND SERVICES PROVIDED The fund's manager is Templeton Investment
Counsel, Inc., through its Global Bond Managers division. The manager is wholly
owned by Franklin Resources, Inc. (Resources), a publicly owned company engaged
in the financial services industry through its subsidiaries. Charles B. Johnson
and Rupert H. Johnson, Jr. are the principal shareholders of Resources.
The manager provides investment research and portfolio management services, and
selects the securities for the fund to buy, hold or sell. The manager also
selects the brokers who execute the fund's portfolio transactions. The manager
provides periodic reports to the board, which reviews and supervises the
manager's investment activities. To protect the fund, the manager and its
officers, directors and employees are covered by fidelity insurance.
The Templeton organization has been investing globally since 1940. The manager
and its affiliates have offices in Argentina, Australia, Bahamas, Bermuda,
Brazil, the British Virgin Islands, Canada, China, Cyprus, France, Germany, Hong
Kong, India, Italy, Japan, Korea, Luxembourg, Mauritius, the Netherlands,
Poland, Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan,
United Kingdom and the U.S.
The manager and its affiliates manage numerous other investment companies and
accounts. The manager may give advice and take action with respect to any of the
other funds it manages, or for its own account, that may differ from action
taken by the manager on behalf of the fund. Similarly, with respect to the fund,
the manager is not obligated to recommend, buy or sell, or to refrain from
recommending, buying or selling any security that the manager and access
persons, as defined by applicable federal securities laws, may buy or sell for
its or their own account or for the accounts of any other fund. The manager is
not obligated to refrain from investing in securities held by the fund or other
funds it manages. Of course, any transactions for the accounts of the manager
and other access persons will be made in compliance with the fund's code of
ethics.
Under the fund's code of ethics, employees of the Franklin Templeton Group who
are access persons may engage in personal securities transactions subject to the
following general restrictions and procedures: (i) the trade must receive
advance clearance from a compliance officer and must be completed by the close
of the business day following the day clearance is granted; (ii) copies of all
brokerage confirmations and statements must be sent to a compliance officer;
(iii) all brokerage accounts must be disclosed on an annual basis; and (iv)
access persons involved in preparing and making investment decisions must, in
addition to (i), (ii) and (iii) above, file annual reports of their securities
holdings each January and inform the compliance officer (or other designated
personnel) if they own a security that is being considered for a fund or other
client transaction or if they are recommending a security in which they have an
ownership interest for purchase or sale by a fund or other client.
MANAGEMENT FEES The fund pays the manager a fee equal to an annual rate of:
/bullet/ 0.50% of the value of average daily net assets up to and including $200
million;
/bullet/ 0.45% of the value of average daily net assets over $200 million and up
to and including $1.3 billion; and
/bullet/ 0.40% of the value of average daily net assets over $1.3 billion.
The fee is computed according to the terms of the management agreement. Each
class of the fund's shares pays its proportionate share of the fee.
For the last three fiscal years ended August 31, the fund paid the following
management fees:
MANAGEMENT
FEES PAID ($)
- -----------------------------
1998 ......... 1,139,351
1997 ......... 1,046,390
1996 ......... 968,182
ADMINISTRATOR AND SERVICES PROVIDED Franklin Templeton Services, Inc. (FT
Services) has an agreement with the trust to provide certain administrative
services and facilities for the fund. FT Services is wholly owned by Resources
and is an affiliate of the fund's manager and principal underwriter.
The administrative services FT Services provides include preparing and
maintaining books, records, and tax and financial reports, and monitoring
compliance with regulatory requirements.
ADMINISTRATION FEES The fund pays FT Services a monthly fee equal to an annual
rate of:
/bullet/ 0.15% of the fund's average daily net assets up to $200 million;
/bullet/ 0.135% of average daily net assets over $200 million up to $700
million;
/bullet/ 0.10% of average daily net assets over $700 million up to $1.2 billion;
and
/bullet/ 0.075% of average daily net assets over $1.2 billion.
During the last three fiscal years ended August 31, the fund paid the following
administration fees:
ADMINISTRATION
FEES PAID ($)
- ------------------------------
1998 ......... 340,429
1997 ......... 309,301
1996 ......... 278,143
For the periods prior to October 1, 1996, Templeton Global Investors, Inc.
provided administrative services to the fund.
SHAREHOLDER SERVICING AND TRANSFER AGENT Franklin/Templeton Investor Services,
Inc. (Investor Services) is the fund's shareholder servicing agent and acts as
the fund's transfer agent and dividend-paying agent. Investor Services is
located at 100 Fountain Parkway, P.O. Box 33030, St. Petersburg, FL 33733-8030.
For its services, Investor Services receives a fixed fee per account. The fund
may also reimburse Investor Services for certain out-of-pocket expenses, which
may include payments by Investor Services to entities, including affiliated
entities, that provide sub-shareholder services, recordkeeping and/or transfer
agency services to beneficial owners of the fund. The amount of reimbursements
for these services per benefit plan participant fund account per year may not
exceed the per account fee payable by the fund to Investor Services in
connection with maintaining shareholder accounts.
CUSTODIAN The Chase Manhattan Bank, at its principal office at MetroTech Center,
Brooklyn, NY 11245, and at the offices of its branches and agencies throughout
the world, acts as custodian of the fund's assets. As foreign custody manager,
the bank selects and monitors foreign sub-custodian banks, selects and evaluates
non-compulsory foreign depositories, and monitors and furnishes information
relevant to the selection of compulsory depositories.
AUDITOR McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, NY 10017, is the
fund's independent auditor. The auditor gives an opinion on the financial
statements included in the fund's Annual Report to Shareholders and reviews the
trust's registration statement filed with the U.S. Securities and Exchange
Commission (SEC).
PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
Since most purchases by the fund are principal transactions at net prices, the
fund incurs little or no brokerage costs. The fund deals directly with the
selling or buying principal or market maker without incurring charges for the
services of a broker on its behalf, unless it is determined that a better price
or execution may be obtained by using the services of a broker. Purchases of
portfolio securities from underwriters will include a commission or concession
paid by the issuer to the underwriter, and purchases from dealers will include a
spread between the bid and ask prices. The fund seeks to obtain prompt execution
of orders at the most favorable net price. Transactions may be directed to
dealers in return for research and statistical information, as well as for
special services provided by the dealers in the execution of orders.
It is not possible to place a dollar value on the special executions or on the
research services the manager receives from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services allows the manager to supplement its own research
and analysis activities and to receive the views and information of individuals
and research staffs of other securities firms. As long as it is lawful and
appropriate to do so, the manager and its affiliates may use this research and
data in their investment advisory capacities with other clients. If the trust's
officers are satisfied that the best execution is obtained, the sale of fund
shares, as well as shares of other funds in the Franklin Templeton Group of
Funds, may also be considered a factor in the selection of broker-dealers to
execute the fund's portfolio transactions.
Because Franklin Templeton Distributors, Inc. (Distributors) is a member of the
National Association of Securities Dealers, Inc., it may sometimes receive
certain fees when the fund tenders portfolio securities pursuant to a
tender-offer solicitation. To recapture brokerage for the benefit of the fund,
any portfolio securities tendered by the fund will be tendered through
Distributors if it is legally permissible to do so. In turn, the next management
fee payable to the manager will be reduced by the amount of any fees received by
Distributors in cash, less any costs and expenses incurred in connection with
the tender.
If purchases or sales of securities of the fund and one or more other investment
companies or clients supervised by the manager are considered at or about the
same time, transactions in these securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by the
manager, taking into account the respective sizes of the funds and the amount of
securities to be purchased or sold. In some cases this procedure could have a
detrimental effect on the price or volume of the security so far as the fund is
concerned. In other cases it is possible that the ability to participate in
volume transactions may improve execution and reduce transaction costs to the
fund.
During the last three fiscal years ended August 31, the fund paid the following
brokerage commissions:
BROKERAGE
COMMISSIONS ($)
- -------------------------------
1998 ......... 5,681
1997 ......... 14,015
1996 ......... 0
As of August 31, 1998, the fund owned securities issued by Morgan Stanley, Inc.
valued in the aggregate at $10,414,000. Except as noted, the fund did not own
any securities issued by its regular broker-dealers as of the end of the fiscal
year.
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
The fund calculates dividends and capital gains the same way for each class. The
amount of any income dividends per share will differ, however, generally due to
the difference in the distribution and service (Rule 12b-1) fees of each class.
The fund does not pay "interest" or guarantee any fixed rate of return on an
investment in its shares.
DISTRIBUTIONS OF NET INVESTMENT INCOME The fund receives income generally in the
form of interest on its investments. This income, less expenses incurred in the
operation of the fund, constitutes the fund's net investment income from which
dividends may be paid to you. Any distributions by the fund from such income
will be taxable to you as ordinary income, whether you take them in cash or in
additional shares.
DISTRIBUTIONS OF CAPITAL GAINS The fund may derive capital gains and losses in
connection with sales or other dispositions of its portfolio securities.
Distributions from net short-term capital gains will be taxable to you as
ordinary income. Distributions from net long-term capital gains will be taxable
to you as long-term capital gain, regardless of how long you have held your
shares in the fund. Any net capital gains realized by the fund generally will be
distributed once each year, and may be distributed more frequently, if
necessary, in order to reduce or eliminate excise or income taxes on the fund.
EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS Most foreign exchange gains
realized on the sale of debt securities are treated as ordinary income by the
fund. Similarly, foreign exchange losses realized by the fund on the sale of
debt securities are generally treated as ordinary losses by the fund. These
gains when distributed will be taxable to you as ordinary dividends, and any
losses will reduce the fund's ordinary income otherwise available for
distribution to you. This treatment could increase or reduce the fund's ordinary
income distributions to you, and may cause some or all of the fund's previously
distributed income to be classified as a return of capital.
The fund may be subject to foreign withholding taxes on income from certain of
its foreign securities. If more than 50% of the fund's total assets at the end
of the fiscal year are invested in securities of foreign corporations, the fund
may elect to pass-through to you your pro rata share of foreign taxes paid by
the fund. If this election is made, the year-end statement you receive from the
fund will show more taxable income than was actually distributed to you.
However, you will be entitled to either deduct your share of such taxes in
computing your taxable income or (subject to limitations) claim a foreign tax
credit for such taxes against your U.S. federal income tax. The fund will
provide you with the information necessary to complete your individual income
tax return if it makes this election.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS The fund will inform you of
the amount of your ordinary income dividends and capital gains distributions at
the time they are paid, and will advise you of their tax status for federal
income tax purposes shortly after the close of each calendar year. If you have
not held fund shares for a full year, the fund may designate and distribute to
you, as ordinary income or capital gain, a percentage of income that is not
equal to the actual amount of such income earned during the period of your
investment in the fund.
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY The fund has elected to
be treated as a regulated investment company under Subchapter M of the Internal
Revenue Code, has qualified as such for its most recent fiscal year, and intends
to so qualify during the current fiscal year. As a regulated investment company,
the fund generally pays no federal income tax on the income and gains it
distributes to you. The board reserves the right not to maintain the
qualification of the fund as a regulated investment company if it determines
such course of action to be beneficial to shareholders. In such case, the fund
will be subject to federal, and possibly state, corporate taxes on its taxable
income and gains, and distributions to you will be taxed as ordinary dividend
income to the extent of the fund's earnings and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the Internal
Revenue Code requires the fund to distribute to you by December 31 of each year,
at a minimum, the following amounts: 98% of its taxable ordinary income earned
during the calendar year; 98% of its capital gain net income earned during the
twelve month period ending October 31; and 100% of any undistributed amounts
from the prior year. The fund intends to declare and pay these amounts in
December (or in January, to be treated by you as received in December) to avoid
these excise taxes, but can give no assurances that its distributions will be
sufficient to eliminate all taxes.
REDEMPTION OF FUND SHARES Redemptions and exchanges of fund shares are taxable
transactions for federal and state income tax purposes. If you redeem your fund
shares, or exchange your fund shares for shares of a different Franklin
Templeton Fund, the IRS will require that you report a gain or loss on your
redemption or exchange. If you hold your shares as a capital asset, the gain or
loss that you realize will be capital gain or loss and will be long-term or
short-term, generally depending on how long you hold your shares. Any loss
incurred on the redemption or exchange of shares held for six months or less
will be treated as a long-term capital loss to the extent of any long-term
capital gains distributed to you by the fund on those shares.
All or a portion of any loss that you realize upon the redemption of your fund
shares will be disallowed to the extent that you buy other shares in the fund
(through reinvestment of dividends or otherwise) within 30 days before or after
your share redemption. Any loss disallowed under these rules will be added to
your tax basis in the new shares you buy.
DEFERRAL OF BASIS If you redeem some or all of your shares in the fund, and then
reinvest the sales proceeds in the fund or in another Franklin Templeton Fund
within 90 days of buying the original shares, the sales charge that would
otherwise apply to your reinvestment may be reduced or eliminated. The IRS will
require you to report gain or loss on the redemption of your original shares in
the fund. In doing so, all or a portion of the sales charge that you paid for
your original shares in the fund will be excluded from your tax basis in the
shares sold (for the purpose of determining gain or loss upon the sale of such
shares). The portion of the sales charge excluded will equal the amount that the
sales charge is reduced on your reinvestment. Any portion of the sales charge
excluded from your tax basis in the shares sold will be added to the tax basis
of the shares you acquire from your reinvestment.
U.S. GOVERNMENT OBLIGATIONS Many states grant tax-free status to dividends paid
to you from interest earned on direct obligations of the U.S. government,
subject in some states to minimum investment requirements that must be met by
the fund. Investments in Government National Mortgage Association or Federal
National Mortgage Association securities, bankers' acceptances, commercial paper
and repurchase agreements collateralized by U.S. government securities do not
generally qualify for tax-free treatment. The rules on exclusion of this income
are different for corporations.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS If you are a corporate
shareholder, you should note that 1.22% of the dividends paid by the fund for
the most recent fiscal year qualified for the dividends-received deduction. In
some circumstances, you will be allowed to deduct these qualified dividends,
thereby reducing the tax that you would otherwise be required to pay on these
dividends. The dividends-received deduction will be available only with respect
to dividends designated by the fund as eligible for such treatment. All
dividends (including the deducted portion) must be included in your alternative
minimum taxable income calculations.
INVESTMENT IN COMPLEX SECURITIES The fund may invest in complex securities.
These investments may be subject to numerous special and complex tax rules.
These rules could affect whether gains and losses recognized by the fund are
treated as ordinary income or capital gain, accelerate the recognition of income
to the fund and/or defer the fund's ability to recognize losses, and, in limited
cases, subject the fund to U.S. federal income tax on income from certain of its
foreign securities. In turn, these rules may affect the amount, timing or
character of the income distributed to you by the fund.
ORGANIZATION, VOTING RIGHTS AND
PRINCIPAL HOLDERS
- --------------------------------------------------------------------------------
The fund is a nondiversified series of Templeton Income 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 a shareholder of a Massachusetts business trust, you could, under certain
circumstances, be held personally liable as a partner for its obligations. The
Agreement and Declaration of Trust, however, contains an express disclaimer of
shareholder liability for acts or obligations of the fund. The Declaration of
Trust also provides for indemnification and reimbursement of expenses out of the
fund's assets if you are held personally liable for obligations of the fund. The
Declaration of Trust provides that the fund shall, upon request, assume the
defense of any claim made against you for any act or obligation of the fund and
satisfy any judgment thereon. All such rights are limited to the assets of the
fund. The Declaration of Trust further provides that the fund may maintain
appropriate insurance (for example, fidelity bonding and errors and omissions
insurance) for the protection of the fund, its shareholders, trustees, officers,
employees and agents to cover possible tort and other liabilities. Furthermore,
the activities of the fund as an investment company, as distinguished from an
operating company, would not likely give rise to liabilities in excess of the
fund's total assets. Thus, the risk that you would incur financial loss on
account of shareholder liability is limited to the unlikely circumstance in
which both inadequate insurance exists and the fund itself is unable to meet its
obligations.
The fund currently offers three classes of shares, Class A, Class C and Advisor
Class. Before January 1, 1999, Class A shares were designated Class I and Class
C shares were designated Class II. The fund may offer additional classes of
shares in the future. The full title of each class is:
/bullet/ Templeton Income Trust, Templeton Global Bond Fund - Class A
/bullet/ Templeton Income Trust, Templeton Global Bond Fund - Class C
/bullet/ Templeton Income Trust, Templeton Global Bond Fund - Advisor Class
Shares of each class represent proportionate interests in the fund's assets. On
matters that affect the fund as a whole, each class has the same voting and
other rights and preferences as any other class. On matters that affect only one
class, only shareholders of that class may vote. Each class votes separately on
matters affecting only that class, or expressly required to be voted on
separately by state or federal law.
The trust has noncumulative voting rights. For board member elections, this
gives holders of more than 50% of the shares voting the ability to elect all of
the members of the board. If this happens, holders of the remaining shares
voting will not be able to elect anyone to the board.
The trust does not intend to hold annual shareholder meetings. The trust or a
series of the trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may be called by the board to consider the
removal of a board member if requested in writing by shareholders holding at
least 10% of the outstanding shares. In certain circumstances, the fund is
required to help you communicate with other shareholders about the removal of a
board member. A special meeting may also be called by the board in its
discretion.
As of December 14, 1998, the principal shareholders of the fund, beneficial or
of record, were:
NAME AND ADDRESS SHARE CLASS PERCENTAGE (%)
- ----------------------- ------------- ------------------
Franklin Templeton Fund
Allocator-
Moderate Target Fund
1810 Gateway, 3rd Floor
San Mateo, CA
94404-2470 ........... Advisor 34.48
Franklin Templeton
Trust Company
Trustee for ValuSelect
Franklin Templeton 401K
P.O. Box 2438
Rancho Cordova, CA
95741-2438 ........... Advisor 28.75
Templeton Investment
Counsel, Inc.
ACNA
1850 Gateway, 6th Floor
San Mateo, CA
94404-2470 ........... Advisor 19.10
From time to time, the number of fund shares held in the "street name" accounts
of various securities dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding.
As of December 14, 1998, the officers and board members, as a group, owned of
record and beneficially less than 1% of the outstanding shares of each class.
The board members may own shares in other funds in the Franklin Templeton Group
of Funds.
BUYING AND SELLING SHARES
- --------------------------------------------------------------------------------
The fund continuously offers its shares through securities dealers who have an
agreement with Franklin Templeton Distributors, Inc. (Distributors). A
securities dealer includes any financial institution that, either directly or
through affiliates, has an agreement with Distributors to handle customer orders
and accounts with the fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity. Banks and financial institutions that
sell shares of the fund may be required by state law to register as securities
dealers.
For investors outside the U.S., the offering of fund shares may be limited in
many jurisdictions. An investor who wishes to buy shares of the fund should
determine, or have his legal and investment advisors determine, the applicable
laws and regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to obtain
information on the rules applicable to these transactions.
All checks, drafts, wires and other payment mediums used to buy or sell shares
of the fund must be denominated in U.S. dollars. We may, in our sole discretion,
either (a) reject any order to buy or sell shares denominated in any other
currency or (b) honor the transaction or make adjustments to your account for
the transaction as of a date and with a foreign currency exchange factor
determined by the drawee bank.
When you buy shares, if you submit a check or a draft that is returned unpaid to
the fund we may impose a $10 charge against your account for each returned item.
If you buy shares through the reinvestment of dividends, the shares will be
purchased at the net asset value determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The processing
date for the reinvestment of dividends may vary and does not affect the amount
or value of the shares acquired.
INITIAL SALES CHARGES The maximum initial sales charge is 4.25% for Class A and
1% for Class C.
The initial sales charge for Class A shares may be reduced for certain large
purchases, as described in the prospectus. We offer several ways for you to
combine your purchases in the Franklin Templeton Funds to take advantage of the
lower sales charges for large purchases. The Franklin Templeton Funds include
the U.S. registered mutual funds in the Franklin Group of Funds(R) and the
Templeton Group of Funds except Franklin Valuemark Funds, Templeton Capital
Accumulator Fund, Inc., and Templeton Variable Products Series Fund.
CUMULATIVE QUANTITY DISCOUNT. For purposes of calculating the sales charge on
Class A shares, you may combine the amount of your current purchase with the
cost or current value, whichever is higher, of your existing shares in the
Franklin Templeton Funds. You may also combine the shares of your spouse,
children under the age of 21 or grandchildren under the age of 21. If you are
the sole owner of a company, you may also add any company accounts, including
retirement plan accounts. Companies with one or more retirement plans may add
together the total plan assets invested in the Franklin Templeton Funds to
determine the sales charge that applies.
LETTER OF INTENT (LOI). You may buy Class A shares at a reduced sales charge by
completing the letter of intent section of your account application. A letter of
intent is a commitment by you to invest a specified dollar amount during a 13
month period. The amount you agree to invest determines the sales charge you
pay. By completing the letter of intent section of the application, you
acknowledge and agree to the following:
/bullet/ You authorize Distributors to reserve 5% of your total intended
purchase in Class A shares registered in your name until you fulfill
your LOI. Your periodic statements will include the reserved shares in
the total shares you own, and we will pay or reinvest dividend and
capital gain distributions on the reserved shares according to the
distribution option you have chosen.
/bullet/ You give Distributors a security interest in the reserved shares and
appoint Distributors as attorney-in-fact.
/bullet/ Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the LOI.
/bullet/ Although you may exchange your shares, you may not sell reserved shares
until you complete the LOI or pay the higher sales charge.
After you file your LOI with the fund, you may buy Class A shares at the sales
charge applicable to the amount specified in your LOI. Sales charge reductions
based on purchases in more than one Franklin Templeton Fund will be effective
only after notification to Distributors that the investment qualifies for a
discount. Any Class A purchases you made within 90 days before you filed your
LOI may also qualify for a retroactive reduction in the sales charge. If you
file your LOI with the fund before a change in the fund's sales charge, you may
complete the LOI at the lower of the new sales charge or the sales charge in
effect when the LOI was filed.
Your holdings in the Franklin Templeton Funds acquired more than 90 days before
you filed your LOI will be counted towards the completion of the LOI, but they
will not be entitled to a retroactive reduction in the sales charge. Any
redemptions you make during the 13 month period, except in the case of certain
retirement plans, will be subtracted from the amount of the purchases for
purposes of determining whether the terms of the LOI have been completed.
If the terms of your LOI are met, the reserved shares will be deposited to an
account in your name or delivered to you or as you direct. If the amount of your
total purchases, less redemptions, is more than the amount specified in your LOI
and is an amount that would qualify for a further sales charge reduction, a
retroactive price adjustment will be made by Distributors and the securities
dealer through whom purchases were made. The price adjustment will be made on
purchases made within 90 days before and on those made after you filed your LOI
and will be applied towards the purchase of additional shares at the offering
price applicable to a single purchase or the dollar amount of the total
purchases.
If the amount of your total purchases, less redemptions, is less than the amount
specified in your LOI, the sales charge will be adjusted upward, depending on
the actual amount purchased (less redemptions) during the period. You will need
to send Distributors an amount equal to the difference in the actual dollar
amount of sales charge paid and the amount of sales charge that would have
applied to the total purchases if the total of the purchases had been made at
one time. Upon payment of this amount, the reserved shares held for your account
will be deposited to an account in your name or delivered to you or as you
direct. If within 20 days after written request the difference in sales charge
is not paid, we will redeem an appropriate number of reserved shares to realize
the difference. If you redeem the total amount in your account before you
fulfill your LOI, we will deduct the additional sales charge due from the sale
proceeds and forward the balance to you.
For LOIs filed on behalf of certain retirement plans, the level and any
reduction in sales charges for these plans will be based on actual plan
participation and the projected investments in the Franklin Templeton Funds
under the LOI. These plans are not subject to the requirement to reserve 5% of
the total intended purchase or to the policy on upward adjustments in sales
charges described above, or to any penalty as a result of the early termination
of a plan, nor are these plans entitled to receive retroactive adjustments in
price for investments made before executing the LOI.
GROUP PURCHASES. If you are a member of a qualified group, you may buy Class A
shares at a reduced sales charge that applies to the group as a whole. The sales
charge is based on the combined dollar value of the group members' existing
investments, plus the amount of the current purchase.
A qualified group is one that:
/bullet/ Was formed at least six months ago,
/bullet/ Has a purpose other than buying fund shares at a discount,
/bullet/ Has more than 10 members,
/bullet/ Can arrange for meetings between our representatives and group members,
/bullet/ Agrees to include Franklin Templeton Fund sales and other materials in
publications and mailings to its members at reduced or no cost to
Distributors,
/bullet/ Agrees to arrange for payroll deduction or other bulk transmission of
investments to the fund, and
/bullet/ Meets other uniform criteria that allow Distributors to achieve cost
savings in distributing shares.
A qualified group does not include a 403(b) plan that only allows salary
deferral contributions, although any such plan that purchased the fund's Class A
shares at a reduced sales charge under the group purchase privilege before
February 1, 1998, may continue to do so.
WAIVERS FOR INVESTMENTS FROM CERTAIN PAYMENTS. Class A shares may be purchased
without an initial sales charge or contingent deferred sales charge (CDSC) by
investors who reinvest within 365 days:
/bullet/ Dividend and capital gain distributions from any Franklin Templeton
Fund. The distributions generally must be reinvested in the same share
class. Certain exceptions apply, however, to Class C shareholders who
chose to reinvest their distributions in Class A shares of the fund
before November 17, 1997, and to Advisor Class or Class Z shareholders
of a Franklin Templeton Fund who may reinvest their distributions in
the fund's Class A shares. This waiver category also applies to Class C
shares.
/bullet/ Dividend or capital gain distributions from a real estate investment
trust (REIT) sponsored or advised by Franklin Properties, Inc.
/bullet/ Annuity payments received under either an annuity option or from death
benefit proceeds, if the annuity contract offers as an investment
option the Franklin Valuemark Funds or the Templeton Variable Products
Series Fund. You should contact your tax advisor for information on any
tax consequences that may apply.
/bullet/ Redemption proceeds from a repurchase of shares of Franklin Floating
Rate Trust, if the shares were continuously held for at least 12
months.
If you immediately placed your redemption proceeds in a Franklin Bank
CD or a Franklin Templeton money fund, you may reinvest them as
described above. The proceeds must be reinvested within 365 days from
the date the CD matures, including any rollover, or the date you redeem
your money fund shares.
/bullet/ Redemption proceeds from the sale of Class A shares of any of the
Templeton Global Strategy Funds if you are a qualified investor.
If you paid a CDSC when you redeemed your Class A shares from a
Templeton Global Strategy Fund, a new CDSC will apply to your purchase
of fund shares and the CDSC holding period will begin again. We will,
however, credit your fund account with additional shares based on the
CDSC you previously paid and the amount of the redemption proceeds that
you reinvest.
If you immediately placed your redemption proceeds in a Franklin
Templeton money fund, you may reinvest them as described above. The
proceeds must be reinvested within 365 days from the date they are
redeemed from the money fund.
/bullet/ Distributions from an existing retirement plan invested in the Franklin
Templeton Funds.
WAIVERS FOR CERTAIN INVESTORS. Class A shares may also be purchased without an
initial sales charge or CDSC by various individuals and institutions due to
anticipated economies in sales efforts and expenses, including:
/bullet/ Trust companies and bank trust departments agreeing to invest in
Franklin Templeton Funds over a 13 month period at least $1 million of
assets held in a fiduciary, agency, advisory, custodial or similar
capacity and over which the trust companies and bank trust departments
or other plan fiduciaries or participants, in the case of certain
retirement plans, have full or shared investment discretion. We will
accept orders for these accounts by mail accompanied by a check or by
telephone or other means of electronic data transfer directly from the
bank or trust company, with payment by federal funds received by the
close of business on the next business day following the order.
/bullet/ Any state or local government or any instrumentality, department,
authority or agency thereof that has determined the fund is a legally
permissible investment and that can only buy fund shares without paying
sales charges. Please consult your legal and investment advisors to
determine if an investment in the fund is permissible and suitable for
you and the effect, if any, of payments by the fund on arbitrage rebate
calculations.
/bullet/ Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for
clients participating in comprehensive fee programs.
/bullet/ Qualified registered investment advisors who buy through a
broker-dealer or service agent who has entered into an agreement with
Distributors.
/bullet/ Registered securities dealers and their affiliates, for their
investment accounts only.
/bullet/ Current employees of securities dealers and their affiliates and their
family members, as allowed by the internal policies of their employer.
/bullet/ Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family
members, consistent with our then-current policies.
/bullet/ Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer.
/bullet/ Accounts managed by the Franklin Templeton Group.
/bullet/ Certain unit investment trusts and their holders reinvesting
distributions from the trusts.
/bullet/ Group annuity separate accounts offered to retirement plans.
/bullet/ Chilean retirement plans that meet the requirements described under
"Retirement plans" below.
RETIREMENT PLANS. Retirement plans sponsored by an employer (i) with at least
100 employees, or (ii) with retirement plan assets of $1 million or more, or
(iii) that agrees to invest at least $500,000 in the Franklin Templeton Funds
over a 13 month period may buy Class A shares without an initial sales charge.
Retirement plans that are not qualified retirement plans (employer sponsored
pension or profit-sharing plans that qualify under section 401 of the Internal
Revenue Code, including 401(k), money purchase pension, profit sharing and
defined benefit plans), SIMPLEs (savings incentive match plans for employees) or
SEPs (employer sponsored simplified employee pension plans established under
section 408(k) of the Internal Revenue Code) must also meet the group purchase
requirements described above to be able to buy Class A shares without an initial
sales charge. We may enter into a special arrangement with a securities dealer,
based on criteria established by the fund, to add together certain small
qualified retirement plan accounts for the purpose of meeting these
requirements.
For retirement plan accounts opened on or after May 1, 1997, a CDSC may apply if
the retirement plan is transferred out of the Franklin Templeton Funds or
terminated within 365 days of the retirement plan account's initial purchase in
the Franklin Templeton Funds.
Any retirement plan that does not meet the requirements to buy Class A shares
without an initial sales charge and that was a shareholder of the fund on or
before February 1, 1995, may buy shares of the fund subject to a maximum initial
sales charge of 4% of the offering price, 3.2% of which will be retained by
securities dealers.
SALES IN TAIWAN. Under agreements with certain banks in Taiwan, Republic of
China, the fund's shares are available to these banks' trust accounts without a
sales charge. The banks may charge service fees to their customers who
participate in the trusts. A portion of these service fees may be paid to
Distributors or one of its affiliates to help defray expenses of maintaining a
service office in Taiwan, including expenses related to local literature
fulfillment and communication facilities.
The fund's Class A shares may be offered to investors in Taiwan through
securities advisory firms known locally as Securities Investment Consulting
Enterprises. In conformity with local business practices in Taiwan, Class A
shares may be offered with the following schedule of sales charges:
SALES
SIZE OF PURCHASE - U.S. DOLLARS CHARGE (%)
- ---------------------------------------------------
Under $30,000........................... 3.0
$30,000 but less than $100,000.......... 2.0
$100,000 but less than $400,000......... 1.0
$400,000 or more........................ 0
DEALER COMPENSATION Securities dealers may at times receive the entire sales
charge. A securities dealer who receives 90% or more of the sales charge may be
deemed an underwriter under the Securities Act of 1933, as amended. Financial
institutions or their affiliated brokers may receive an agency transaction fee
in the percentages indicated in the dealer compensation table in the fund's
prospectus.
Distributors may pay the following commissions, out of its own resources, to
securities dealers who initiate and are responsible for purchases of Class A
shares of $1 million or more: 0.75% on sales of $1 million to $2 million, plus
0.60% on sales over $2 million to $3 million, plus 0.50% on sales over $3
million to $50 million, plus 0.25% on sales over $50 million to $100 million,
plus 0.15% on sales over $100 million.
Either Distributors or one of its affiliates may pay the following amounts, out
of its own resources, to securities dealers who initiate and are responsible for
purchases of Class A shares by certain retirement plans without an initial sales
charge: 1% on sales of $500,000 to $2 million, plus 0.80% on sales over $2
million to $3 million, plus 0.50% on sales over $3 million to $50 million, plus
0.25% on sales over $50 million to $100 million, plus 0.15% on sales over $100
million. Distributors may make these payments in the form of contingent advance
payments, which may be recovered from the securities dealer or set off against
other payments due to the dealer if shares are sold within 12 months of the
calendar month of purchase. Other conditions may apply. All terms and conditions
may be imposed by an agreement between Distributors, or one of its affiliates,
and the securities dealer.
These breakpoints are reset every 12 months for purposes of additional
purchases.
Distributors and/or its affiliates provide financial support to various
securities dealers that sell shares of the Franklin Templeton Group of Funds.
This support is based primarily on the amount of sales of fund shares. The
amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a securities dealer's sales and marketing efforts
in the Franklin Templeton Group of Funds; a securities dealer's support of, and
participation in, Distributors' marketing programs; a securities dealer's
compensation programs for its registered representatives; and the extent of a
securities dealer's marketing programs relating to the Franklin Templeton Group
of Funds. Financial support to securities dealers may be made by payments from
Distributors' resources, from Distributors' retention of underwriting
concessions and, in the case of funds that have Rule 12b-1 plans, from payments
to Distributors under such plans. In addition, certain securities dealers may
receive brokerage commissions generated by fund portfolio transactions in
accordance with the rules of the National Association of Securities Dealers,
Inc.
Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin Templeton
Funds and are afforded the opportunity to speak with portfolio managers.
Invitation to these meetings is not conditioned on selling a specific number of
shares. Those who have shown an interest in the Franklin Templeton Funds,
however, are more likely to be considered. To the extent permitted by their
firm's policies and procedures, registered representatives' expenses in
attending these meetings may be covered by Distributors.
CONTINGENT DEFERRED SALES CHARGE (CDSC) If you invest $1 million or more in
Class A shares, either as a lump sum or through our cumulative quantity discount
or letter of intent programs, a CDSC may apply to any shares you sell within 12
months of purchase. For Class C shares, a CDSC may apply if you sell your shares
within 18 months of purchase. The CDSC is 1% of the value of the shares sold or
the net asset value at the time of purchase, whichever is less.
Certain retirement plan accounts opened on or after May 1, 1997, and that
qualify to buy Class A shares without an initial sales charge may also be
subject to a CDSC if the retirement plan is transferred out of the Franklin
Templeton Funds or terminated within 365 days of the account's initial purchase
in the Franklin Templeton Funds.
CDSC WAIVERS. The CDSC for any share class will generally be waived for:
/bullet/ Account fees.
/bullet/ Sales of Class A shares purchased without an initial sales charge by
certain retirement plan accounts if (i) the account was opened before
May 1, 1997, or (ii) the securities dealer of record received a payment
from Distributors of 0.25% or less, or (iii) Distributors did not make
any payment in connection with the purchase, or (iv) the securities
dealer of record has entered into a supplemental agreement with
Distributors.
/bullet/ Redemptions by the fund when an account falls below the minimum
required account size.
/bullet/ Redemptions following the death of the shareholder or beneficial owner.
/bullet/ Redemptions through a systematic withdrawal plan set up before February
1, 1995.
/bullet/ Redemptions through a systematic withdrawal plan set up on or after
February 1, 1995, up to 1% monthly, 3% quarterly, 6% semiannually or
12% annually of your account's net asset value depending on the
frequency of your plan.
/bullet/ Redemptions by Franklin Templeton Trust Company employee benefit plans
or employee benefit plans serviced by ValuSelect(R).
/bullet/ Distributions from individual retirement accounts (IRAs) due to death
or disability or upon periodic distributions based on life expectancy.
/bullet/ Returns of excess contributions (and earnings, if applicable) from
retirement plan accounts.
/bullet/ Participant initiated distributions from employee benefit plans or
participant initiated exchanges among investment choices in employee
benefit plans.
EXCHANGE PRIVILEGE If you request the exchange of the total value of your
account, declared but unpaid income dividends and capital gain distributions
will be reinvested in the fund and exchanged into the new fund at net asset
value when paid. Backup withholding and information reporting may apply.
If a substantial number of shareholders should, within a short period, sell
their fund shares under the exchange privilege, the fund might have to sell
portfolio securities it might otherwise hold and incur the additional costs
related to such transactions. On the other hand, increased use of the exchange
privilege may result in periodic large inflows of money. If this occurs, it is
the fund's general policy to initially invest this money in short-term,
interest-bearing money market instruments, unless it is believed that attractive
investment opportunities consistent with the fund's investment goal exist
immediately. This money will then be withdrawn from the short-term,
interest-bearing money market instruments and invested in portfolio securities
in as orderly a manner as is possible when attractive investment opportunities
arise.
The proceeds from the sale of shares of an investment company are generally not
available until the seventh day following the sale. The funds you are seeking to
exchange into may delay issuing shares pursuant to an exchange until that
seventh day. The sale of fund shares to complete an exchange will be effected at
net asset value at the close of business on the day the request for exchange is
received in proper form.
SYSTEMATIC WITHDRAWAL PLAN Our systematic withdrawal plan allows you to sell
your shares and receive regular payments from your account on a monthly,
quarterly, semiannual or annual basis. The value of your account must be at
least $5,000 and the minimum payment amount for each withdrawal must be at least
$50. For retirement plans subject to mandatory distribution requirements, the
$50 minimum will not apply. There are no service charges for establishing or
maintaining a systematic withdrawal plan. Once your plan is established, any
distributions paid by the fund will be automatically reinvested in your account.
Payments under the plan will be made from the redemption of an equivalent amount
of shares in your account, generally on the 25th day of the month in which a
payment is scheduled. If the 25th falls on a weekend or holiday, we will process
the redemption on the next business day. When you sell your shares under a
systematic withdrawal plan, it is a taxable transaction.
To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if you
plan to buy shares on a regular basis. Shares sold under the plan may also be
subject to a CDSC.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you. Because the amount
withdrawn under the plan may be more than your actual yield or income, part of
the payment may be a return of your investment.
You may discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying us by mail or by
phone at least seven business days before the end of the month preceding a
scheduled payment. The fund may discontinue a systematic withdrawal plan by
notifying you in writing and will automatically discontinue a systematic
withdrawal plan if all shares in your account are withdrawn or if the fund
receives notification of the shareholder's death or incapacity.
REDEMPTIONS IN KIND The fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior approval of the U.S. Securities and Exchange
Commission (SEC). In the case of redemption requests in excess of these amounts,
the board reserves the right to make payments in whole or in part in securities
or other assets of the fund, in case of an emergency, or if the payment of such
a redemption in cash would be detrimental to the existing shareholders of the
fund. In these circumstances, the securities distributed would be valued at the
price used to compute the fund's net assets and you may incur brokerage fees in
converting the securities to cash. The fund does not intend to redeem illiquid
securities in kind. If this happens, however, you may not be able to recover
your investment in a timely manner.
SHARE CERTIFICATES We will credit your shares to your fund account. We do not
issue share certificates unless you specifically request them. This eliminates
the costly problem of replacing lost, stolen or destroyed certificates. If a
certificate is lost, stolen or destroyed, you may have to pay an insurance
premium of up to 2% of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.
GENERAL INFORMATION If dividend checks are returned to the fund marked "unable
to forward" by the postal service, we will consider this a request by you to
change your dividend option to reinvest all distributions. The proceeds will be
reinvested in additional shares at net asset value until we receive new
instructions.
Distribution or redemption checks sent to you do not earn interest or any other
income during the time the checks remain uncashed. Neither the fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks. The fund is not responsible for tracking down uncashed checks, unless a
check is returned as undeliverable.
In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional efforts to find
you from your account. These costs may include a percentage of the account when
a search company charges a percentage fee in exchange for its location services.
The wiring of redemption proceeds is a special service that we make available
whenever possible. By offering this service to you, the fund is not bound to
meet any redemption request in less than the seven day period prescribed by law.
Neither the fund nor its agents shall be liable to you or any other person if,
for any reason, a redemption request by wire is not processed as described in
the prospectus.
Franklin Templeton Investor Services, Inc. (Investor Services) may pay certain
financial institutions that maintain omnibus accounts with the fund on behalf of
numerous beneficial owners for recordkeeping operations performed with respect
to such owners. For each beneficial owner in the omnibus account, the fund may
reimburse Investor Services an amount not to exceed the per account fee that the
fund normally pays Investor Services. These financial institutions may also
charge a fee for their services directly to their clients.
If you buy or sell shares through your securities dealer, we use the net asset
value next calculated after your securities dealer receives your request, which
is promptly transmitted to the fund. If you sell shares through your securities
dealer, it is your dealer's responsibility to transmit the order to the fund in
a timely fashion. Your redemption proceeds will not earn interest between the
time we receive the order from your dealer and the time we receive any required
documents. Any loss to you resulting from your dealer's failure to transmit your
redemption order to the fund in a timely fashion must be settled between you and
your securities dealer.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
For institutional accounts, there may be additional methods of buying or selling
fund shares than those described in this SAI or in the prospectus.
In the event of disputes involving multiple claims of ownership or authority to
control your account, the fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all persons deemed by
the fund to have a potential property interest in the account, before executing
instructions regarding the account; (b) interplead disputed funds or accounts
with a court of competent jurisdiction; or (c) surrender ownership of all or a
portion of the account to the IRS in response to a notice of levy.
PRICING SHARES
- --------------------------------------------------------------------------------
When you buy shares, you pay the offering price. The offering price is the net
asset value (NAV) per share plus any applicable sales charge, calculated to two
decimal places using standard rounding criteria. When you sell shares, you
receive the NAV minus any applicable CDSC.
The value of a mutual fund is determined by deducting the fund's liabilities
from the total assets of the portfolio. The net asset value per share is
determined by dividing the net asset value of the fund by the number of shares
outstanding.
The fund calculates the NAV per share of each class each business day at the
close of trading on the New York Stock Exchange (normally 1:00 p.m. pacific
time). The fund does not calculate the NAV on days the New York Stock Exchange
(NYSE) is closed for trading, which include New Year's Day, Martin Luther King
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
When determining its NAV, the fund values cash and receivables at their
realizable amounts, and records interest as accrued and dividends on the
ex-dividend date. If market quotations are readily available for portfolio
securities listed on a securities exchange or on the NASDAQ National Market
System, the fund values those securities at the last quoted sale price of the
day or, if there is no reported sale, within the range of the most recent quoted
bid and ask prices. The fund values over-the-counter portfolio securities within
the range of the most recent quoted bid and ask prices. If portfolio securities
trade both in the over-the-counter market and on a stock exchange, the fund
values them according to the broadest and most representative market as
determined by the manager.
The fund values portfolio securities underlying actively traded call options at
their market price as determined above. The current market value of any option
the fund holds is its last sale price on the relevant exchange before the fund
values its assets. If there are no sales that day or if the last sale price is
outside the bid and ask prices, the fund values options within the range of the
current closing bid and ask prices if the fund believes the valuation fairly
reflects the contract's market value.
Trading in securities on European, Far Eastern and some other securities
exchanges and over-the-counter markets is normally completed well before the
close of business of the NYSE on each day that the NYSE is open. Trading in
European or Far Eastern securities generally, or in a particular country or
countries, may not take place on every NYSE business day. Furthermore, trading
takes place in various foreign markets on days that are not business days for
the NYSE and on which the fund's NAV is not calculated. Thus, the calculation of
the fund's NAV does not take place contemporaneously with the determination of
the prices of many of the portfolio securities used in the calculation and, if
events materially affecting the values of these foreign securities occur, the
securities will be valued at fair value as determined by management and approved
in good faith by the board.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times before
the close of the NYSE. The value of these securities used in computing the NAV
is determined as of such times. Occasionally, events affecting the values of
these securities may occur between the times at which they are determined and
the close of the NYSE that will not be reflected in the computation of the NAV.
If events materially affecting the values of these securities occur during this
period, the securities will be valued at their fair value as determined in good
faith by the board.
Other securities for which market quotations are readily available are valued at
the current market price, which may be obtained from a pricing service, based on
a variety of factors including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific issues. Securities and other assets for which
market prices are not readily available are valued at fair value as determined
following procedures approved by the board. With the approval of the board, the
fund may use a pricing service, bank or securities dealer to perform any of the
above described functions.
THE UNDERWRITER
- --------------------------------------------------------------------------------
Franklin Templeton Distributors, Inc. (Distributors) acts as the principal
underwriter in the continuous public offering of the fund's shares. Distributors
is located at 777 Mariners Island Blvd., San Mateo, CA 94404.
Distributors pays the expenses of the distribution of fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
The table below shows the aggregate underwriting commissions Distributors
received in connection with the offering of the fund's shares, the net
underwriting discounts and commissions Distributors retained after allowances to
dealers, and the amounts Distributors received in connection with redemptions or
repurchases of shares for the last three fiscal years ended August 31:
AMOUNT RECEIVED IN
TOTAL AMOUNT CONNECTION WITH
COMMISSIONS RETAINED BY REDEMPTIONS AND
RECEIVED ($) DISTRIBUTORS ($) REPURCHASES ($)
- ------------------------------------------------------------------
1998 467,836 777 12,258
1997 608,587 (2,666) 4,182
1996 453,128 21,650 1,894
Distributors may be entitled to reimbursement under the Rule 12b-1 plans, as
discussed below. Except as noted, Distributors received no other compensation
from the fund for acting as underwriter.
DISTRIBUTION AND SERVICE (12b-1) FEES Each class has a separate distribution or
"Rule 12b-1" plan. Under each plan, the fund shall pay or may reimburse
Distributors or others for the expenses of activities that are primarily
intended to sell shares of the class. These expenses may include, among others,
distribution or service fees paid to securities dealers or others who have
executed a servicing agreement with the fund, Distributors or its affiliates; a
prorated portion of Distributors' overhead expenses; and the expenses of
printing prospectuses and reports used for sales purposes, and preparing and
distributing sales literature and advertisements.
The distribution and service (12b-1) fees charged to each class are based only
on the fees attributable to that particular class.
THE CLASS A PLAN. Payments by the fund under the Class A plan may not exceed
0.25% per year of Class A's average daily net assets, payable quarterly.
Expenses not reimbursed in any quarter may be reimbursed in future quarters or
years. This includes expenses not reimbursed because they exceeded the
applicable limit under the plan. As of August 31, 1998, expenses under the Class
A plan that may be reimbursable in future quarters or years totaled $73,567, or
0.04% of Class A's net assets.
THE CLASS C PLAN. Under the Class C plan, the fund pays Distributors up to 0.50%
per year of the class's average daily net assets, payable quarterly, to pay
Distributors or others for providing distribution and related services and
bearing certain expenses. All distribution expenses over this amount will be
borne by those who have incurred them. The fund may also pay a servicing fee of
up to 0.15% per year of the class's average daily net assets, payable quarterly.
This fee may be used to pay securities dealers or others for, among other
things, helping to establish and maintain customer accounts and records, helping
with requests to buy and sell shares, receiving and answering correspondence,
monitoring dividend payments from the fund on behalf of customers, and similar
servicing and account maintenance activities.
The expenses relating to the Class C plan are also used to pay Distributors for
advancing the commission costs to securities dealers with respect to the initial
sale of Class C shares.
THE CLASS A AND C PLANS. The terms and provisions of each plan relating to
required reports, term, and approval are consistent with Rule 12b-1.
In no event shall the aggregate asset-based sales charges, which include
payments made under each plan, plus any other payments deemed to be made
pursuant to a plan, exceed the amount permitted to be paid under the rules of
the National Association of Securities Dealers, Inc.
To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks will not be
entitled to participate in the plans as a result of applicable federal law
prohibiting certain banks from engaging in the distribution of mutual fund
shares. These banking institutions, however, are permitted to receive fees under
the plans for administrative servicing or for agency transactions. If you are a
customer of a bank that is prohibited from providing these services, you would
be permitted to remain a shareholder of the fund, and alternate means for
continuing the servicing would be sought. In this event, changes in the services
provided might occur and you might no longer be able to avail yourself of any
automatic investment or other services then being provided by the bank. It is
not expected that you would suffer any adverse financial consequences as a
result of any of these changes.
Each plan has been approved in accordance with the provisions of Rule 12b-1. The
plans are renewable annually by a vote of the board, including a majority vote
of the board members who are not interested persons of the fund and who have no
direct or indirect financial interest in the operation of the plans, cast in
person at a meeting called for that purpose. It is also required that the
selection and nomination of such board members be done by the noninterested
members of the fund's board. The plans and any related agreement may be
terminated at any time, without penalty, by vote of a majority of the
noninterested board members on not more than 60 days' written notice, by
Distributors on not more than 60 days' written notice, by any act that
constitutes an assignment of the management agreement with the manager or by
vote of a majority of the outstanding shares of the class. Distributors or any
dealer or other firm may also terminate their respective distribution or service
agreement at any time upon written notice.
The plans and any related agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a majority
of the outstanding shares of the class, and all material amendments to the plans
or any related agreements shall be approved by a vote of the noninterested board
members, cast in person at a meeting called for the purpose of voting on any
such amendment.
Distributors is required to report in writing to the board at least quarterly on
the amounts and purpose of any payment made under the plans and any related
agreements, as well as to furnish the board with such other information as may
reasonably be requested in order to enable the board to make an informed
determination of whether the plans should be continued.
For the fiscal year ended August 31, 1998, the amounts paid by the fund pursuant
to the plans were:
CLASS A ($) CLASS C ($)
- -----------------------------------------------------
Advertising ............. 5,821 4,966
Printing and mailing
prospectuses other
than to current
shareholders .......... 73,616 16,312
Payments to
underwriters .......... 11,755 9,256
Payments to
broker-dealers ........ 418,492 94,552
Other ................... 0 0
------- -------
Total ................... 509,684 125,086
======= =======
PERFORMANCE
- --------------------------------------------------------------------------------
Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
nonstandardized performance quotation furnished by the fund be accompanied by
certain standardized performance information computed as required by the SEC.
Average annual total return and current yield quotations used by the fund are
based on the standardized methods of computing performance mandated by the SEC.
If a Rule 12b-1 plan is adopted, performance figures reflect fees from the date
of the plan's implementation. An explanation of these and other methods used by
the fund to compute or express performance follows. Regardless of the method
used, past performance does not guarantee future results, and is an indication
of the return to shareholders only for the limited historical period used.
AVERAGE ANNUAL TOTAL RETURN Average annual total return is determined by finding
the average annual rates of return over the periods indicated below that would
equate an initial hypothetical $1,000 investment to its ending redeemable value.
The calculation assumes the maximum initial sales charge is deducted from the
initial $1,000 purchase, and income dividends and capital gain distributions are
reinvested at net asset value. The quotation assumes the account was completely
redeemed at the end of each period and the deduction of all applicable charges
and fees. If a change is made to the sales charge structure, historical
performance information will be restated to reflect the maximum initial sales
charge currently in effect.
When considering the average annual total return quotations, you should keep in
mind that the maximum initial sales charge reflected in each quotation is a one
time fee charged on all direct purchases, which will have its greatest impact
during the early stages of your investment. This charge will affect actual
performance less the longer you retain your investment in the fund.
The average annual total returns for the indicated periods ended August 31,
1998, were:
1 YEAR 5 YEARS 10 YEARS
- --------------------------------------------------------
Class A ......... -1.58% 4.86% 7.39%
SINCE
INCEPTION
1 YEAR (05/01/95)
- ---------------------------------------------
Class C ......... 0.44% 7.13%
These figures were calculated according to the SEC formula:
P (1+T)n = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of each period at the end of each period
CUMULATIVE TOTAL RETURN Like average annual total return, cumulative total
return assumes the maximum initial sales charge is deducted from the initial
$1,000 purchase, and income dividends and capital gains distributions are
reinvested at net asset value. Cumulative total return, however, is based on the
actual return for a specified period rather than on the average return over the
periods indicated above. The cumulative total returns for the indicated periods
ended August 31, 1998, were:
1 YEAR 5 YEARS 10 YEARS
- --------------------------------------------------------
Class A ......... -1.58% 26.77% 103.96%
SINCE
INCEPTION
1 YEAR (05/01/95)
- -----------------------------------
Class C 0.44% 25.84%
CURRENT YIELD Current yield shows the income per share earned by the fund. It is
calculated by dividing the net investment income per share earned during a
30-day base period by the applicable maximum offering price per share on the
last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders of the class during the base
period. The yields for the 30-day period ended August 31, 1998, were:
CLASS A CLASS C
- -------------------
4.55% 4.30%
These figures were obtained using the following SEC formula:
Yield = 2 [(a-b + 1)6 - 1]
---
cd
where:
a = interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the last day of the period
CURRENT DISTRIBUTION RATE Current yield, which is calculated according to a
formula prescribed by the SEC, is not indicative of the amounts which were or
will be paid to shareholders. Amounts paid to shareholders are reflected in the
quoted current distribution rate. The current distribution rate is usually
computed by annualizing the dividends paid per share by a class during a certain
period and dividing that amount by the current maximum offering price. The
current distribution rate differs from the current yield computation because it
may include distributions to shareholders from sources other than dividends and
interest, such as premium income from option writing and short-term capital
gains, and is calculated over a different period of time. The current
distribution rates for the 30-day period ended August 31, 1998, were:
CLASS A CLASS C
- -------------------
6.05% 5.83%
VOLATILITY Occasionally statistics may be used to show the fund's volatility or
risk. Measures of volatility or risk are generally used to compare the fund's
net asset value or performance to a market index. One measure of volatility is
beta. Beta is the volatility of a fund relative to the total market, as
represented by an index considered representative of the types of securities in
which the fund invests. A beta of more than 1.00 indicates volatility greater
than the market and a beta of less than 1.00 indicates volatility less than the
market. Another measure of volatility or risk is standard deviation. Standard
deviation is used to measure variability of net asset value or total return
around an average over a specified period of time. The idea is that greater
volatility means greater risk undertaken in achieving performance.
OTHER PERFORMANCE QUOTATIONS The fund may also quote the performance of shares
without a sales charge. Sales literature and advertising may quote a cumulative
total return, average annual total return and other measures of performance with
the substitution of net asset value for the public offering price.
Sales literature referring to the use of the fund as a potential investment for
IRAs, business retirement plans, and other tax-advantaged retirement plans may
quote a total return based upon compounding of dividends on which it is presumed
no federal income tax applies.
The fund may include in its advertising or sales material information relating
to investment goals and performance results of funds belonging to the Franklin
Templeton Group of Funds. Franklin Resources, Inc. is the parent company of the
advisors and underwriter of the Franklin Templeton Group of Funds.
COMPARISONS To help you better evaluate how an investment in the fund may
satisfy your investment goal, advertisements and other materials about the fund
may discuss certain measures of fund performance as reported by various
financial publications. Materials may also compare performance (as calculated
above) to performance as reported by other investments, indices, and averages.
These comparisons may include, but are not limited to, the following examples:
(i) unmanaged indices so that you may compare the fund's results with those of a
group of unmanaged securities widely regarded by investors as representative of
the securities market in general; (ii) other groups of mutual funds tracked by
Lipper Analytical Services, Inc., a widely used independent research firm that
ranks mutual funds by overall performance, investment goals and assets, or
tracked by other services, companies, publications, or persons who rank mutual
funds on overall performance or other criteria; and (iii) the Consumer Price
Index (measure for inflation) to assess the real rate of return from an
investment in the fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
From time to time, the fund and the manager may also refer to the following
information:
/bullet/ The manager's and its affiliates' market share of international
equities managed in mutual funds prepared or published by Strategic
Insight or a similar statistical organization.
/bullet/ The performance of U.S. equity and debt markets relative to foreign
markets prepared or published by Morgan Stanley Capital
International(R) or a similar financial organization.
/bullet/ The capitalization of U.S. and foreign stock markets as prepared or
published by the International Finance Corporation, Morgan Stanley
Capital International(R) or a similar financial organization.
/bullet/ The geographic and industry distribution of the fund's portfolio and
the fund's top ten holdings.
/bullet/ The gross national product and populations, including age
characteristics, literacy rates, foreign investment improvements due to
a liberalization of securities laws and a reduction of foreign exchange
controls, and improving communication technology, of various countries
as published by various statistical organizations.
/bullet/ To assist investors in understanding the different returns and risk
characteristics of various investments, the fund may show historical
returns of various investments and published indices (E.G., Ibbotson
Associates, Inc. Charts and Morgan Stanley EAFE - Index).
/bullet/ The major industries located in various jurisdictions as published by
the Morgan Stanley Index.
/bullet/ Rankings by DALBAR Surveys, Inc. with respect to mutual fund
shareholder services.
/bullet/ Allegorical stories illustrating the importance of persistent long-term
investing.
/bullet/ The fund's portfolio turnover rate and its ranking relative to industry
standards as published by Lipper Analytical Services, Inc. or
Morningstar, Inc.
/bullet/ A description of the Templeton organization's investment management
philosophy and approach, including its worldwide search for undervalued
or "bargain" securities and its diversification by industry, nation and
type of stocks or other securities.
/bullet/ Comparison of the characteristics of various emerging markets,
including population, financial and economic conditions.
/bullet/ Quotations from the Templeton organization's founder, Sir John
Templeton,* advocating the virtues of diversification and long-term
investing.
- -------------------------
* Sir John Templeton sold the Templeton organization to Franklin Resources,
Inc. in October 1992 and resigned from the board on April 16, 1995. He is no
longer involved with the investment management process.
From time to time, advertisements or information for the fund may include a
discussion of certain attributes or benefits to be derived from an investment in
the fund. The advertisements or information may include symbols, headlines, or
other material that highlights or summarizes the information discussed in more
detail in the communication.
Advertisements or information may also compare the fund's performance to the
return on certificates of deposit (CDs) or other investments. You should be
aware, however, that an investment in the fund involves the risk of fluctuation
of principal value, a risk generally not present in an investment in a CD issued
by a bank. For example, as the general level of interest rates rise, the value
of the fund's fixed-income investments, as well as the value of its shares that
are based upon the value of such portfolio investments, can be expected to
decrease. Conversely, when interest rates decrease, the value of the fund's
shares can be expected to increase. CDs are frequently insured by an agency of
the U.S. government. An investment in the fund is not insured by any federal,
state or private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the fund to calculate its figures. In addition,
there can be no assurance that the fund will continue its performance as
compared to these other averages.
MISCELLANEOUS INFORMATION
- --------------------------------------------------------------------------------
The fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis in order to have
a projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by the
College Board.) The Franklin Retirement Planning Guide leads you through the
steps to start a retirement savings program. Of course, an investment in the
fund cannot guarantee that these goals will be met.
The fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin is one of the
oldest mutual fund organizations and now services more than 3 million
shareholder accounts. In 1992, Franklin, a leader in managing fixed-income
mutual funds and an innovator in creating domestic equity funds, joined forces
with Templeton, a pioneer in international investing. The Mutual Series team,
known for its value-driven approach to domestic equity investing, became part of
the organization four years later. Together, the Franklin Templeton Group has
over $216 billion in assets under management for more than 6 million U.S. based
mutual fund shareholder and other accounts. The Franklin Templeton Group of
Funds offers 117 U.S. based open-end investment companies to the public. The
fund may identify itself by its NASDAQ symbol or CUSIP number.
Currently, there are more mutual funds than there are stocks listed on the New
York Stock Exchange. While many of them have similar investment goals, no two
are exactly alike. Shares of the fund are generally sold through securities
dealers, whose investment representatives are experienced professionals who can
offer advice on the type of investments suitable to your unique goals and needs,
as well as the risks associated with such investments.
The Information Services & Technology division of Franklin Resources, Inc.
(Resources) established a Year 2000 Project Team in 1996. This team has already
begun making necessary software changes to help the computer systems that
service the fund and its shareholders to be Year 2000 compliant. After
completing these modifications, comprehensive tests are conducted in one of
Resources' U.S. test labs to verify their effectiveness. Resources continues to
seek reasonable assurances from all major hardware, software or data-services
suppliers that they will be Year 2000 compliant on a timely basis. Resources is
also beginning to develop a contingency plan, including identification of those
mission critical systems for which it is practical to develop a contingency
plan. However, in an operation as complex and geographically distributed as
Resources' business, the alternatives to use of normal systems, especially
mission critical systems, or supplies of electricity or long distance voice and
data lines are limited.
DESCRIPTION OF BOND RATINGS
- --------------------------------------------------------------------------------
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large, fluctuation of protective elements may be of greater amplitude, or
there may be other elements present that make the long-term risks appear
somewhat larger.
A - Bonds rated A possess many favorable investment attributes and are
considered upper medium-grade obligations. Factors giving security to principal
and interest are considered adequate, but elements may be present that suggest a
susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered medium-grade obligations. They are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. These
bonds lack outstanding investment characteristics and, in fact, have speculative
characteristics as well.
Ba - Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of interest
and principal payments is very moderate and, thereby, not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. These issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca - Bonds rated Ca represent obligations that are speculative to a high degree.
These issues are often in default or have other marked shortcomings.
C - Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
STANDARD & POOR'S CORPORATION (S&P)
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in a small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While these bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C - Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating may also reflect the
filing of a bankruptcy petition under circumstances where debt service payments
are continuing. The C1 rating is reserved for income bonds on which no interest
is being paid.
D - Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
COMMERCIAL PAPER RATINGS
MOODY'S
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually their promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following designations, all judged to
be investment grade, to indicate the relative repayment capacity of rated
issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong. The
relative degree of safety, however, is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
ANNUAL REPORT
[PHOTOGRAPH]
MARCH 31, 1999
TEMPLETON AMERICAS
GOVERNMENT SECURITIES FUND
[LOGO(R)]
FRANKLIN(R) TEMPLETON(R)
[FRANKLIN TEMPLETON CELEBRATING OVER 50 YEARS SEAL]
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective, and to expect that mixed in with the good
years can be some bad years. It's important to remember that all securities
markets move both up and down, as do mutual fund share prices. We appreciate
your past support and look forward to serving your investment needs in the years
ahead.
In 1992, Sir John Templeton retired after a 50-year career of helping investors
manage their money. Currently he devotes all of his time and efforts to the John
Templeton Foundation. A major portion of his assets remain invested in the
Templeton funds, which are managed by many of the investment professionals he
selected and trained.
CONTENTS
Shareholder Letter 1
Performance Summary 5
Financial Highlights &
Statement of Investments 8
Financial Statements 11
Notes to Financial
Statements 14
Independent Auditors' Report 17
Tax Designation 18
[PYRAMID]
FUND CATEGORY - GLOBAL
GROWTH
GROWTH & INCOME
INCOME
TAX-FREE INCOME
SHAREHOLDER LETTER
- --------------------------------------------------------------------------------
Your Fund's Goal: Templeton Americas Government Securities Fund seeks a high
level of current income, with total return as a secondary goal. It seeks to
achieve this goal by investing, under normal market conditions, at least 65% of
its total assets in debt securities issued or guaranteed by Government Entities
of Western Hemisphere countries (located in North, South, and Central America
and the surrounding waters).
- --------------------------------------------------------------------------------
Dear Shareholder:
This annual report covers the fiscal year ended March 31, 1999. During this
time, the Fund's performance was significantly impacted by the relatively high
volatility of bond markets in emerging market countries. Currency and financial
crises in Russia and Brazil adversely affected many securities markets,
particularly those of Latin America. Many investors were concerned that
countries such as Brazil could follow Russia's footsteps and devalue their
currencies. The International Monetary Fund (IMF) approved a financial support
package for Brazil, temporarily preventing the Russian crisis from spreading
into that country. Severe volatility returned, however, when Brazil devalued its
currency in early 1999. Subsequently, its congress approved
You will find a complete listing of the Fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 9 of
this report.
[GEOGRAPHIC DISTRIBUTION PIE CHART]
GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
3/31/99
[THIS CHART SHOWS IN PIE CHART FORMAT THE GEOGRAPHIC DISTRIBUTION OF TEMPLETON
AMERICAS GOVERNMENT SECURITIES FUND, BASED ON TOTAL NET ASSETS AS OF 3/31/99.]
United States 38.2%
Mexico 20.9%
Argentina 12.1%
Brazil 9.8%
Venezuela 7.6%
Jamaica 5.1%
Ecuador 3.6%
Other Countries 1.9%
Short-Term Investments & Other Net Assets 0.8%
fiscal measures designed to improve the government's finances, the IMF continued
to provide support, and the Latin American debt market began to recover during
February and March. This recovery is evidenced by the J.P. Morgan Latin Eurobond
Index (LEI) posting a one-year return of -3.23%.(1)
In the U.S., the Federal Reserve lowered interest rates three times between
August and November 1998 in an effort to mitigate the impact of the Asian and
Russian currency crises on the U.S. economy and global financial markets. These
steps, together with relatively low inflation, high productivity, a strong
dollar, and the flight of investors to the safety of U.S. Treasuries, benefited
the U.S. bond market. During the year under review, the J.P. Morgan U.S.
Government Bond Index returned 6.69%, and the J.P. Morgan U.S. Government
Bond/Latin Eurobond Index returned 4.15%.(2)
Within this environment, Templeton Americas Government Securities Fund posted a
- -2.54% cumulative total return for the one-year period ended March 31, 1999, as
shown in the Performance Summary on page 6. We have always maintained a
long-term perspective when managing the Fund, and we encourage shareholders to
view their investments in a similar manner. As you can see from the table on
page 6, the Fund delivered a cumulative total return of 47.39% since inception
on June 27, 1994.
(1.) Source: J.P. Morgan. The LEI covers Eurobonds of over US$100 million from
Latin America and includes reinvested interest. One cannot invest directly in an
index, nor is an index representative of the Fund's portfolio.
(2.) Source: J.P. Morgan. The J.P. Morgan U.S. Government Bond Index is a total
return index that tracks the U.S. Treasuries market. Each issue is weighted
according to its traded market capitalization in U.S. dollar terms. All issues
included in the index have remaining maturities of one year or more. The J.P.
Morgan U.S. Government Bond/Latin Eurobond Index is a proprietary index
developed by the Franklin Templeton organization that combines 60% of the J.P.
Morgan U.S. Government Bond Index and 40% of the J.P. Morgan Latin Eurobond
Index (LEI). One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.
PORTFOLIO BREAKDOWN
3/31/99
% OF TOTAL
NET ASSETS
- -------------------------------------------------------------------
Government Bonds
(U.S. and Foreign) 94.5%
Corporate Bonds
(U.S. and Foreign) 4.7%
Short-Term Investments
& Other Net Assets 0.8%
At the end of the reporting period, the U.S. represented our largest exposure at
38.2% of total net assets. Debt securities of Mexico, Argentina, Brazil, and
Venezuela represented our four largest emerging market allocations. Together,
they comprised 50.4% of the Fund's total net assets. During the year, we shifted
the Fund's allocations and focused on emerging markets that we believed would
experience the least volatility, while still seeking high current income. We
emphasized bonds issued by Mexico and Argentina because both countries adopted
measures addressing low prices for commodities, their main sources of export
revenue.
Looking forward, we intend to maintain our focus on bonds from those countries
we believe are progressing on structural reform, including both fiscal and
monetary measures. In our opinion, such securities have potential to rise in
value if the countries' economic performance and creditworthiness improve.
Although volatility could continue to affect nations with weak currencies, we
are optimistic that many of those countries may be able to service their debt
obligations through responsible economic policy-making and financial reform. We
believe the direction of global commodity prices, an important issue for Latin
American economies, will be largely influenced by any recovery in Asian
industrial production. By the end of the reporting period, emerging Asian
economies had begun to recover and their focus was on structural reform programs
designed to secure their recovery over the long term. Meanwhile, we will
continue to follow a defensive credit and currency posture until we believe
credit risk sensitivity and its resultant volatility stabilize.
Of course, investments in foreign securities concentrated in a single region
involve special risks, such as market and currency volatility, and adverse
economic, social and political developments in the countries where the Fund
invests. Emerging market securities involve heightened risks related to the same
factors, in addition to those associated with political instability, higher
rates of inflation, controls on foreign investment, and the relatively small
size and lesser liquidity of these markets. The Fund may also invest in
lower-rated or unrated debt securities that have high credit risk and may be
predominately speculative. These risks and other considerations are discussed in
the Fund's prospectus.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of March 31, 1999, the end of the reporting period. However, market
and economic conditions are changing constantly, which can be expected to affect
our strategies and the Fund's portfolio composition. Although past performance
is not predictive of future results, these insights may give you a better
understanding of our investment and management philosophy.
We thank you for your continued investment in the Fund, and would like to
reaffirm our dedication and commitment to searching the Western Hemisphere for
the best possible securities for the Fund's portfolio.
Sincerely,
The Portfolio Management Team
Templeton Americas Government Securities Fund
PERFORMANCE SUMMARY AS OF 3/31/99
Distributions will vary based on earnings of the Fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (4/1/98-3/31/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 3/31/99 3/31/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value -$1.08 $9.60 $10.68
<CAPTION>
DISTRIBUTIONS
----------------------------------------
<S> <C>
Dividend Income $0.7370
Long-Term Capital Gain $0.0150
Short-Term Capital Gain $0.0400
Total $0.7920
</TABLE>
Templeton Americas Government Securities Fund paid distributions derived from
long-term capital gains of 1.5 cents ($0.0150) per share in May, 1998. The Fund
hereby designates such distributions as capital gain dividends per Internal
Revenue Code Section 852(b)(3).
- --------------------------------------------------------------------------------
Subject to the maximum 4.25% initial sales charge. The Fund's Investment Manager
and Fund Administrator have agreed in advance to waive a portion of their
respective fees and, in the case of the Fund Administrator, to make certain
payments to reduce expenses, which increases total return to shareholders. If
they had not taken this action, the Fund's total returns would have been lower.
After July 31, 1999, the fee waiver and expense reimbursement may be
discontinued at any time upon notice to the Fund's Board of Trustees.
- --------------------------------------------------------------------------------
Past performance is not predictive of future results.
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
1-YEAR 3-YEAR (6/27/94)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -2.54% 29.35% 47.39%
Average Annual Total Return(2) -6.65% 7.40% 7.52%
</TABLE>
(1.) Cumulative total return represents the change in value of an investment
over the periods indicated and does not include sales charges.
(2.) Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the applicable, maximum
sales charge.
- --------------------------------------------------------------------------------
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility and the social,
economic and political climates of countries where the Fund invests. Emerging
markets involve heightened risks related to the same factors, in addition to
those associated with their relatively small size and lesser liquidity. The Fund
may also invest in lower-rated or unrated debt securities that have high credit
risk and may be predominately speculative. You may have a gain or loss when you
sell your shares.
- --------------------------------------------------------------------------------
Past performance is not predictive of future results.
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the applicable, maximum sales charge, Fund expenses, account
fees and reinvested distributions. The unmanaged indices differ from the Fund in
composition, do not pay management fees or expenses and include reinvested
interest. One cannot invest directly in an index.
We are replacing the J.P. Morgan U.S. Government Bond/Latin Eurobond Index with
the J.P. Morgan Latin Eurobond Index as one of the Fund's benchmarks because we
believe that it no longer provides an appropriate comparison for the Fund's
performance based on the composition of the Fund's portfolio. The J.P. Morgan
U.S. Government Bond/Latin Eurobond Index may be dropped from next year's
report.
[TOTAL RETURN INDEX COMPARISON LINE GRAPHIC]
$10,000 Investment (6/27/94 - 3/31/99)
<TABLE>
<CAPTION>
Date
<S> <C> <C>
Templeton Americas Government Securities Fund 3/99 $14,118
60% J.P. Morgan U.S. Gov't Bond/40% Latin Eurobond Index* 3/99 $15,344
J.P. Morgan Latin Eurobond Index** 3/99 $15,896
J.P. Morgan U.S. Gov't Bond Index*** 3/99 $14,403
</TABLE>
[THE FOLLOWING LINE GRAPH COMPARES THE PERFORMANCE OF TEMPLETON AMERICAS
GOVERNMENT SECURITIES FUND TO THAT OF THE J.P. MORGAN U.S. GOVERNMENT BOND/LATIN
EUROBOND INDEX, THE J.P. MORGAN LATIN EUROBOND INDEX, AND THE J.P. MORGAN U.S.
GOVERNMENT BOND INDEX, BASED ON A $10,000 INVESTMENT FROM 6/27/94 TO 3/31/99.]
<TABLE>
<CAPTION>
Templeton 60% JPM US Gov't JP Morgan JP Morgan
Americas Bond/40% Latin U.S. Gov't Latin
Government Eurobond Index Bond Index Eurobond Index
Securities Fund
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
6/27/94 $9,579 $10,000 $10,000 $10,000
Jun-94 $9,579 $9,993 $9,934 $10,046
Jul-94 $9,607 $10,131 $10,096 $10,146
Aug-94 $9,636 $10,254 $10,109 $10,434
Sep-94 $9,655 $10,146 $9,989 $10,346
Oct-94 $9,665 $10,104 $9,983 $10,247
Nov-94 $9,670 $10,074 $9,953 $10,218
Dec-94 $9,553 $9,797 $10,010 $9,427
Jan-95 $9,476 $9,587 $10,184 $8,676
Feb-95 $9,451 $9,621 $10,399 $8,480
Mar-95 $9,451 $9,629 $10,468 $8,413
Apr-95 $9,678 $10,241 $10,596 $9,598
May-95 $9,955 $10,684 $10,989 $10,099
Jun-95 $9,956 $10,795 $11,077 $10,239
Jul-95 $10,015 $11,053 $11,047 $10,893
Aug-95 $10,186 $11,182 $11,165 $11,035
Sep-95 $10,347 $11,294 $11,264 $11,165
Oct-95 $10,407 $11,336 $11,423 $11,032
Nov-95 $10,632 $11,581 $11,592 $11,383
Dec-95 $10,907 $11,841 $11,746 $11,793
Jan-96 $11,307 $12,068 $11,827 $12,237
Feb-96 $10,904 $11,859 $11,611 $12,043
Mar-96 $10,914 $11,869 $11,523 $12,204
Apr-96 $11,107 $11,943 $11,460 $12,495
May-96 $11,149 $11,953 $11,445 $12,545
Jun-96 $11,358 $12,091 $11,577 $12,691
Jul-96 $11,391 $12,113 $11,606 $12,701
Aug-96 $11,568 $12,231 $11,594 $13,026
Sep-96 $11,980 $12,452 $11,767 $13,323
Oct-96 $12,093 $12,620 $12,005 $13,372
Nov-96 $12,476 $12,946 $12,201 $13,907
Dec-96 $12,556 $12,947 $12,091 $14,097
Jan-97 $12,756 $13,061 $12,113 $14,371
Feb-97 $12,826 $13,150 $12,128 $14,590
Mar-97 $12,671 $12,983 $12,008 $14,342
Apr-97 $12,923 $13,225 $12,180 $14,704
May-97 $13,200 $13,413 $12,288 $15,030
Jun-97 $13,376 $13,595 $12,427 $15,283
Jul-97 $13,794 $14,022 $12,793 $15,811
Aug-97 $13,705 $13,879 $12,658 $15,656
Sep-97 $13,884 $14,121 $12,854 $15,976
Oct-97 $13,250 $13,758 $13,087 $14,517
Nov-97 $13,575 $14,094 $13,154 $15,288
Dec-97 $13,828 $14,320 $13,301 $15,648
Jan-98 $14,163 $14,575 $13,507 $15,980
Feb-98 $14,365 $14,664 $13,462 $16,303
Mar-98 $14,486 $14,733 $13,500 $16,427
Apr-98 $14,459 $14,758 $13,560 $16,389
May-98 $14,254 $14,740 $13,704 $16,074
Jun-98 $14,116 $14,775 $13,867 $15,883
Jul-98 $14,184 $14,882 $13,891 $16,129
Aug-98 $12,089 $13,634 $14,279 $12,074
Sep-98 $12,974 $14,472 $14,683 $13,414
Oct-98 $13,567 $14,868 $14,630 $14,404
Nov-98 $14,022 $15,311 $14,632 $15,475
Dec-98 $13,822 $15,234 $14,664 $15,230
Jan-99 $13,723 $15,073 $14,744 $14,703
Feb-99 $13,635 $14,925 $14,348 $14,934
Mar-99 $14,118 $15,344 $14,403 $15,896
</TABLE>
AVERAGE ANNUAL TOTAL RETURN 3/31/99
1-Year -6.65%
3-Year 7.40%
Since Inception (6/27/94) 7.52%
* The J.P. Morgan U.S. Government Bond/Latin Eurobond Index is a proprietary
index developed by the Franklin Templeton organization that combines 60% of the
J.P. Morgan U.S. Government Bond Index and 40% of the J.P. Morgan Latin Eurobond
Index (LEI).
** The LEI covers Eurobonds of over U.S. $100 million from Latin America.
*** The J.P. Morgan U.S. Government Bond Index is a total return index that
tracks the U.S. Treasuries market. Each issue is weighted according to its
traded market capitalization in U.S. dollar terms. All issues included in the
index have remaining maturities of one year or more.
Indices are unmanaged and include reinvested interest. One cannot invest
directly in an index, nor is an index representative of the Fund's portfolio.
Past performance is not predictive of future results.
TEMPLETON AMERICAS GOVERNMENT SECURITIES FUND
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995+
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year........................ $10.68 $10.64 $10.20 $9.59 $10.00
-----------------------------------------------------------
Income from investment operations:
Net investment income.................................... .74 .73 .74 .75 .30
Net realized and unrealized gains (losses)............... (1.03) .68 .85 .71 (.43)
-----------------------------------------------------------
Total from investment operations.......................... (.29) 1.41 1.59 1.46 (.13)
-----------------------------------------------------------
Less distributions from:
Net investment income.................................... (.74) (.72) (.77) (.69) (.28)
Net realized gains....................................... (.05) (.65) (.38) (.16) --
-----------------------------------------------------------
Total distributions....................................... (.79) (1.37) (1.15) (.85) (.28)
-----------------------------------------------------------
Net asset value, end of year.............................. $9.60 $10.68 $10.64 $10.20 $9.59
===========================================================
Total Return*............................................. (2.54)% 14.21% 16.23% 15.49% (1.33)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)........................... $22,269 $14,973 $5,627 $3,540 $2,826
Ratios to average net assets:
Expenses................................................. 1.25% 1.25% 1.25% 1.25% 1.25%**
Expenses, excluding waiver and payments by affiliate..... 1.59% 1.89% 2.79% 4.98% 6.49%**
Net investment income.................................... 7.70% 7.11% 7.16% 7.47% 5.07%**
Portfolio turnover rate................................... 56.32% 70.79% 275.02% 163.57% --
</TABLE>
*Total return does not reflect sales commissions and is not annualized.
**Annualized.
+For the period June 27, 1994 (commencement of operations) to March 31, 1995.
See Notes to Financial Statements.
TEMPLETON AMERICAS GOVERNMENT SECURITIES FUND
STATEMENT OF INVESTMENTS, MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT* VALUE
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM SECURITIES 99.2%
ARGENTINA 12.1%
Bridas Corp., 12.50%, 11/15/99.............................. $ 50,000 $ 51,375
Republic of Argentina:
9.25%, 2/23/01............................................ 555,000 556,804
8.75%, 5/09/02............................................ 1,625,000 1,491,344
11.00%, 10/09/06.......................................... 225,000 214,172
Reg S, 11.75%, 2/12/07.................................... 80,000ARS 73,704
11.375%, 1/30/17.......................................... 200,000 188,750
9.75%, 9/19/27............................................ 150,000 124,875
-----------
2,701,024
-----------
BRAZIL 9.8%
Companhia Paranaense De Energia-Copel, Reg S, 9.75%,
5/02/05................................................... 450,000 370,037
Government of Brazil:
8.875%, 11/05/01.......................................... 250,000 248,750
9.375%, 4/07/08........................................... 800,000 609,000
Series L, FRN, 6.188%, 4/15/12............................ 310,000 180,770
8.00%, 4/15/14............................................ 529,928 341,729
10.125%, 5/15/27.......................................... 600,000 438,000
-----------
2,188,286
-----------
ECUADOR 3.6%
Republic of Ecuador:
Reg S, 11.25%, 4/25/02.................................... 955,000 617,169
FRN, 6.625%, 2/28/25...................................... 400,000 190,000
-----------
807,169
-----------
JAMAICA 5.1%
Government of Jamaica, Reg S, 9.625%, 7/02/02............... 1,225,000 1,120,875
-----------
MEXICO 20.9%
Bepensa SA, 144A, 9.75%, 9/30/04............................ 230,000 205,850
Cemex SA, 144A, 10.75%, 7/15/00............................. 65,000 67,437
Petroleos Mexicanos, 144A, 9.375%, 12/02/08................. 250,000 256,250
Protexa Construcciones SA de CV, 144A, 12.125%, 7/24/02..... 80,000 65,200
United Mexican States:
9.75%, 2/06/01............................................ 400,000 414,200
8.625%, 3/12/08........................................... 1,140,000 1,075,875
11.375%, 9/15/16.......................................... 1,560,000 1,687,686
A, 6.25%, 12/31/19........................................ 490,000 383,425
11.50%, 5/15/26........................................... 450,000 501,750
-----------
4,657,673
-----------
PANAMA .2%
Republic of Panama, FRN, 6.191%, 5/14/02.................... 43,077 41,785
-----------
PERU 1.6%
Republic of Peru, FRN, 4.50%, 3/07/17....................... 550,000 350,971
-----------
</TABLE>
TEMPLETON AMERICAS GOVERNMENT SECURITIES FUND
STATEMENT OF INVESTMENTS, MARCH 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT* VALUE
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM SECURITIES (CONT.)
TRINIDAD AND TOBAGO .1%
Sei Holdings IX Inc., 144A, 11.00%, 11/30/00................ $ 30,000 $ 28,800
-----------
UNITED STATES 38.2%
U.S. Treasury Bond, 5.25%, 11/15/28......................... 2,100,000 1,959,562
U.S. Treasury Notes:
5.50%, 3/31/00............................................ 400,000 402,375
5.375%, 6/30/00........................................... 1,300,000 1,306,907
5.375%, 7/31/00........................................... 3,000,000 3,015,939
6.125%, 7/31/00........................................... 260,000 263,900
6.25%, 4/30/01............................................ 325,000 332,719
8.00%, 5/15/01............................................ 225,000 238,289
6.375%, 8/15/02........................................... 210,000 217,678
6.125%, 8/15/07........................................... 723,000 756,213
-----------
8,493,582
-----------
VENEZUELA 7.6%
Republic of Venezuela:
Reg S, 9.125%, 6/18/07.................................... 400,000 306,000
FRN, 5.938%, 12/18/07..................................... 214,285 149,866
9.25%, 9/15/27............................................ 2,025,000 1,243,476
-----------
1,699,342
-----------
TOTAL LONG TERM SECURITIES (COST $23,818,311)............... 22,089,507
-----------
SHORT TERM INVESTMENT (COST $113,000) .5%
Den Danske Bank, 5.00%, 4/01/99, Time Deposit............... 113,000 113,000
-----------
TOTAL INVESTMENTS (COST $23,931,311) 99.7%.................. 22,202,507
OTHER ASSETS, LESS LIABILITIES .3%.......................... 66,421
-----------
TOTAL NET ASSETS 100.0%..................................... $22,268,928
===========
</TABLE>
CURRENCY ABBREVIATION:
<TABLE>
<S> <C>
ARS -- Argentine Peso
</TABLE>
*Securities denominated in U.S. dollars unless otherwise indicated.
See Notes to Financial Statements.
TEMPLETON AMERICAS GOVERNMENT SECURITIES FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1999
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $23,931,311)..... $22,202,507
Cash....................................................... 143
Receivables:
Fund shares sold.......................................... 7,080
Dividends and interest.................................... 451,954
Other assets............................................... 4,170
-----------
Total assets.......................................... 22,665,854
-----------
Liabilities:
Payables:
Fund shares redeemed...................................... 326,494
To affiliates............................................. 35,013
Accrued expenses........................................... 35,419
-----------
Total liabilities..................................... 396,926
-----------
Net assets, at value........................................ $22,268,928
===========
Net assets consist of:
Undistributed net investment income........................ $ 29,645
Net unrealized depreciation................................ (1,728,804)
Accumulated net realized loss.............................. (120,316)
Beneficial shares.......................................... 24,088,403
-----------
Net assets, at value........................................ $22,268,928
===========
Net asset value per share ($22,268,928 / 2,319,770 shares
outstanding).............................................. $9.60
===========
Maximum offering price per share ($9.60 / 95.75%)........... $10.03
===========
</TABLE>
See Notes to Financial Statements.
TEMPLETON AMERICAS GOVERNMENT SECURITIES FUND
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1999
<TABLE>
<S> <C> <C>
Interest Income............................................. $ 1,967,448
-----------
Expenses:
Management fees (Note 3)................................... $131,960
Administrative fees (Note 3)............................... 32,989
Distribution fees (Note 3)................................. 77,033
Transfer agent fees (Note 3)............................... 33,100
Custodian fees............................................. 3,400
Reports to shareholders.................................... 18,500
Registration and filing fees............................... 18,500
Professional fees.......................................... 15,300
Trustees' fees and expenses................................ 2,900
Amortization of organization costs......................... 13,505
Other...................................................... 2,648
--------
Total expenses........................................ 349,835
Expenses waived/paid by affiliate (Note 3)............ (74,935)
-----------
Net expenses...................................... 274,900
-----------
Net investment income........................... 1,692,548
-----------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... (44,071)
Foreign currency transactions............................. 29
--------
Net realized loss..................................... (44,042)
Net unrealized depreciation on investments............ (2,007,155)
-----------
Net realized and unrealized loss............................ (2,051,197)
-----------
Net decrease in net assets resulting from operations........ $ (358,649)
===========
</TABLE>
See Notes to Financial Statements.
TEMPLETON AMERICAS GOVERNMENT SECURITIES FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-----------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 1,692,548 $ 615,055
Net realized gain (loss) from investments and foreign
currency transactions................................... (44,042) 265,405
Net unrealized appreciation (depreciation) on
investments.............................................. (2,007,155) 270,720
-----------------------------
Net increase (decrease) in net assets resulting from
operations............................................ (358,649) 1,151,180
Distributions to shareholders from:
Net investment income..................................... (1,681,932) (596,026)
Net realized gains........................................ (119,661) (438,559)
Fund share transactions (Note 2)........................... 9,456,029 9,229,467
-----------------------------
Net increase in net assets.............................. 7,295,787 9,346,062
Net assets:
Beginning of year.......................................... 14,973,141 5,627,079
-----------------------------
End of year................................................ $22,268,928 $14,973,141
=============================
Undistributed net investment income included in net assets:
End of year................................................ $ 29,645 $ 19,029
=============================
</TABLE>
See Notes to Financial Statements.
TEMPLETON AMERICAS GOVERNMENT SECURITIES FUND
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Americas Government Securities Fund (the Fund) is a separate,
non-diversified series of Templeton Global Investment Trust (the Trust), which
is an open-end management company registered under the Investment Company Act of
1940. The Fund seeks a high level of current income, with total return as a
secondary goal by investing, under normal market conditions, at least 65% of its
total net assets in debt securities issued or guaranteed by Government Entities
of Western Hemisphere countries (located in North, South, or Central America and
the surrounding waters). The following summarizes the Fund's significant
accounting policies.
a. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Trustees.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date. When
the Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to the settlement date of such transactions.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions, and the difference between the recorded
amounts of dividends, interest, and foreign withholding taxes and the U.S.
dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in foreign exchange rates
on foreign currency denominated assets and liabilities other than investments in
securities held at the end of the reporting period.
c. INCOME TAXES:
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.
TEMPLETON AMERICAS GOVERNMENT SECURITIES FUND
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as information is
available to the Fund. Interest income and estimated expenses are accrued daily.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
Common expenses incurred by the Trust are allocated among the funds comprising
the Trust based on the ratio of net assets of each fund to the combined net
assets. Other expenses are charged to each fund on a specific identification
basis.
e. ACCOUNTING ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. BENEFICIAL SHARES
At March 31, 1999, there were an unlimited number of shares of beneficial
interest authorized ($0.01 par value). Transactions in the Fund's shares were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------
1999 1998
---------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................. 1,734,521 $17,294,112 1,111,163 $11,762,737
Shares issued on reinvestment of distributions.............. 149,473 1,452,139 91,732 958,993
Shares redeemed............................................. (966,650) (9,290,222) (329,474) (3,492,263)
---------------------------------------------------------
Net increase................................................ 917,344 $ 9,456,029 873,421 $ 9,229,467
=========================================================
</TABLE>
Templeton Global Investors, Inc., an affiliate of the Fund, is the record owner
of 300,333 shares as of March 31, 1999.
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Fund are also officers or directors of Templeton
Investment Counsel, Inc. (TICI), Franklin Templeton Services, Inc. (FT
Services), Franklin/Templeton Distributors, Inc. (Distributors) and
Franklin/Templeton Investor Services, Inc. (Investor Services), the Fund's
investment manager, administrative manager, principal underwriter and transfer
agent, respectively.
TEMPLETON AMERICAS GOVERNMENT SECURITIES FUND
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
The Fund pays an investment management fee to TICI of 0.60% per year of the
average daily net assets of the Fund. The Fund pays its allocated share of an
administrative fee to FT Services based on the Trust's aggregate average daily
net assets as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- --------------------------------------------------------------------------
<S> <C>
0.15% First $200 million
0.135% Over $200 million, up to and including $700 million
0.10% Over $700 million, up to and including $1.2 billion
0.075% Over $1.2 billion
</TABLE>
TICI and FT Services agreed in advance to reduce fees to the extent necessary to
limit total expenses to an annual rate of 1.25% of the Fund's average daily net
assets through July 31, 1999, as reflected in the Statement of Operations.
The Fund reimburses Distributors up to 0.35% per year of its average daily net
assets for costs incurred in marketing the Fund's shares. Under the distribution
plan, costs exceeding the maximum may be reimbursed in subsequent periods. At
March 31, 1999, unreimbursed costs were $78,761. Distributors received net
commissions from sales of Fund shares for the period of $7,152.
4. INCOME TAXES
At March 31, 1999, the net unrealized depreciation based on the cost of
investments for income tax purposes of $24,066,931 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 251,403
Unrealized depreciation..................................... (2,115,827)
-----------
Net unrealized depreciation................................. $(1,864,424)
===========
</TABLE>
Net realized losses differ for financial statement and tax purposes primarily
due to differing treatments of wash sales.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended March 31, 1999 aggregated $23,851,213 and $10,687,790, respectively.
6. SUBSEQUENT EVENT
The Fund's Board of Directors approved a proposal to merge the Fund into
Templeton Global Bond Fund, subject to shareholder approval. It is anticipated
that in late 1999, shareholders will receive a proxy and proxy statement
requesting their vote on the proposal.
TEMPLETON AMERICAS GOVERNMENT SECURITIES FUND
INDEPENDENT AUDITOR'S REPORT
To the Board of Trustees and Shareholders
Templeton Americas Government Securities Fund
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Templeton Americas Securities Government Fund
as of March 31, 1999, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for the periods indicated in the
accompanying financial statements. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of March 31, 1999, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Templeton Americas Government Securities Fund as of March 31, 1999, and the
results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles.
McGladrey & Pullen, LLP
New York, New York
April 30, 1999
TEMPLETON AMERICAS GOVERNMENT SECURITIES FUND
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Templeton Americas
Government Securities Fund hereby designates $4,836 as a capital gain dividend
for the fiscal year ended March 31, 1999.
Annual Report
Auditors
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017-2416
Principal Underwriter
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404-1585
1-800/DIAL BEN(R)
www.franklin-templeton.com
Shareholder Services
1-800/632-2301
Fund Information
1-800/342-5236
This report must be preceded or accompanied by the current Templeton Americas
Government Securities Fund prospectus, which contains more complete information
including risk factors, charges and expenses. Like any investment in securities,
the value of the Fund's portfolio will be subject to the risk of loss from
market, currency, economic, political and other factors, as well as investment
decisions by the investment manager, which will not always be profitable or
wise. The Fund and its investors are not protected from such losses by the
investment manager. Therefore, investors who cannot accept this risk should not
invest in shares of the Fund.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
determined by the presence of a regular beeping tone.
416 A99 05/99 [Printed on recycled paper LOGO]
SEMIANNUAL REPORT
February 28, 1999
TEMPLETON GLOBAL BOND FUND
[LOGO] FRANKLIN TEMPLETON(R)
[SEAL] CELEBRATING 50 YEARS
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective, and remember that all securities markets move
both up and down, as do mutual fund share prices. We appreciate your past
support and look forward to serving your investment needs in the years ahead.
In 1992, Sir John Templeton retired after a 50-year career of helping investors
manage their money. Currently he devotes all of his time and efforts to the John
Templeton Foundation. A major portion of his assets remain invested in the
Templeton funds which are managed by many of the investment professionals he
selected and trained.
SHAREHOLDER LETTER
- --------------------------------------------------------------------------------
Your Fund's Goal: Templeton Global Bond Fund seeks current income with capital
appreciation and growth of income. Under normal market conditions, the Fund
invests primarily in the debt securities of companies, governments and
government agencies located anywhere in the world, including emerging markets.
- --------------------------------------------------------------------------------
Dear Shareholder:
This report of Templeton Global Bond Fund covers the six months ended February
28, 1999. During this period, the U.S. economy remained strong, as healthy
consumer spending offset reduced exports and business spending. Inflation
remained subdued, despite strong economic growth, partly because of productivity
gains, low commodity prices, and a relatively strong dollar. In Europe,
inflation reached historic lows and many economies there began to show signs of
slower economic growth. Many European central banks reduced official interest
rates during the fourth quarter of 1998, due largely
CONTENTS
<TABLE>
<S> <C>
Shareholder Letter ............................................... 1
Performance Summary .............................................. 6
Financial Highlights & Statement of Investments .................. 8
Financial Statements ............................................. 14
Notes to Financial Statements .................................... 17
</TABLE>
[GRAPH] PYRAMID
FUND CATEGORY
GLOBAL
GROWTH
GROWTH & INCOME
INCOME
TAX-FREE INCOME
You will find a complete listing of the Fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 11 of
this report.
GEOGRAPHIC DISTRIBUTION OF ISSUERS OF SECURITIES
Based on Total Net Assets
2/28/99
[THIS CHART SHOWS IN BAR FORMAT THE GEOGRAPHIC DISTRIBUTION OF ISSUERS OF
SECURITIES OF TEMPLETON GLOBAL BOND FUND, BASED ON NET ASSETS AS OF 2/28/99.]
[BAR GRAPH]
<TABLE>
<S> <C>
Europe ............................................... 43.4%
United States ........................................ 30.7%
Australia & New Zealand .............................. 8.4%
Canada ............................................... 8.2%
Latin America ........................................ 6.9%
Asia ................................................. 1.0%
Short-Term Investments & Other Net Assets ............ 1.4%
</TABLE>
to concerns that the region could experience deflation if economic growth
continued to stagnate. In Asia, Japanese banks continued to be hamstrung by bad
debt. Although the Japanese government struggled to restructure the economy, its
efforts failed and the country remained in a recession.
Responding to these conditions, global bond investors reduced their holdings of
emerging market debt securities and increased their exposure to higher-quality,
developed market government bonds. Within this environment, Templeton Global
Bond Fund - Class A produced a 0.33% cumulative total return for the six-month
period ended February 28, 1999, as shown in the Performance Summary on page 6.
During the six months under review, we allocated approximately 91% of the Fund's
total net assets to intermediate- and long-term bonds from developed countries,
with the remaining assets invested in what we believed to be the highest
quality, most liquid bonds we could find in emerging markets. We believed this
strategy offered the potential for more attractive long-term returns at the cost
of modestly higher, short-term volatility. However, even though volatility did
increase in many emerging markets, our allocation to these assets helped the
Fund's performance, as emerging market debt in general returned 17.86% during
the period under review, as measured by the J.P. Morgan Emerging Market Bond
Index Plus.(1)
The Fund's allocation to North American countries decreased during the period,
while its European exposure remained essentially unchanged. Its emerging markets
exposure increased slightly. During the period, we undertook hedging activities
in an effort to minimize the possible loss of value arising from changes in
exchange rates for the Fund's European currency-denominated bonds. Believing the
U.S. dollar could depreciate further in early 1999, we decreased our hedging
activities, and at the end of the reporting period, the Fund's net U.S. dollar
exposure was 42.4%, down from 86.1% at the beginning of the period.
Our long-term outlook for the Fund remains positive. In addition to continued
uncertainty about emerging markets, we believe the critical issue for future
interest rates will be the balance struck between global growth and inflation.
In our
PORTFOLIO BREAKDOWN
Based on Total Net Assets
2/28/99
[THIS CHART LISTS THE PORTFOLIO BREAKDOWN OF TEMPLETON GLOBAL BOND FUND, BASED
ON TOTAL NET ASSETS AS OF 2/28/99.]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
<S> <C>
Government Bonds ......................................... 91.0%
Corporate Bonds .......................................... 7.3%
Common Stocks ............................................ 0.2%
Limited Partnerships ..................................... 0.1%
Short-Term Investments & Other Net Assets ................ 1.4%
</TABLE>
1. Source: Emerging Markets Bond Index Monitor, J.P. Morgan Securities, Inc.
Performance includes reinvested interest. An index is an unmanaged group of
securities used to measure market performance. One cannot invest directly in an
index. opinion, economic growth for the remainder of 1999 probably will be
weaker than in the past several years. The extent of this weakness may largely
depend on economic developments in the U.S. The U.S. economy is dependent, to
some extent, on economic stability in Latin America, and problems there could
depress U.S. exports, which could in turn have a negative effect on European
economic performance. If combined with benign inflation, this could be an
attractive environment for high quality bonds.
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected to
affect our strategies and the Fund's portfolio composition. Although past
performance is not predictive of future results, these insights may help you
understand our investment and management philosophy.
It is important to remember that there are special risks involved with global
investing related to market, currency, economic, social, political, and other
factors, in addition to the heightened risks associated with the relatively
small size and lesser liquidity of emerging markets. These special risks and
other considerations are discussed in the Fund's prospectus.
We thank you for your participation in Templeton Global Bond Fund and look
forward to serving your investment needs in the months and years to come.
Sincerely,
Portfolio Management Team
Templeton Global Bond Fund
- --------------------------------------------------------------------------------
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior to July 1,
1994, Fund shares were offered at a higher initial sales charge. Thus, actual
total returns would have been lower. On January 1, 1993, the Fund implemented a
Rule 12b-1 plan, which affects subsequent performance.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
ADVISOR CLASS:
No initial sales charge or Rule 12b-1 fees and are available to a limited class
of investors.
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the Fund's portfolio and any
profits realized from the sale of the portfolio's securities, as well as the
level of each class' operating expenses. Past distributions are not indicative
of future trends. All total returns include reinvested distributions at net
asset value.
PRICE AND DISTRIBUTION INFORMATION (9/1/98 - 2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 8/31/98
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value - $0.26 $9.23 $9.49
DISTRIBUTIONS
----------------------------------------------
Dividend Income $0.3000
</TABLE>
<TABLE>
<CAPTION>
CLASS C CHANGE 2/28/99 8/31/98
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value - $0.26 $9.24 $9.50
DISTRIBUTIONS
----------------------------------------------
Dividend Income $0.2771
</TABLE>
<TABLE>
<CAPTION>
ADVISOR CLASS CHANGE 2/28/99 8/31/98
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value - $0.26 $9.23 $9.49
DISTRIBUTIONS
----------------------------------------------
Dividend Income $0.3141
</TABLE>
Past performance is not predictive of future results.
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 6-MONTHS 1-YEAR 5-YEAR 10-YEAR (9/18/86)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative
Total Return(1) 0.33% 0.73% 30.56% 102.40% 144.46%
Average Annual
Total Return(2) - 3.93% - 3.52% 4.57% 6.84% 7.08%
Value of $10,000
Investment(3) $ 9,607 $ 9,648 $ 12,506 $ 19,371 $ 23,416
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 6-MONTHS 1-YEAR 3-YEAR (5/1/95)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative
Total Return(1) 0.09% 0.43% 13.63% 27.20%
Average Annual
Total Return(2) - 1.92% - 1.53% 3.99% 6.21%
Value of $10,000
Investment(3) $ 9,808 $ 9,847 $ 11,247 $ 12,595
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
ADVISOR CLASS(4) 6-MONTHS 1-YEAR 5-YEAR 10-YEAR (9/18/86)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative
Total Return(1) 0.47% 1.09% 31.28% 103.51% 145.81%
Average Annual
Total Return(2) 0.47% 1.09% 5.59% 7.36% 7.49%
Value of $10,000
Investment(3) $ 10,047 $ 10,109 $ 13,128 $ 20,351 $ 24,581
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current, applicable,
maximum sales charge(s) for that class. Six-month return has not been
annualized.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
4. On January 2, 1997, the Fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; and (b) for
periods after January 1, 1997, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable only to that class.
Since January 2, 1997 (commencement of sales), the cumulative and average annual
total return of Advisor Class shares were 4.39% and 2.01%, respectively.
- --------------------------------------------------------------------------------
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility and the social,
economic and political climates of countries where the Fund invests. Emerging
markets involve heightened risks related to the same factors, in addition to
those associated with their relatively small size and lesser liquidity. You may
have a gain or loss when you sell your shares.
- --------------------------------------------------------------------------------
Past performance is not predictive of future results.
TEMPLETON GLOBAL BOND FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 1999 ----------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994+
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout
the period)
Net asset value, beginning of
period.............................. $9.49 $9.82 $9.76 $9.32 $9.05 $9.96
---------------------------------------------------------------------------------------
Income from investment operations:
Net investment income.............. .28 .60 .63 .69 .73 .72
Net realized and unrealized gains
(losses)......................... (.24) (.32) .03 .35 .17 (.91)
---------------------------------------------------------------------------------------
Total from investment operations.... .04 .28 .66 1.04 .90 (.19)
---------------------------------------------------------------------------------------
Less distributions from:
Net investment income.............. (.30) (.55) (.60) (.58) (.54) (.53)
Net realized gains................. -- (.06) -- -- -- (.07)
Tax return of capital.............. -- -- -- (.02) (.09) (.12)
---------------------------------------------------------------------------------------
Total distributions................. (.30) (.61) (.60) (.60) (.63) (.72)
---------------------------------------------------------------------------------------
Net asset value, end of period...... $9.23 $9.49 $9.82 $9.76 $9.32 $9.05
=======================================================================================
Total Return*....................... .33% 2.82% 6.87% 11.44% 10.43% (2.01)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)... $170,573 $189,898 $198,131 $185,596 $191,301 $205,482
Ratios to average net assets:
Expenses........................... 1.20%** 1.17% 1.15% 1.13% 1.18% 1.18%
Net investment income.............. 5.90%** 6.12% 6.41% 7.09% 7.99% 7.50%
Portfolio turnover rate............. 63.69% 75.95% 166.69% 109.40% 101.12% 139.23%
</TABLE>
*Total return does not reflect sales commissions and is not annualized.
**Annualized.
+Based on weighted average shares outstanding.
TEMPLETON GLOBAL BOND FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 1999 ----------------------------------------------
(UNAUDITED) 1998 1997 1996 1995+
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period............ $9.50 $9.83 $9.77 $9.31 $9.05
---------------------------------------------------------------------
Income from investment operations:
Net investment income.......................... .26 .56 .57 .61 .21
Net realized and unrealized gains (losses)..... (.24) (.32) .05 .41 .24
---------------------------------------------------------------------
Total from investment operations................ .02 .24 .62 1.02 .45
---------------------------------------------------------------------
Less distributions from:
Net investment income.......................... (.28) (.51) (.56) (.54) (.15)
Net realized gains............................. -- (.06) -- -- --
Tax return of capital.......................... -- -- -- (.02) (.04)
---------------------------------------------------------------------
Total distributions............................. (.28) (.57) (.56) (.56) (.19)
---------------------------------------------------------------------
Net asset value, end of period.................. $9.24 $9.50 $9.83 $9.77 $9.31
=====================================================================
Total Return*................................... .09% 2.46% 6.44% 11.20% 5.03%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)............... $20,738 $20,404 $16,629 $6,563 $2,043
Ratios to average net assets:
Expenses....................................... 1.60%** 1.56% 1.54% 1.56% 1.57%**
Net investment income.......................... 5.50%** 5.73% 5.96% 6.69% 7.47%**
Portfolio turnover rate......................... 75.59% 75.95% 166.69% 109.40% 101.12%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge and is not annualized.
**Annualized.
+For the period May 1, 1995 (effective date) to August 31, 1995.
TEMPLETON GLOBAL BOND FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
ADVISOR CLASS
---------------------------------------------
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 1999 ----------------------
(UNAUDITED) 1998 1997+
---------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period........................ $9.49 $9.82 $10.16
---------------------------------------------
Income from investment operations:
Net investment income...................................... .28 .62 .42
Net realized and unrealized losses......................... (.23) (.32) (.34)
---------------------------------------------
Total from investment operations............................ .05 .30 .08
---------------------------------------------
Less distributions from:
Net investment income...................................... (.31) (.57) (.42)
Net realized gains......................................... -- (.06) --
---------------------------------------------
Total distributions......................................... (.31) (.63) (.42)
---------------------------------------------
Net asset value, end of period.............................. $9.23 $9.49 $9.82
============================================
Total Return*............................................... .47% 3.08% .80%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $1,324 $11,330 $12,742
Ratios to average net assets:
Expenses................................................... .95%** .91% .88%**
Net investment income...................................... 6.33%** 6.38% 6.76%**
Portfolio turnover rate..................................... 75.59% 75.95% 166.69%
</TABLE>
*Total return is not annualized.
**Annualized.
+For the period January 2, 1997 (effective date) to August 31, 1997.
See Notes to Financial Statements.
TEMPLETON GLOBAL BOND FUND
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM INVESTMENTS 98.6%
ARGENTINA 2.6%
Perez Companc SA, 144A, 8.125%, 7/15/07..................... $5,000,000 $ 4,225,000
Republic of Argentina:
8.375%, 12/20/03........................................... 480,000 421,200
11.00%, 10/09/06........................................... 460,000 417,738
------------
5,063,938
------------
AUSTRALIA 4.4%
Government of Australia, 7.50%, 7/15/05..................... 12,358,000 AUD 8,518,935
------------
CANADA 8.2%
Government of Canada:
10.50%, 7/01/00............................................ 10,600,000 CAD 7,484,745
10.50%, 3/01/01............................................ 6,235,000 CAD 4,525,053
10.00%, 5/01/02............................................ 5,135,000 CAD 3,849,192
------------
15,858,990
------------
CHILE 1.9%
Compania Sud Americana de Vapores SA:
7.375%, 12/08/03........................................... 1,500,000 1,333,034
144A, 7.375%, 12/08/03..................................... 2,500,000 2,221,723
------------
3,554,757
------------
COLOMBIA 1.1%
Republic of Colombia, 7.25%, 2/23/04........................ 2,500,000 2,149,743
------------
CROATIA 1.5%
Republic of Croatia, 7.00%, 2/27/02......................... 3,000,000 2,875,500
------------
DENMARK 2.3%
Kingdom of Denmark:
9.00%, 11/15/00............................................ 6,605,000 DKK 1,060,116
8.00%, 3/15/06............................................. 18,589,000 DKK 3,355,215
------------
4,415,331
------------
GERMANY 11.1%
Federal Republic of Germany:
Bundesrep, 7.75%, 2/21/00.................................. 10,586,298 EUR 12,146,440
5.25%, 2/21/01............................................. 127,823 EUR 145,973
8.00%, 7/22/02............................................. 4,399,667 EUR 5,535,384
Hypothekenbank In Essen AG, 5.25%, 1/22/08.................. 2,960,380 EUR 3,480,506
------------
21,308,303
------------
INDIA .1%
Essar Steel Ltd., FRN, Reg S, 7.635%, 7/15/99............... 315,000 228,375
------------
</TABLE>
TEMPLETON GLOBAL BOND FUND
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM INVESTMENTS (CONT.)
INDONESIA .4%
PT Astra International, 9.75%, 4/29/01...................... $2,000,000 $ 690,000
------------
ITALY 7.4%
Buoni Poliennali Del Tesoro, 6.75%, 7/01/07................. 1,243,000 EUR 1,608,484
Government of Italy:
10.50%, 7/15/00............................................ 655,899 EUR 789,858
10.50%, 11/01/00........................................... 1,823,090 EUR 2,233,858
10.50%, 4/01/05............................................ 6,476,000 EUR 9,623,537
------------
14,255,737
------------
MEXICO .7%
Nacional Financiera Sociedad Nacional de Credito, 9.70%,
3/12/02................................................... 900,000 892,125
United Mexican States, 9.75%, 2/06/01....................... 460,000 470,925
------------
1,363,050
------------
NEW ZEALAND 4.0%
Government of New Zealand:
6.50%, 2/15/00............................................. 7,240,000 NZD 3,854,814
8.00%, 11/15/06............................................ 6,437,000 NZD 3,832,038
------------
7,686,852
------------
SOUTH KOREA .5%
Pohang Iron & Steel, 6.625%, 7/01/03........................ 1,000,000 918,980
------------
SPAIN 7.8%
Government of Spain:
12.25%, 3/25/00............................................ 5,725,902 EUR 6,874,917
10.10%, 2/28/01............................................ 3,142,692 EUR 3,909,779
10.15%, 1/31/06............................................ 2,849,000 EUR 4,277,800
------------
15,062,496
------------
SWEDEN 4.1%
Kingdom of Sweden, 10.25%, 5/05/03.......................... 51,400,000 SEK 7,862,949
------------
UNITED KINGDOM 9.2%
United Kingdom:
8.00%, 12/07/00............................................ 5,825,000 GBP 9,788,897
7.00%, 11/06/01............................................ 1,175,000 GBP 1,979,290
8.50%, 7/16/07............................................. 2,976,000 GBP 5,992,810
------------
17,760,997
------------
</TABLE>
TEMPLETON GLOBAL BOND FUND
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM INVESTMENTS (CONT.)
UNITED STATES 30.7%
+*Acadia Partners LP........................................ $ 999,667 $ 155,628
Fannie Mae, 5.25%, 1/15/09.................................. 5,489,000 5,263,594
+*Penobscot Partners LP..................................... 333 3,800
U. S. Treasury Bonds:
6.375%, 8/15/27............................................ 4,935,000 5,340,598
5.25%, 11/15/28............................................ 35,784,000 33,882,973
U.S. Treasury Note, 7.875%, 11/15/04........................ 12,553,000 14,078,980
+Washington Mutual Inc...................................... 10,474 418,960
------------
59,144,533
------------
VENEZUELA .6%
Venezuela Front Load Interest Reduction Bond, A, 6.125%,
3/31/07................................................... 2,023,802 1,245,903
------------
TOTAL LONG TERM INVESTMENTS (COST $207,558,356)............. 189,965,369
------------
SHORT TERM INVESTMENT (COST $740,000) .4%
Den Danske Bank, 4.813%, 3/01/99, Time Deposit.............. 740,000 740,000
------------
TOTAL INVESTMENTS (COST $208,298,356) 99.0%................. 190,705,369
NET EQUITY IN FORWARD CONTRACTS............................. (15,735)
OTHER ASSETS, LESS LIABILITIES 1.0%......................... 1,946,328
------------
TOTAL NET ASSETS 100.0%..................................... $192,635,962
============
</TABLE>
CURRENCY ABBREVIATIONS:
AUD -- Australian Dollar
CAD -- Canadian Dollar
DKK -- Danish Krone
EUR -- European Unit
GBP -- British Pound
NZD -- New Zealand Dollar
SEK -- Swedish Krona
*Non-income producing.
**Securities denominated in U.S. dollars unless otherwise indicated.
+Securities represent equity investments.
See Notes to Financial Statements.
TEMPLETON GLOBAL BOND FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $208,298,356).... $190,705,369
Cash....................................................... 8,894
Receivables:
Fund shares sold.......................................... 438,962
Dividends and interest.................................... 4,617,077
------------
Total assets.......................................... 195,770,302
------------
Liabilities:
Payables:
Investment securities purchased........................... 896,766
Fund shares redeemed...................................... 1,930,021
To affiliates............................................. 176,163
Distributions to shareholders.............................. 205
Unrealized loss on forward exchange contracts (Note 6)..... 15,735
Accrued expenses........................................... 115,450
------------
Total liabilities..................................... 3,134,340
------------
Net assets, at value........................................ $192,635,962
============
Net assets consist of:
Undistributed net investment income........................ $ 466,077
Net unrealized depreciation................................ (17,705,013)
Accumulated net realized gain.............................. 365,745
Beneficial shares.......................................... 209,509,153
------------
Net assets, at value........................................ $192,635,962
============
CLASS A:
Net asset value per share ($170,573,093 / 18,471,486 shares
outstanding)............................................. $9.23
============
Maximum offering price per share ($9.23 / 95.75%).......... $9.64
============
CLASS C:
Net asset value per share ($20,738,403 / 2,243,249 shares
outstanding)*............................................ $9.24
============
Maximum offering price per share ($9.24 / 99.00%).......... $9.33
============
ADVISOR CLASS:
Net asset value per share ($1,324,466 / 143,548 shares
outstanding)............................................. $9.23
============
</TABLE>
*Redemption price per share is equal to net asset value less any applicable
sales charge.
See Notes to Financial Statements.
TEMPLETON GLOBAL BOND FUND
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C>
Investment Income:
Dividends.................................................. $ 83,463
Interest................................................... 7,301,551
-----------
Total investment income............................... $ 7,385,014
Expenses:
Management fees (Note 3)................................... 517,467
Administrative fees (Note 3)............................... 155,240
Distribution fees (Note 3)
Class A................................................... 227,587
Class C................................................... 69,112
Transfer agent fees (Note 3)............................... 161,200
Custodian fees............................................. 13,800
Reports to shareholders.................................... 50,000
Registration and filing fees............................... 38,400
Professional fees.......................................... 38,400
Trustees' fees and expenses................................ 12,200
Other...................................................... 992
-----------
Total expenses........................................ 1,284,398
-----------
Net investment income........................... 6,100,616
-----------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 4,786,029
Foreign currency transactions............................. (4,288,909)
-----------
Net realized gain..................................... 497,120
Net unrealized depreciation on:
Investments............................................... (5,184,192)
Translation of assets and liabilities denominated in
foreign currencies...................................... (101,804)
-----------
Net unrealized depreciation........................... (5,285,996)
-----------
Net realized and unrealized loss............................ (4,788,876)
-----------
Net increase in net assets resulting from operations........ $ 1,311,740
===========
</TABLE>
See Notes to Financial Statements.
TEMPLETON GLOBAL BOND FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 28, 1999 YEAR ENDED
(UNAUDITED) AUGUST 31, 1998
---------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 6,100,616 $ 14,102,046
Net realized gain from investments and foreign currency
transactions............................................ 497,120 897,695
Net unrealized depreciation on investments and translation
of assets and liabilities denominated in foreign
currencies............................................... (5,285,996) (8,488,427)
---------------------------------------
Net increase in net assets resulting from operations.... 1,311,740 6,511,314
Distributions to shareholders from:
Net investment income:
Class A.................................................. (5,664,369) (11,190,365)
Class C.................................................. (615,111) (1,004,165)
Advisor Class............................................ (140,873) (803,082)
Net realized gains:
Class A.................................................. (117) (1,112,297)
Class C.................................................. -- (115,925)
Advisor Class............................................ -- (67,412)
Capital share transactions (Note 2):
Class A.................................................. (14,675,844) (1,581,970)
Class C.................................................. 930,815 4,463,377
Advisor Class............................................ (10,142,302) (970,039)
---------------------------------------
Net decrease in net assets.............................. (28,996,061) (5,870,564)
Net assets:
Beginning of period........................................ 221,632,023 227,502,587
---------------------------------------
End of period.............................................. $192,635,962 $221,632,023
=======================================
Undistributed net investment income included in net assets:
End of period.............................................. $ 466,077 $ 785,814
=======================================
</TABLE>
See Notes to Financial Statements.
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements (unaudited)
1. SUMMARY OF ACCOUNTING POLICIES
Templeton Global Bond Fund (the Fund), is a separate, non-diversified series of
Templeton Income Trust (the Trust), which is an open-end investment company
registered under the Investment Company Act of 1940. The Fund seeks current
income with capital appreciation and growth of income. Under normal conditions,
the Fund invests in the debt securities of companies, governments and government
agencies located anywhere in the world including emerging markets. The following
summarizes the Fund's significant accounting policies.
a. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Trustees.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date. When
the Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to the settlement date of such transactions.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions, and the difference between the recorded
amounts of dividends, interest and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liaibilities other than investments in securities
held at the end of the reporting period.
c. INCOME TAXES:
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.
d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements (unaudited) (continued)
1. SUMMARY OF ACCOUNTING POLICIES (CONT.)
d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
information is available to the Fund. Interest income and estimated expenses are
accrued daily. Dividend income and distributions to shareholders are recorded on
the ex-dividend date.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
e. FORWARD EXCHANGE CONTRACTS:
The Fund may enter into forward exchange contracts to hedge against foreign
exchange risks. These contracts are valued daily and the Fund's equity therein
is included in the Statement of Assets and Liabilities. Realized and unrealized
gains and losses are included in the Statement of Operations.
f. ACCOUNTING ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. BENEFICIAL SHARES
The Fund offers three classes of shares; Class A, Class C, and Advisor Class
shares. Effective January 1, 1999, Class I and Class II shares were renamed
Class A and Class C, respectively. The shares differ by their initial sales
load, distribution fees, voting rights on matters affecting a single class of
shares and the exchange privilege of each class.
At February 28, 1999, there were an unlimited number of shares of beneficial
interest authorized ($.01 par value). Transactions in the Fund's shares were as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1999 AUGUST 31, 1998
-------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares sold................................................ 3,949,650 $ 38,214,453 5,805,764 $ 56,610,214
Shares issued on reinvestment of distributions............. 427,209 4,119,604 935,877 9,102,189
Shares redeemed............................................ (5,906,557) (57,009,901) (6,908,185) (67,294,373)
-------------------------------------------------------------
Net decrease............................................... (1,529,698) $(14,675,844) (166,544) $ (1,581,970)
=============================================================
</TABLE>
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements (unaudited) (continued)
2. BENEFICIAL SHARES (CONT.)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1999 AUGUST 31, 1998
------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES:
Shares sold................................................ 376,108 $ 3,637,919 910,441 $ 8,897,295
Shares issued on reinvestment of distributions............. 54,811 529,055 100,468 976,732
Shares redeemed............................................ (335,120) (3,236,159) (555,304) (5,410,650)
------------------------------------------------------------
Net increase............................................... 95,799 $ 930,815 455,605 $ 4,463,377
============================================================
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1999 AUGUST 31, 1998
------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------
<S> <C> <C> <C> <C>
ADVISOR CLASS SHARES:
Shares sold................................................ 200,759 $ 1,949,232 957,957 $ 9,380,180
Shares issued on reinvestment of distributions............. 5,182 49,921 18,458 178,859
Shares redeemed............................................ (1,256,415) (12,141,455) (1,080,092) (10,529,078)
------------------------------------------------------------
Net decrease............................................... (1,050,474) $(10,142,302) (103,677) $ (970,039)
============================================================
</TABLE>
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Fund are also officers of Templeton Investment Counsel,
Inc. (TICI), Franklin Templeton Services, Inc. (FT Services), Franklin/Templeton
Distributors, Inc. (Distributors) and Franklin/Templeton Investor Services, Inc.
(Investor Services), the Fund's investment manager, administrative manager,
principal underwriter and transfer agent, respectively.
The Fund pays an investment management fee to TICI based on the average daily
net assets of the Fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- -----------------------------------------------------------------
<S> <C>
0.50% First $200 million
0.45% Over $200 million, up to and including $1.3 billion
0.40% Over $1.3 billion
</TABLE>
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements (unaudited) (continued)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
The Fund pays its allocated share of an administrative fee to FT Services based
on the Trust's aggregate average daily net assets as follows:
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- -----------------------------------------------------------------
0.15% First $200 million
0.135% Next $500 million
0.10% Next $500 million
0.075% Over $1.2 billion
The Fund reimburses Distributors up to 0.25% and 0.65% per year of the average
daily net assets of Class A and Class C shares, respectively, for costs incurred
in marketing the Fund's Class A and Class C shares. Under the Class A
distribution plan, costs exceeding the maximum may be reimbursed in subsequent
periods. At February 28, 1999, unreimbursed cost were $106,502. Distributors
received net commissions on sales of the Fund's shares and received contingent
deferred sales charges for the year of $7,472 and $4,859, respectively.
Legal fees of $24,410 were paid to a law firm in which a partner is an officer
of the Trust.
4. INCOME TAXES
The cost of securities for income tax purposes is the same as that shown in the
Statement of Investments. At February 28, 1999, the net unrealized depreciation
based on the cost of investments for income tax purposes was as follows:
Unrealized appreciation..................................... $ 404,648
Unrealized depreciation..................................... (17,997,635)
------------
Net unrealized depreciation................................. $(17,592,987)
============
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended February 28, 1999 aggregated $109,757,947 and $126,585,359,
respectively.
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Fund has been a party to financial instruments with off-balance sheet risk,
primarily forward exchange contracts, in order to minimize the impact on the
Fund from adverse changes in the relationship between the U.S. dollar and
foreign currencies and interest rates. These instruments involve market risk in
excess of the amount recognized on the Statement of Assets and Liabilities. Some
of these risks have been minimized by offsetting contracts. Risks arise from the
possible inability of counterparties to meet the terms of their contracts,
future movement in currency values
TEMPLETON GLOBAL BOND FUND
Notes to Financial Statements (unaudited) (continued)
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
and interest rates and contract positions that are not exact offsets. The
contract amount indicates the extent of the Fund's involvement in such
contracts.
A forward exchange contract is an agreement between two parties to exchange
different currencies at a specific rate at an agreed future date. The contracts
are reported in the financial statements at the Fund's net equity, as measured
by the difference between the forward exchange rates at the reporting date and
the forward exchange rates at the day of entry into the contract.
As of February 28, 1999, the Fund had the following forward foreign exchange
contracts outstanding:
<TABLE>
<CAPTION>
IN SETTLEMENT UNREALIZED
CONTRACTS TO SELL: EXCHANGE FOR DATE LOSS
------------------ -------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
1,605,000 European Unit............................................... U.S. $1,770,026 4/02/99 U.S. $ --
Net unrealized loss on offsetting forward exchange contract...... (15,735)
--------
Net unrealized loss on forward exchange contract............... U.S. $(15,735)
=========
</TABLE>
SEMIANNUAL REPORT
PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404-1585
1-800/DIAL BEN(R)
www.franklin-templeton.com
SHAREHOLDER SERVICES
1-800/632-2301
FUND INFORMATION
1-800/342-5236
This report must be preceded or accompanied by the current Templeton Global Bond
Fund prospectus, which contains more complete information including risk
factors, charges and expenses. Like any investment in securities, the value of
the Fund's portfolio will be subject to the risk of loss from market, currency,
economic, political and other factors, as well as investment decisions by the
Investment Manager, which will not always be profitable or wise. The Fund and
its investors are not protected from such losses by the Investment Manager.
Therefore, investors who cannot accept this risk should not invest in shares of
the Fund.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
determined by the presence of a regular beeping tone.
406 S99 04/99 [RECYCLE LOGO] Printed on recycled paper
TEMPLETON GLOBAL BOND FUND
TEMPLETON AMERICAS GOVERNMENT SECURTIES FUND
COMBINED PRO FORMA STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
GLOBAL BOND FUND
---------------------------------------
PRINCIPAL AMOUNT** VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM SECURITIES 98.7%
ARGENTINA 5.2%
Bridas Corp., 12.50%, 11/15/99
Perez Companc SA, 8.125%, 7/15/07, 144A $ 5,000,000 $ 4,250,000
Republic of Argentina:
9.25%, 2/23/01
8.875%, 5/09/02
8.375%, 12/20/03 480,000 442,800
11.00%, 10/09/06 460,000 431,250
Reg S, 11.75%, 2/12/07
11.375%, 1/30/17
9.75%, 9/19/27
Republic of Argentina Bonos Del Tesoro, 8.875%, 5/09/02 2,500,000 2,288,750
------------------
7,412,800
------------------
AUSTRALIA 4.0%
Government of Australian, 6.75%, 11/15/06 5,655,000 AUD 3,877,407
Queensland Treasury Corp., 6.50%, 6/14/05 5,796,000 AUD 3,883,757
------------------
7,761,164
------------------
BRAZIL 1.3%
Companhia Paranaense De Energia-Copel, 9.75%, 5/02/05
Republic of Brazil:
8.875%, 11/05/01
11.625%, 4/15/04
9.375%, 4/07/08
FRN, L, 4.938%, 4/15/12
FRN, 5.00%, 4/15/14
10.125%, 5/15/27
CANADA 8.4%
Government of Canada:
10.50%, 7/01/00 10,600,000 CAD 7,614,907
10.50%, 3/01/01 6,235,000 CAD 4,609,427
10.00%, 5/01/02 5,135,000 CAD 3,927,968
------------------
16,152,302
------------------
COLOMBIA 2.0%
Republic of Colombia, 7.25%, 2/23/04 4,500,000 3,805,425
------------------
DENMARK 2.1%
Kingdom of Denmark:
9.00%, 11/15/00 6,605,000 DKK 984,367
8.00%, 3/15/06 18,589,000 DKK 3,085,588
------------------
4,069,955
------------------
ECUADOR .4%
Republic of Ecuador:
Reg S, 11.25%, 4/25/02
FRN, 6.00%, 2/28/25
GERMANY 8.5%
Federal Republic of Germany:
7.75%, 2/21/00 10,586,298 EUR 11,257,699
8.00%, 7/22/02 4,399,667 EUR 5,103,831
------------------
16,361,530
------------------
INDIA .1%
Essar Steel Ltd., FRN, Reg S, 7.635%, 7/20/99 315,000 212,625
------------------
INDONESIA .5%
PT Astra International Inc., 9.75%, 4/29/01 2,000,000 1,030,000
------------------
ITALY 6.8%
Buoni Poliennali Del Tesoro:
10.50%, 7/15/00 655,899 EUR 726,582
6.75%, 7/01/07 1,243,000 EUR 1,460,528
Government of Italy:
10.50%, 11/01/00 1,823,090 EUR 2,057,533
10.50%, 4/01/05 6,476,000 EUR 8,763,336
------------------
13,007,979
------------------
JAMAICA .6%
Government of Jamaica, Reg S, 9.625%, 7/02/02
MEXICO 3.4%
Bepensa SA, 144A, 9.75%, 9/30/04
Cemex SA, 144A, 10.75%, 7/15/00
Petroleos Mexicanos, 144A, 9.375%, 12/02/08
Protexa Construcciones SA de CV, 144A, 12.125%, 7/24/02
United Mexican States:
9.75%, 2/06/01
9.75%, 4/06/05 1,800,000 1,829,250
8.625%, 3/12/08
11.375%, 9/15/16
A, 6.25%, 12/31/19
11.50%, 5/15/26
------------------
1,829,250
------------------
NEW ZEALAND 4.0%
Government of New Zealand:
6.50%, 2/15/00 7,240,000 NZD 3,880,757
8.00%, 11/15/06 6,437,000 NZD 3,729,549
------------------
7,610,306
------------------
PANAMA
Republic of Panama, FRN, 6.084%, 5/10/02
PERU .2%
Republic of Peru, FRN, 4.50%, 3/07/17
SOUTH KOREA 1.0%
Korea Development, 7.125%, 4/22/04 2,000,000 1,960,700
------------------
SPAIN 7.1%
Government of Spain:
12.25%, 3/25/00 5,725,902 EUR 6,301,917
10.10%, 2/28/01 3,142,692 EUR 3,598,038
10.15%, 1/31/06 2,849,000 EUR 3,887,738
------------------
13,787,693
------------------
SWEDEN 3.8%
Kingdom of Sweden, 10.25%, 5/05/03 51,400,000 SEK 7,289,108
------------------
TRINIDAD & TOBAGO
Sei Holdings IX Inc., 144A, 11.00%, 11/30/00
TURKEY .5%
Republic of Turkey, Reg S, 10.00%, 9/19/07 1,000,000 901,500
------------------
UNITED KINGDOM 7.9%
United Kingdom:
8.00%, 12/07/00 5,825,000 GBP 9,525,925
8.50%, 7/16/07 2,976,000 GBP 5,626,264
------------------
15,152,189
------------------
UNITED STATES 28.9%
+* Acadia Partners LP 999,667 114,362
Fannie Mae, 5.25%, 1/15/09 289,000 264,398
+* Penobscot Partners LP 333 3,083
U.S. Treasury Bond, 6.375%, 8/15/27 4,935,000 5,042,953
U.S. Treasury Notes:
5.375%, 7/31/00
6.25%, 4/30/01
6.375%, 8/15/02
7.875%, 11/15/04 12,553,000 13,710,236
6.125%, 8/15/07
5.25%, 11/15/28 35,284,000 31,237,384
------------------
50,372,416
------------------
VENEZUELA 2.0%
Republic of Venezuela:
Reg S, 9.125%, 6/18/07
FRN, 6.313%, 12/18/07
9.25%, 9/15/27 1,000,000 670,000
Venezuela Front Load Interest Reduction Bond, A, 6.125%, 3/31/07 1,904,752 1,465,469
------------------
2,135,469
------------------
TOTAL LONG TERM SECURITIES (COST $216,438,355) 170,852,411
SHORT TERM INVESTMENTS (COST $179,000) .1%
Chase Securities Inc., 5.00%, 7/01/99, Time Deposit
------------------
TOTAL INVESTMENTS (COST $216,617,355) 98.8% 170,852,411
OTHER ASSETS, LESS LIABILITIES 1.2% 2,177,755
------------------
TOTAL NET ASSETS 100.0% $ 173,030,166
==================
</TABLE>
CURRENCY ABBREVIATIONS:
ARS - Argentina Peso
AUD - Australian Dollar
CAD - Canadian Dollar
DKK - Danish Krone
EUR - European Unit
GBP - British Pound
NZD - New Zealand Dollar
SEK - Swedish Krona
* Non-income producing.
** Securities denominated in U.S. dollars unless otherwise indicated.
+ Securities represent equity investments.
See accompanying notes to pro forma combining financial statements.
TEMPLETON GLOBAL BOND FUND
TEMPLETON AMERICAS GOVERNMENT SECURTIES FUND
COMBINED PRO FORMA STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
AMERICAS GOVERNMENT FUND
---------------------------------------
PRINCIPAL AMOUNT** VALUE
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
LONG TERM SECURITIES 98.7%
ARGENTINA 5.2%
Bridas Corp., 12.50%, 11/15/99 $ 50,000 $ 50,563
Perez Companc SA, 8.125%, 7/15/07, 144A
Republic of Argentina:
9.25%, 2/23/01 555,000 532,453
8.875%, 5/09/02 1,625,000 1,487,688
8.375%, 12/20/03
11.00%, 10/09/06 225,000 210,938
Reg S, 11.75%, 2/12/07 80,000 ARS 64,306
11.375%, 1/30/17 200,000 174,000
9.75%, 9/19/27 150,000 115,125
Republic of Argentina Bonos Del Tesoro, 8.875%, 5/09/02 ------------------ -------------------
2,635,073
-------------------
AUSTRALIA 4.0%
Government of Australian, 6.75%, 11/15/06
Queensland Treasury Corp., 6.50%, 6/14/05
BRAZIL 1.3%
Companhia Paranaense De Energia-Copel, 9.75%, 5/02/05 450,000 393,443
Republic of Brazil:
8.875%, 11/05/01 250,000 248,125
11.625%, 4/15/04 200,000 188,250
9.375%, 4/07/08 800,000 645,500
FRN, L, 4.938%, 4/15/12 310,000 192,588
FRN, 5.00%, 4/15/14 537,879 353,319
10.125%, 5/15/27 600,000 454,500
-------------------
2,475,725
-------------------
CANADA 8.4%
Government of Canada:
10.50%, 7/01/00
10.50%, 3/01/01
10.00%, 5/01/02
COLOMBIA 2.0%
Republic of Colombia, 7.25%, 2/23/04
DENMARK 2.1%
Kingdom of Denmark:
9.00%, 11/15/00
8.00%, 3/15/06
ECUADOR .4%
Republic of Ecuador:
Reg S, 11.25%, 4/25/02 955,000 594,488
FRN, 6.00%, 2/28/25 400,000 187,252
-------------------
781,740
-------------------
GERMANY 8.5%
Federal Republic of Germany:
7.75%, 2/21/00
8.00%, 7/22/02
INDIA .1%
Essar Steel Ltd., FRN, Reg S, 7.635%, 7/20/99
INDONESIA .5%
PT Astra International Inc., 9.75%, 4/29/01
ITALY 6.8%
Buoni Poliennali Del Tesoro:
10.50%, 7/15/00
6.75%, 7/01/07
Government of Italy:
10.50%, 11/01/00
10.50%, 4/01/05
JAMAICA .6%
Government of Jamaica, Reg S, 9.625%, 7/02/02 1,225,000 1,133,125
-------------------
MEXICO 3.4%
Bepensa SA, 144A, 9.75%, 9/30/04 230,000 203,550
Cemex SA, 144A, 10.75%, 7/15/00 65,000 66,869
Petroleos Mexicanos, 144A, 9.375%, 12/02/08 250,000 253,750
Protexa Construcciones SA de CV, 144A, 12.125%, 7/24/02 80,000 64,400
United Mexican States:
9.75%, 2/06/01 400,000 416,900
9.75%, 4/06/05
8.625%, 3/12/08 1,140,000 1,081,575
11.375%, 9/15/16 1,560,000 1,677,780
A, 6.25%, 12/31/19 490,000 363,213
11.50%, 5/15/26 450,000 502,875
-------------------
4,630,912
------------------
NEW ZEALAND 4.0%
Government of New Zealand:
6.50%, 2/15/00
8.00%, 11/15/06
PANAMA
Republic of Panama, FRN, 6.084%, 5/10/02 36,924 36,001
-------------------
PERU .2%
Republic of Peru, FRN, 4.50%, 3/07/17 550,000 339,284
-------------------
SOUTH KOREA 1.0%
Korea Development, 7.125%, 4/22/04
SPAIN 7.1%
Government of Spain:
12.25%, 3/25/00
10.10%, 2/28/01
10.15%, 1/31/06
SWEDEN 3.8%
Kingdom of Sweden, 10.25%, 5/05/03
TRINIDAD & TOBAGO
Sei Holdings IX Inc., 144A, 11.00%, 11/30/00 30,000 31,200
-------------------
TURKEY .5%
Republic of Turkey, Reg S, 10.00%, 9/19/07
UNITED KINGDOM 7.9%
United Kingdom:
8.00%, 12/07/00
8.50%, 7/16/07
UNITED STATES 28.9%
+* Acadia Partners LP
Fannie Mae, 5.25%, 1/15/09
+* Penobscot Partners LP
U.S. Treasury Bond, 6.375%, 8/15/27
U.S. Treasury Notes:
5.375%, 7/31/00 2,300,000 2,300,000
6.25%, 4/30/01 325,000 329,063
6.375%, 8/15/02 210,000 214,069
7.875%, 11/15/04
6.125%, 8/15/07 723,000 731,134
5.25%, 11/15/28 2,100,000 1,859,153
-------------------
5,433,419
-------------------
VENEZUELA 2.0%
Republic of Venezuela:
Reg S, 9.125%, 6/18/07 400,000 304,000
FRN, 6.313%, 12/18/07 202,380 155,706
9.25%, 9/15/27 2,025,000 1,356,750
Venezuela Front Load Interest Reduction Bond, A, 6.125%, 3/31/07
-------------------
1,816,456
-------------------
TOTAL LONG TERM SECURITIES (COST $216,438,355) 19,312,935
SHORT TERM INVESTMENTS (COST $179,000) .1%
Chase Securities Inc., 5.00%, 7/01/99, Time Deposit 179,000
-------------------
TOTAL INVESTMENTS (COST $216,617,355) 98.8% 19,491,935
OTHER ASSETS, LESS LIABILITIES 1.2% 307,817
------------------
TOTAL NET ASSETS 100.0% 19,799,752
==================
</TABLE>
CURRENCY ABBREVIATIONS:
ARS - Argentina Peso
AUD - Australian Dollar
CAD - Canadian Dollar
DKK - Danish Krone
EUR - European Unit
GBP - British Pound
NZD - New Zealand Dollar
SEK - Swedish Krona
* Non-income producing.
** Securities denominated in U.S. dollars unless otherwise indicated.
+ Securities represent equity investments.
See accompanying notes to pro forma combining financial statements.
TEMPLETON GLOBAL BOND FUND
TEMPLETON AMERICAS GOVERNMENT SECURTIES FUND
COMBINED PRO FORMA STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
GLOBAL BOND FUND
PRO FORMA COMBINED
---------------------------------------
PRINCIPAL AMOUNT** VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM SECURITIES 98.7%
ARGENTINA 5.2%
Bridas Corp., 12.50%, 11/15/99 $ 50,000 $ 50,563
Perez Companc SA, 8.125%, 7/15/07, 144A 5,000,000 4,250,000
Republic of Argentina:
9.25%, 2/23/01 555,000 532,453
8.875%, 5/09/02 1,625,000 1,487,688
8.375%, 12/20/03 480,000 442,800
11.00%, 10/09/06 685,000 642,188
Reg S, 11.75%, 2/12/07 80,000 ARS 64,306
11.375%, 1/30/17 200,000 174,000
9.75%, 9/19/27 150,000 115,125
Republic of Argentina Bonos Del Tesoro, 8.875%, 5/09/02 2,500,000 2,288,750
-----------------
10,047,873
-----------------
AUSTRALIA 4.0%
Government of Australian, 6.75%, 11/15/06 5,655,000 AUD 3,877,407
Queensland Treasury Corp., 6.50%, 6/14/05 5,796,000 AUD 3,883,757
------------------
7,761,164
-----------------
BRAZIL 1.3%
Companhia Paranaense De Energia-Copel, 9.75%, 5/02/05 450,000 393,443
Republic of Brazil:
8.875%, 11/05/01 250,000 248,125
11.625%, 4/15/04 200,000 188,250
9.375%, 4/07/08 800,000 645,500
FRN, L, 4.938%, 4/15/12 310,000 192,588
FRN, 5.00%, 4/15/14 537,879 353,319
10.125%, 5/15/27 600,000 454,500
------------------
2,475,725
-------------------
CANADA 8.4%
Government of Canada:
10.50%, 7/01/00 10,600,000 CAD 7,614,907
10.50%, 3/01/01 6,235,000 CAD 4,609,427
10.00%, 5/01/02 5,135,000 CAD 3,927,968
-----------------
16,152,302
-----------------
COLOMBIA 2.0%
Republic of Colombia, 7.25%, 2/23/04 4,500,000 3,805,425
-----------------
DENMARK 2.1%
Kingdom of Denmark:
9.00%, 11/15/00 6,605,000 DKK 984,367
8.00%, 3/15/06 18,589,000 DKK 3,085,588
-----------------
4,069,955
------------------
ECUADOR .4%
Republic of Ecuador:
Reg S, 11.25%, 4/25/02 955,000 594,488
FRN, 6.00%, 2/28/25 400,000 187,252
-------------------
781,740
-------------------
GERMANY 8.5%
Federal Republic of Germany:
7.75%, 2/21/00 10,586,298 EUR 11,257,699
8.00%, 7/22/02 4,399,667 EUR 5,103,831
------------------
16,361,530
------------------
INDIA .1%
Essar Steel Ltd., FRN, Reg S, 7.635%, 7/20/99 315,000 212,625
------------------
INDONESIA .5%
PT Astra International Inc., 9.75%, 4/29/01 2,000,000 1,030,000
------------------
ITALY 6.8%
Buoni Poliennali Del Tesoro:
10.50%, 7/15/00 655,899 EUR 726,582
6.75%, 7/01/07 1,243,000 EUR 1,460,528
Government of Italy:
10.50%, 11/01/00 1,823,090 EUR 2,057,533
10.50%, 4/01/05 6,476,000 EUR 8,763,336
------------------
13,007,979
------------------
JAMAICA .6%
Government of Jamaica, Reg S, 9.625%, 7/02/02 1,225,000 1,133,125
-------------------
MEXICO 3.4%
Bepensa SA, 144A, 9.75%, 9/30/04 230,000 203,550
Cemex SA, 144A, 10.75%, 7/15/00 65,000 66,869
Petroleos Mexicanos, 144A, 9.375%, 12/02/08 250,000 253,750
Protexa Construcciones SA de CV, 144A, 12.125%, 7/24/02 80,000 64,400
United Mexican States:
9.75%, 2/06/01 400,000 416,900
9.75%, 4/06/05 1,800,000 1,829,250
8.625%, 3/12/08 1,140,000 1,081,575
11.375%, 9/15/16 1,560,000 1,677,780
A, 6.25%, 12/31/19 490,000 363,213
11.50%, 5/15/26 450,000 502,875
------------------
6,460,162
------------------
NEW ZEALAND 4.0%
Government of New Zealand:
6.50%, 2/15/00 7,240,000 NZD 3,880,757
8.00%, 11/15/06 6,437,000 NZD 3,729,549
------------------
7,610,306
------------------
PANAMA
Republic of Panama, FRN, 6.084%, 5/10/02 36,924 36,001
-------------------
PERU .2%
Republic of Peru, FRN, 4.50%, 3/07/17 550,000 339,284
-------------------
SOUTH KOREA 1.0%
Korea Development, 7.125%, 4/22/04 2,000,000 1,960,700
------------------
Spain 7.1%
Government of Spain:
12.25%, 3/25/00 5,725,902 EUR 6,301,917
10.10%, 2/28/01 3,142,692 EUR 3,598,038
10.15%, 1/31/06 2,849,000 EUR 3,887,738
------------------
13,787,693
------------------
SWEDEN 3.8%
Kingdom of Sweden, 10.25%, 5/05/03 51,400,000 SEK 7,289,108
------------------
TRINIDAD & TOBAGO
Sei Holdings IX Inc., 144A, 11.00%, 11/30/00 30,000 31,200
-------------------
TURKEY .5%
Republic of Turkey, Reg S, 10.00%, 9/19/07 1,000,000 901,500
------------------
UNITED KINGDOM 7.9%
United Kingdom:
8.00%, 12/07/00 5,825,000 GBP 9,525,925
8.50%, 7/16/07 2,976,000 GBP 5,626,264
------------------
15,152,189
------------------
UNITED STATES 28.9%
+* Acadia Partners LP 999,667 114,362
Fannie Mae, 5.25%, 1/15/09 289,000 264,398
+* Penobscot Partners LP 333 3,083
U.S. Treasury Bond, 6.375%, 8/15/27 4,935,000 5,042,953
U.S. Treasury Notes:
5.375%, 7/31/00 2,300,000 2,300,000
6.25%, 4/30/01 325,000 329,063
6.375%, 8/15/02 210,000 214,069
7.875%, 11/15/04 12,553,000 13,710,236
6.125%, 8/15/07 723,000 731,134
5.25%, 11/15/28 37,384,000 33,096,537
------------------
55,805,835
------------------
VENEZUELA 2.0%
Republic of Venezuela:
Reg S, 9.125%, 6/18/07 400,000 304,000
FRN, 6.313%, 12/18/07 202,380 155,706
9.25%, 9/15/27 3,025,000 2,026,750
Venezuela Front Load Interest Reduction Bond, A, 6.125%, 3/31/07 1,904,752 1,465,469
------------------
3,951,925
------------------
TOTAL LONG TERM SECURITIES (COST $216,438,355) 190,165,346
SHORT TERM INVESTMENTS (COST $179,000) .1%
Chase Securities Inc., 5.00%, 7/01/99, Time Deposit 179,000
------------------
TOTAL INVESTMENTS (COST $216,617,355) 98.8% 190,344,346
OTHER ASSETS, LESS LIABILITIES 1.2% 2,485,572
------------------
TOTAL NET ASSETS 100.0% 192,829,918
==================
</TABLE>
CURRENCY ABBREVIATIONS:
ARS - Argentina Peso
AUD - Australian Dollar
CAD - Canadian Dollar
DKK - Danish Krone
EUR - European Unit
GBP - British Pound
NZD - New Zealand Dollar
SEK - Swedish Krona
* Non-income producing.
** Securities denominated in U.S. dollars unless otherwise indicated.
+ Securities represent equity investments.
See accompanying notes to pro forma combining financial statements.
TEMPLETON GLOBAL BOND FUND
TEMPLETON AMERICAS GOVERNMENT SECURITIES FUND
FINANCIAL STATEMENTS
PRO FORMA COMBINING STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1999
<TABLE>
<CAPTION>
TEMPLETON
GLOBAL BOND
TEMPLETON TEMPLETON FUND
GLOBAL BOND AMERICAS GOVERNMENT PRO FORMA
FUND SECURITIES FUND COMBINED
-------------- ------------------ --------------
<S> <C> <C> <C>
Assets:
Investments in securities:
Cost $ 195,285,602 $ 21,331,753 $ 216,617,355
-------------- ------------------ --------------
Value 170,852,411 19,491,935 190,344,346
Receivables:
Investment securities sold 201,027 - 201,027
Capital shares sold 150,565 144 150,709
Dividends and interest 3,545,611 480,938 4,026,549
Other assets 5,400 6,948 12,348
-------------- ------------------ --------------
Total assets 174,755,014 19,979,965 194,734,979
-------------- ------------------ --------------
Liabilities:
Payables:
Capital shares redeemed 1,201,075 122,565 1,323,640
Affiliates 83,915 30,377 114,292
Shareholders - 12,848 12,848
Distributions to shareholders 249,952 - 249,952
Funds advanced by custodian 4,708 7,375 12,083
Accrued expenses 185,198 - 192,246
-------------- ------------------ --------------
Total liabilities 1,724,848 173,165 1,905,061
-------------- ------------------ --------------
Net assets, at value $ 173,030,166 $ 19,806,800 $ 192,829,918
-------------- ------------------ --------------
CLASS A**:
Net assets, at value $ 153,401,459 $ 19,806,800 $ 173,201,211
============== ================== ==============
Shares outstanding *** 17,252,950 2,070,193 19,480,606
-------------- ------------------ --------------
Net asset value per share $ 8.89 $ 9.57 $ 8.89
-------------- ------------------ --------------
Maximum offering price per share $ 9.29 $ 9.99 $ 9.29
-------------- ------------------ --------------
CLASS C**:
Net assets, at value $ 18,302,766 $ - $ 18,302,766
-------------- ------------------ --------------
Shares outstanding 2,056,206 - $ 2,056,206
-------------- ------------------ --------------
Net asset value per share * $ 8.90 $ - $ 8.90
-------------- ------------------ --------------
Maximum offering price per share $ 8.99 $ - $ 8.99
-------------- ------------------ --------------
ADVISOR CLASS
Net assets, at value $ 1,325,941 $ - $ 1,325,941
-------------- ------------------ --------------
Shares outstanding 149,257 - 149,257
-------------- ------------------ --------------
Net asset value and maximum offering price per share $ 8.88 $ - $ 8.88
-------------- ------------------ --------------
</TABLE>
* Redemption price per share is equal to net asset value less any applicable
sales charge.
** Effective January 1, 1999, Class I and Class II Shares were renamed Class A
and Class C, respectively.
*** See note 2 in the accompanying notes to pro forma combining financial
statements.
See accompanying notes to pro forma combining financial statements.
TEMPLETON GLOBAL BOND FUND
TEMPLETON AMERICAS GOVERNMENT SECURITIES FUND
FINANCIAL STATEMENTS (CONTINUED)
PRO FORMA COMBINING STATEMENTS OF OPERATIONS
FOR THE TEN MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
TEMPLETON
GLOBAL BOND
TEMPLETON TEMPLETON FUND
GLOBAL BOND AMERICAS GOVERNMENT PRO FORMA PRO FORMA
FUND SECURITIES FUND ADJUSTMENTS COMBINED
------------- ----------------- -------------- ---------------
<S> <C> <C> <C> <C>
Investment income:
Dividends $ 124,930 $ - $ 124,930
Interest 11,974,854 1,804,606 13,779,460
------------- ----------------- ------------ -------------
Total investment income 12,099,784 1,804,606 - 13,904,390
------------- ----------------- ------------ -------------
Expenses:
Management fees 830,458 114,973 (34,332)a 911,099
Administrative fees 249,135 28,743 (4,548)b 273,330
Distribution fees
Class A 367,170 66,792 (23,718)c 410,244
Class C 111,422 - 111,422
Transfer agent fees 240,000 31,100 271,100
Custodian fees 30,000 3,840 33,840
Reports to shareholders 130,000 14,125 144,125
Registration and filing fees 46,000 17,175 63,175
Professional fees 55,000 15,250 70,250
Trustees' fees and expenses 26,570 2,385 28,955
Other 2,000 14,021 16,021
------------- ----------------- ------------ -------------
Total expenses 2,087,755 308,404 (62,598) 2,333,561
Expenses waived/paid by affiliate - (69,646) 69,646 d -
------------- ----------------- ------------ -------------
Net expenses 2,087,755 238,758 7,048 2,333,561
------------- ----------------- ------------ -------------
Net investment income (loss) 10,012,029 1,565,848 7,048 11,570,829
------------- ----------------- ------------ -------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments 4,775,290 (93,217) 4,682,073
Foreign currency transactions (4,312,809) 31 (4,312,778)
------------- ----------------- ------------ -------------
Net realized gain (loss) 462,481 (93,186) - 369,295
Net unrealized appreciation (depreciation) on investments (12,014,174) 2,380,626 (9,633,548)
------------- ----------------- ------------ -------------
Net realized and unrealized gain (loss) (11,551,693) 2,287,440 - (9,264,253)
------------- ----------------- ------------ -------------
Net increase (decrease) in net assets resulting from operations $ (1,539,664) $ 3,853,288 $ 7,048 $ 2,306,576
------------- ----------------- ------------ -------------
</TABLE>
a - Pro Forma adjustment for difference in Management fee schedule.
b - Pro Forma adjustment for difference in Administrative fee schedule.
c - Pro Forma adjustment for difference in 12B-1 agreement.
d - Pro Forma adjustment to remove the Templeton Americas Government 1.25%
expense limitation.
See accompanying notes to pro forma combining financial statements.
TEMPLETON GLOBAL BOND FUND
TEMPELTON AMERICAS GOVERNMENT SECURITIES FUND
NOTES TO PRO FORMA COMBINING STATEMENTS (UNAUDITED)
1. BASIS OF COMBINATION
Subject to approval of the proposed Agreement and Plan of Reorganization (the
"Agreement and Plan") by the shareholders of Templeton Americas Governments
Securities Fund ("Americas Government Securities Fund"), the Templeton Global
Bond Fund ("Global Bond Fund") will acquire all the net assets of the Americas
Government Securities Fund in exchange for the Class A shares of Global Bond
Fund. The merger will be accounted for by the method of accounting for tax free
business combinations of investment companies. The pro forma combining Statement
of Assets and Liabilities reflects the financial position of Global Bond Fund
and Americas Government Securities Fund at June 30, 1999 as though the merger
occurred as of that date. The pro forma combining Statement of Operations
reflects the results of operations of the Global Bond Fund and the Americas
Government Securities Fund for the period September 1, 1998 to June 30, 1999 as
though the merger occurred on September 1, 1998. The pro forma financial
statements do not reflect the expenses of either fund in carrying out it
obligations under the Agreement and Plan of Reorganization or any adjustment
with respect to additional distributions that may be made prior to
reorganization. Estimated reorganization costs for each Fund are $12,187. The
pro forma financial statements are presented for the information of the reader,
and should be read in conjunction with the historical financial statements of
the funds.
2. CAPITAL SHARES:
The number of Class A shares issued was calculated by dividing the Class A net
assets of the Americas Government Securities Fund at June 30, 1999 by the Class
A net asset value per share of the Global Bond Fund at June 30, 1999.