Registration No. 33-30018
As filed with the Securities and Exchange Commission on March 3,
1995
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / x /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 9 / x /
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / x /
ACT OF 1940
Amendment No. 10 / x /
(Check appropriate box or boxes)
TEMPLETON REAL ESTATE SECURITIES FUND
(Exact Name of Registrant as Specified in Charter)
700 Central Avenue, P.O. Box 33030, St. Petersburg,
Florida 33733-8030
(Address of Principal Executive Offices)
Registrant's Telephone Number: (813) 823-8712
Jeffrey L. Steele, Esq. Thomas M. Mistele, Esq.
Dechert Price & Rhoads Templeton Global Investors, Inc.
1500 K Street, N.W. 500 East Broward Blvd.
Washington, D.C. 20005 Fort Lauderdale, FL 33394
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box)
immediately upon filing pursuant to paragraph (b)
X on April 1, 1995 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)
on (date) pursuant to paragraph (a) of Rule 485
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Registrant has elected to register an indefinite number of
Shares of beneficial interest, $0.01 par value per Share,
pursuant to Rule 24f-2 under the Investment Company Act of 1940.
A Rule 24f-2 Notice for the Registrant's fiscal year ended
August 31, 1994 was filed with the Commission on October 28,
1994.
TEMPLETON REAL ESTATE SECURITIES FUND
CROSS-REFERENCE SHEET
REQUIRED BY RULE 495
UNDER THE SECURITIES ACT OF 1933
Part A
Item No. Caption
1 Cover Page
2 Expense Table
3 Selected Financial
Information
4 General Description; Investment
Techniques
5 Management of the Fund
5A See Annual Report to Shareholders
6 Description of Shares
7 How to Buy Shares of the Fund; Net Asset
Value
8 How to Sell Shares of the Fund
9 Not Applicable
Part B
10 Cover Page
11 Table of Contents
12 General Information and History
13 Investment Objectives and Policies
14 Management of the Fund
15 Principal Shareholders
16 Investment Management and Other
Services
17 Brokerage Allocation
18 Description of Shares, Part A
Item No. Caption
19 Purchase, Redemption, and Pricing of
Shares
20 Tax Status
21 Principal Underwriter
22 Performance Information
23 Financial Statements
<PAGE>
TEMPLETON REAL ESTATE SECURITIES FUND PROSPECTUS -- JANUARY 1, 1995
AS SUPPLEMENTED APRIL 1, 1995
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INVESTMENT Templeton Real Estate Securities Fund (the "Fund") seeks long-
OBJECTIVES term capital growth by investing primarily in securities of
AND POLICIES domestic and foreign companies which are principally engaged
in or related to the real estate industry or which own
significant real estate assets. Current income is a secondary
objective.
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PURCHASE OF Please complete and return the Shareholder Application. If you
SHARES need assistance in completing this form, please call our
Account Services Department. The Fund offers two classes of
Shares to its investors. This structure allows investors to
consider, among other features, the impact of sales charges
and distribution fees ("Rule 12b-1 fees") on their investments
in the Fund. Shareholders should take the differences between
the two classes into account when determining which class of
Shares best meets their investment objective. The minimum
initial investment is $100 ($25 minimum for subsequent
investments).
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PROSPECTUS This Prospectus sets forth concisely information about the
INFORMATION Fund that a prospective investor ought to know before
investing. Investors are advised to read and retain this
Prospectus for future reference. A Statement of Additional
Information ("SAI") dated January 1, 1995, as supplemented
April 1, 1995, has been filed with the Securities and Exchange
Commission and is incorporated in its entirety by reference in
and made a part of this Prospectus. This SAI is available
without charge upon request to Franklin Templeton
Distributors, Inc., 700 Central Avenue, St. Petersburg,
Florida 33701-3628 or by calling the Fund Information
Department.
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FUND INFORMATION DEPARTMENT -- 1-800-292-9293
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TEMPLETON "STAR" SERVICE (24 hours, seven days a week access to current
prices, shareholder account balances/values, last transaction and duplicate
account statements) -- 1-800-654-0123
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TABLE OF CONTENTS
<TABLE>
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Page
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EXPENSE TABLE......... 2
FINANCIAL HIGHLIGHTS.. 3
GENERAL DESCRIPTION... 3
Investment Objectives
and Policies......... 4
INVESTMENT TECHNIQUES. 5
Repurchase Agreements. 5
Borrowing............. 5
Loans of Portfolio
Securities........... 5
Options on Securities
and Stock Indices.... 5
Forward Foreign
Currency Contracts... 5
Futures Contracts..... 6
Depositary Receipts... 6
RISK FACTORS.......... 7
HOW TO BUY SHARES OF
THE FUND............. 8
Alternative Purchase
Arrangements......... 8
Deciding Which Class
to Purchase.......... 9
Offering Price........ 9
Class I............... 10
Cumulative Quantity
Discount............. 11
Letter of Intent...... 11
Group Purchases....... 11
Net Asset Value
Purchases (Both
Classes)............. 12
</TABLE>
<TABLE>
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Additional Dealer
Compensation (Both
Classes)............. 13
Purchasing Class I and
Class II Shares...... 14
Automatic Investment
Plan................. 14
Institutional
Accounts............. 14
Account Statements.... 14
Templeton STAR
Service.............. 14
Retirement Plans...... 15
Net Asset Value....... 15
EXCHANGE PRIVILEGE.... 15
Exchanges of Class II
Shares............... 16
Transfers............. 16
Conversion Rights..... 16
Exchanges by Timing
Accounts............. 17
HOW TO SELL SHARES OF
THE FUND............. 17
Contingent Deferred
Sales Charge......... 17
Reinstatement
Privilege............ 20
Systematic Withdrawal
Plan................. 20
Redemptions by
Telephone............ 20
TELEPHONE
TRANSACTIONS......... 21
Verification
Procedures........... 21
Restricted Accounts... 21
General............... 21
</TABLE>
<TABLE>
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MANAGEMENT OF THE
FUND................. 22
Investment Manager.... 22
Business Manager...... 22
Transfer Agent........ 23
Custodian............. 23
Plan of Distribution.. 23
Expenses.............. 23
Brokerage Commissions. 23
GENERAL INFORMATION... 24
Description of
Shares/Share
Certificates......... 24
Meetings of
Shareholders......... 24
Dividends and
Distributions........ 24
Federal Tax
Information.......... 24
Inquiries............. 25
Performance
Information.......... 25
Statements and
Reports.............. 25
WITHHOLDING
INFORMATION.......... 26
CORPORATE RESOLUTION.. 27
AUTHORIZATION
AGREEMENT............ 28
THE FRANKLIN TEMPLETON
GROUP................ 29
</TABLE>
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SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
EXPENSE TABLE
<TABLE>
<CAPTION>
CLASS I CLASS II
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<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage
of Offering Price)....................................... 5.75% 1.00%/1/
Maximum Sales Charge Imposed on Reinvested Dividends...... None None
Deferred Sales Charge..................................... None/2/ 1.00%/3/
Redemption Fees........................................... None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Management Fees........................................... 0.75% 0.75%
12b-1 Fees................................................ 0.25% 1.00%
Other Expenses (audit, legal, business management,
transfer agent and custodian)............................ 0.58% 0.58%
Total Fund Operating Expenses............................. 1.58% 2.33%
</TABLE>
<TABLE>
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C> <C>
You would pay the following expenses
on a $1,000 investment, assuming
(1) 5% annual return and (2)
redemption at the end of each time
period: Class I: $73 $105 $139 $235
Class II: $43 $ 82 $133 $274
</TABLE>
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/1/ Although Class II has a lower initial sales charge than Class I, over time
the higher 12b-1 fee for Class II may cause Shareholders to pay more for
Class II Shares than for Class I Shares. Given the Fund's maximum initial
sales charge and the rate of the Fund's Rule 12b-1 fee, however, it is
estimated that this would take a substantial number of years.
/2/ A contingent deferred sales charge of 1% may be imposed, however, on certain
redemptions of Class I Shares initially purchased without a sales charge as
described in the Prospectus under "How to Sell Shares of the Fund."
/3/ Class II Shares redeemed within 18 months of purchase are subject to a 1%
contingent deferred sales charge. After the 18-month period, however, the
Shares may be redeemed free of the charge.
/4/ Annual Rule 12b-1 fees may not exceed 0.25% of the Fund's average net assets
attributable to Class I Shares and 1.00% of the Fund's average net assets
attributable to Class II Shares. (See "Management of the Fund -- Plans of
Distribution.") Consistent with the National Association of Securities
Dealers, Inc.'s rules, it is possible that the combination of front-end
sales charges and Rule 12b-1 fees could cause long-term Shareholders to pay
more than the economic equivalent of the maximum front-end sales charges
permitted under those same rules.
/5/ As noted in the table above, Class II Shares are generally subject to a
contingent deferred sales charge for a period of 18 months.
The information in the table above is an estimate based on the Fund's
expenses as of the end of the most recent fiscal year and has been restated to
reflect current fees. The table is provided for purposes of assisting current
and prospective Shareholders in understanding the various costs and expenses
that an investor in the Fund will bear, directly or indirectly. The
information in the table does not reflect the charge of up to $15 per
transaction if a Shareholder requests that redemption proceeds be sent by
express mail or wired to a commercial bank account or an administrative
service fee of $5.00 per exchange for market timing or allocation service
accounts. THE 5% ANNUAL RETURN AND ANNUAL EXPENSES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF ACTUAL OR EXPECTED FUND PERFORMANCE OR EXPENSES, BOTH OF
WHICH MAY VARY. For a more detailed discussion of the Fund's fees and
expenses, see "Management of the Fund."
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following table of selected financial information has been audited by
McGladrey & Pullen, LLP, independent certified public accountants, whose report
thereon, which is incorporated by reference, appears in the Fund's 1994 Annual
Report to Shareholders. This statement should be read in conjunction with the
other financial statements and notes thereto included in the Fund's 1994
Annual Report to Shareholders, which contains further information about the
Fund's performance, and which is available to shareholders upon request and
without charge.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
PER SHARE OPERATING PERFORMANCE --------------------------------------------
(For a share outstanding
throughout the period) 1994 1993 1992 1991 1990++
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<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 12.66 $ 10.40 $ 10.08 $ 8.88 $ 10.00
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Income from investment
operations
Net investment income 0.22 0.25 0.37 0.53 0.29
Net realized and unrealized
gain (loss) 1.00 2.36 0.43 1.13 (1.33)
-------- ------- ------- ------- -------
Total from investment opera-
tions 1.22 2.61 0.80 1.66 (1.04)
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Less distributions
Dividends from net investment
income (0.22) (0.35) (0.48) (0.37) (0.08)
Distributions from net realized
gains (0.00) (0.00) (0.00) (0.09) (0.00)
-------- ------- ------- ------- -------
Total distributions (0.22) (0.35) (0.48) (0.46) (0.08)
-------- ------- ------- ------- -------
Change in net asset value for
the period 1.00 2.26 0.32 1.20 (1.12)
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Net asset value, end of period $ 13.66 $ 12.66 $ 10.40 $ 10.08 $ 8.88
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TOTAL RETURN+ 9.69% 25.94% 8.29% 20.06% (10.48)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $131,544 $61,820 $36,955 $32,830 $10,065
Ratio to average net assets of:
Expenses 1.58% 1.68% 1.69% 1.98% 2.77%*
Expenses, net of reimbursement 1.58% 1.68% 1.69% 1.25% 1.25%*
Net investment income 1.97% 2.60% 3.64% 5.48% 3.59%*
Portfolio turnover rate 32.34% 19.74% 32.35% 25.24% 9.54%
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</TABLE>
++Period from September 12, 1989 (commencement of operations) to August 31,
1990.
+ Not annualized in periods of less than one year. Does not reflect sales
charges.
* Annualized.
During the fiscal year ended August 31, 1991, Templeton Funds Management,
Inc., the Fund's previous business manager, voluntarily limited the total
expenses (excluding interest, taxes, brokerage commissions and extraordinary
expenses) of the Fund to an annual rate of 1.25% of the Fund's average net
assets. Effective September 1, 1991, this expense limitation was terminated.
GENERAL DESCRIPTION
Templeton Real Estate Securities Fund (the "Fund") was organized as a
Massachusetts business trust on July 17, 1989, and is registered under the
Investment Company Act of 1940 (the "1940 Act") as an open-end diversified
management investment company.
3
<PAGE>
Shares of the Fund may be purchased (minimum investment of $100 initially
and $25 thereafter) at the current public offering price which is equal to the
Fund's net asset value (see "How to Buy Shares of the Fund -- Net Asset
Value") plus a sales charge based upon a variable percentage (ranging from
5.75% to less than 1.00% of the offering price) depending on factors such as
the class of Shares purchased and the amount invested. (See "How to Buy Shares
of the Fund.")
INVESTMENT OBJECTIVES AND POLICIES. The Fund's principal investment
objective is long-term capital growth, with current income as a secondary
objective, which it seeks to achieve by investing primarily in securities of
issuers throughout the world which are principally engaged in or related to
the real estate industry or which own significant real estate assets. The Fund
will not invest directly in real estate.
Under normal conditions, the Fund will invest not less than 65% of its total
assets in securities of issuers listed on United States or foreign securities
exchanges or NASDAQ which are principally engaged in or related to the real
estate industry. A company is "principally engaged in or related to the real
estate industry" if at least 50% of its assets (marked-to-market), gross
income or net profits are attributable to ownership, construction, management
or sale of residential, commercial or industrial real estate, or to products
or services that are related to the real estate industry. Real estate industry
companies are defined as: equity real estate investment trusts, which pool
investors' funds for investment primarily in commercial real estate
properties; mortgage real estate investment trusts, which invest pooled funds
principally in real estate-related loans; brokers or real estate developers;
and issuers with substantial real estate holdings. Issuers whose products and
services are related to the real estate industry are defined as manufacturers
and distributors of building supplies and financial institutions which issue
or service mortgages.
Although the Fund generally invests in common stocks, it may also invest in
preferred stocks and, consistent with its secondary objective of current
income, in debt securities of issuers in the real estate industry. In addition
to these securities, the Fund may invest up to 35% of its total assets in
equity and debt securities of companies outside the real estate industry. Debt
securities purchased by the Fund will be rated no lower than A by Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P")
or if not so rated, believed by Templeton, Galbraith & Hansberger Ltd. (the
"Investment Manager") to be of comparable quality, and may have an average
weighted maturity of up to 30 years.
Whenever, in the judgment of the Investment Manager, market or economic
conditions warrant, the Fund may, for temporary defensive purposes, invest
without limit in money market securities, denominated in dollars or in the
currency of any foreign country, issued by entities organized in the U.S. or
any foreign country, such as: short-term (less than 12 months to maturity) and
medium-term (not greater than five years to maturity) obligations issued or
guaranteed by the U.S. Government or the government of a foreign country,
their agencies or instrumentalities; finance company and corporate commercial
paper and other short-term corporate obligations, in each case rated Prime-1
by Moody's or A or better by S&P or, if unrated, of comparable quality as
determined by the Investment Manager; and repurchase agreements with banks and
broker-dealers with respect to such securities. In addition, for temporary
defensive purposes, the Fund may invest up to 25% of its total assets in
obligations (including certificates of deposit, time deposits and bankers'
acceptances) of banks; provided that the Fund will limit its investment in
time deposits for which there is a penalty for early withdrawal to 10% of its
total assets.
The Fund may invest no more than 5% of its total assets in securities issued
by any one company or government exclusive of U.S. Government securities. The
Fund may not invest more than 5% of its total assets in warrants (exclusive of
warrants acquired in units or attached to securities) nor more than 10% of its
total assets in securities with a limited trading market. The investment
objectives and policies described above, as well as the investment
restrictions described in the SAI, cannot be changed without Shareholder
approval.
The Fund may also lend its portfolio securities and borrow money for
investment purposes ( i.e., "leverage" its portfolio). In addition, the Fund
may enter into transactions in options on securities and securities indices,
forward foreign currency contracts, and futures contracts and related options.
These investment techniques are described below and under the heading
"Investment Objectives and Policies" in the SAI.
4
<PAGE>
The Fund does not intend to emphasize short-term trading profits and usually
expects to have a portfolio turnover rate not exceeding 100%.
INVESTMENT TECHNIQUES
REPURCHASE AGREEMENTS. Consistent with its secondary objective of current
income, when the Fund acquires a security from a bank or a registered broker-
dealer, it may simultaneously enter into a repurchase agreement, wherein the
seller agrees to repurchase the security at a specified time and price. The
repurchase price is in excess of the purchase price by an amount which
reflects an agreed-upon rate of return, which is not tied to the coupon rate
on the underlying security. Under the 1940 Act, repurchase agreements are
considered to be loans collateralized by the underlying security and therefore
will be fully collateralized. However, if the seller should default on its
obligation to repurchase the underlying security, the Fund may experience
delay or difficulty in exercising its rights to realize upon the security and
may incur a loss if the value of the security should decline, as well as
disposition costs in liquidating the security.
BORROWING. The Fund may borrow up to 30% of the value of its assets to
increase its holdings of portfolio securities. Under the 1940 Act, the Fund is
required to maintain continuous asset coverage of 300% with respect to such
borrowings and to sell (within three days) sufficient portfolio holdings to
restore such coverage if it should decline to less than 300% due to market
fluctuations or otherwise, even if such liquidations of the Fund's portfolio
are disadvantageous from an investment standpoint. Leveraging by means of
borrowing may exaggerate the effect of any increase or decrease in the value
of portfolio securities on the Fund's net asset value, and money borrowed will
be subject to interest and other costs (which may include commitment fees
and/or the cost of maintaining minimum average balances) which may or may not
exceed the income received from the securities purchased with borrowed funds.
LOANS OF PORTFOLIO SECURITIES. Consistent with its secondary objective of
current income, 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 loaned within five business days. 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.
OPTIONS ON SECURITIES AND STOCK INDICES. In order to increase its return or
to hedge all or a portion of its portfolio investments, the Fund may write
(i.e., sell) covered put and call options and purchase put and call options on
securities or stock indices that are traded on United States and foreign
exchanges or in the over-the-counter markets. An option on a security is a
contract that gives the purchaser the option, in return for the premium paid,
the right to buy a specified security (in the case of a call option) or to
sell a specified security (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 stock 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." This
means that so long as the Fund is obligated as the writer of a call option, it
will own the underlying securities subject to the call, or hold a call at the
same or lower exercise price, for the same exercise period, and on the same
securities as the written call. A put is covered if the Fund maintains liquid
assets with a value equal to the exercise price in a segregated account, or
holds a put on the same underlying security at an equal or greater exercise
price. The value of the underlying securities on which options may be written
at any one time will not exceed 15% of the total assets of the Fund. The Fund
will not purchase put or call options if the aggregate premium paid for such
options would exceed 5% of its total assets at the time of purchase.
FORWARD FOREIGN CURRENCY CONTRACTS. The Fund may enter into forward foreign
currency exchange contracts ("forward contracts") to attempt to minimize the
risk to the Fund from adverse changes in the relationship between the U.S.
dollar and foreign currencies. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date which is
5
<PAGE>
individually negotiated and privately traded by currency traders and their
customers. The Fund will enter into forward contracts only under two
circumstances. First, when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, it may desire to "lock
in" the U.S. dollar price of the security in relation to another currency by
entering into a forward contract to buy the amount of foreign currency needed
to settle the transaction. Second, when the Investment Manager believes that
the currency of a particular foreign country may suffer or enjoy a substantial
movement against another currency, it may enter into a forward contract to
sell or buy the amount of the former foreign currency (or another currency
which acts as a proxy for that currency) approximating the value of some or
all of the Fund's portfolio securities denominated in such foreign currency.
The second investment practice is generally referred to as "cross-hedging."
The Fund's forward transactions may call for the delivery of one foreign
currency in exchange for another foreign currency and may at times not involve
currencies in which its portfolio securities are denominated. The Fund will
not enter into forward foreign currency contracts if, as a result, the Fund
will have more than 20% of the value of its total assets committed to the
consummation of such contracts.
FUTURES CONTRACTS. For hedging purposes only, the Fund may buy and sell
financial futures contracts, stock and bond index futures contracts, foreign
currency futures contracts and options on any of the foregoing. A financial
futures contract is an agreement between two parties to buy or sell a
specified debt security at a set price on a future date. An index futures
contract is an agreement to take or make delivery of an amount of cash based
on the difference between the value of the index at the beginning and at the
end of the contract period. A futures contract on a foreign currency is an
agreement to buy or sell a specified amount of a currency for a set price on a
future date.
When the Fund enters into a futures contract, it must make an initial
deposit, known as "initial margin," as a partial guarantee of its performance
under the contract. As the value of the security, index or currency
fluctuates, either party to the contract is required to make additional margin
payments, known as "variation margin," to cover any additional obligation it
may have under the contract. In addition, when the Fund enters into a futures
contract, it will segregate assets or "cover" its position in accordance with
the 1940 Act. See "Investment Objectives and Policies -- Futures Contracts" in
the SAI.
The Fund may not commit more than 5% of its total assets to initial margin
deposits on futures contracts. The value of the underlying securities on which
futures will be written at any one time will not exceed 25% of the total
assets of the Fund.
DEPOSITARY RECEIPTS. The Fund may purchase sponsored or unsponsored American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and Global
Depositary Receipts ("GDRs") (collectively, "Depositary Receipts"). ADRs are
Depositary Receipts typically used by a U.S. bank or trust company which
evidence ownership of underlying securities issued by a foreign corporation.
EDRs and GDRs are typically issued by foreign banks or trust companies,
although they also may be issued by U.S. banks or trust companies, and
evidence ownership of underlying securities issued by either a foreign or a
United States corporation. Generally, Depositary Receipts in registered form
are designed for use in the U.S. securities market and Depositary Receipts in
bearer form are designed for use in securities markets outside the United
States. Depositary Receipts may not necessarily be denominated in the same
currency as the underlying securities into which they may be converted.
Depositary Receipts may be issued pursuant to sponsored or unsponsored
programs. In sponsored programs, an issuer has made arrangements to have its
securities traded in the form of Depositary Receipts. In unsponsored programs,
the issuer may not be directly involved in the creation of the program.
Although regulatory requirements with respect to sponsored and unsponsored
programs are generally similar, in some cases it may be easier to obtain
financial information from an issuer that has participated in the creation of
a sponsored program. Accordingly, there may be less information available
regarding issuers of securities underlying unsponsored programs and there may
not be a correlation between such information and the market value of the
Depositary Receipts. Depositary Receipts also involve the risks of other
investments in foreign securities, as discussed below. For purposes of the
Fund's investment policies, the Fund's investments in Depositary Receipts will
be deemed to be investments in the underlying securities.
6
<PAGE>
RISK FACTORS
Shareholders should understand that all investments involve risk and there
can be no guarantee against loss resulting from an investment in the Fund, nor
can there be any assurance that the Fund's investment objectives will be
attained. As with any investment in securities, the value of, and income from,
an investment in the Fund can decrease as well as increase depending on a
variety of factors which may affect the values and income generated by the
Fund's portfolio securities, including general economic conditions and market
factors. In addition to the factors which affect the value of individual
securities, a Shareholder may anticipate that the value of the Shares of the
Fund will fluctuate with movements in the broader equity and bond markets, as
well. A decline in the stock market of any country in which the Fund is
invested may also be reflected in declines in the price of Shares of the Fund.
Changes in currency valuations will also affect the price of Shares of the
Fund. History reflects both decreases and increases in worldwide stock markets
and currency valuations, and these may reoccur unpredictably in the future.
Additionally, investment decisions made by the Investment Manager will not
always be profitable or prove to have been correct. The Fund is intended as an
investment vehicle for those investors seeking long term capital growth and is
not intended as a complete investment program.
Because the Fund invests primarily in the real estate industry, it could
conceivably own real estate directly as a result of a default on debt
securities it owns. The Fund, therefore, may be subject to certain risks
associated with the direct ownership of real estate, including declines in the
value of real estate, risks related to general and local economic conditions,
overbuilding and increased competition, increases in property taxes and
operating expenses, changes in zoning laws, casualty or condemnation losses,
variations in rental income, changes in neighborhood values, the appeal of
properties to tenants and increases in interest rates. If the Fund has rental
income or income from the disposition of real property, the receipt of such
income may adversely affect its ability to retain its tax status as a
regulated investment company. See "Tax Status" in the SAI.
In addition, equity real estate investment trusts may be affected by changes
in the value of the underlying property owned by the trusts, while mortgage
real estate investment trusts may be affected by the quality of credit
extended. Equity and mortgage real estate investment trusts are dependent upon
management skill, may not be diversified and are subject to the risks of
financing projects. Such trusts are also subject to heavy cash flow
dependency, defaults by borrowers, self-liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. Changes in interest
rates may also affect the value of the debt securities in the Fund's
portfolio. By investing in real estate investment trusts indirectly through
the Fund, a Shareholder will bear not only his proportionate share of the
expenses of the Fund, but also, indirectly, similar expenses of the real
estate investment trusts.
The Fund may borrow to the extent permitted above. Borrowing may exaggerate
the effect on the Fund's net asset value of any increase or decrease in the
value of the Fund's portfolio securities. Money borrowed will be subject to
interest and other costs (which may include commitment fees and/or the cost of
maintaining minimum average balances) which may or may not exceed the income
received from the securities purchased with borrowed funds.
The Fund has an unlimited right to purchase securities in any developed
foreign country, and may invest up to 10% of its total assets in securities in
underdeveloped countries. Investors should consider carefully the substantial
risks involved in investing in securities issued by companies and governments
of foreign nations, which are in addition to the usual risks inherent in
domestic investments. There is the possibility of expropriation,
nationalization or confiscatory taxation, taxation of income earned in foreign
nations or other taxes imposed with respect to investments in foreign nations,
foreign exchange controls (which may include suspension of the ability to
transfer currency from a given country), default in foreign government
securities, political or social instability or diplomatic developments which
could affect investments in securities of issuers in foreign nations. Some
countries may withhold portions of interest and dividends at the source. In
addition, in many countries there is less publicly available information about
issuers than is available in reports about companies in the United States.
Foreign companies are not generally subject to uniform accounting and auditing
and financial reporting standards, and auditing practices and requirements may
not be comparable to those applicable to U.S. companies.
7
<PAGE>
Further, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgments in foreign courts. Commission rates in foreign
countries, which are sometimes fixed rather than subject to negotiation as in
the United States, are likely to be higher. Foreign securities markets also
have different clearance and settlement procedures, and in certain markets
there have been times when settlements have been unable to keep pace with the
volume of securities transactions, making it difficult to conduct such
transactions. Delays in settlement could result in temporary periods when
assets of the Fund are uninvested and no return is earned thereon. The
inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result either in losses to the Fund due to subsequent declines in value of the
portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser. In many foreign
countries, there is less government supervision and regulation of business and
industry practices, stock exchanges, brokers and listed companies than in the
United States. The foreign securities markets of many of the countries in
which the Fund may invest may also be smaller, less liquid, and subject to
greater price volatility than those in the United States. The Fund may invest
in Eastern European countries, which involves special risks that are described
under "Risk Factors" in the SAI.
The Fund usually effects currency exchange transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign exchange market.
However, some price spread on currency exchange (to cover service charges)
will be incurred when the Fund converts assets from one currency to another.
Successful use of futures contracts and related options is subject to
special risk considerations. A liquid secondary market for any futures or
options contract may not be available when a futures position is sought to be
closed. In addition, there may be an imperfect correlation between movements
in the securities or foreign currency on which the futures or options contract
is based and movements in the securities or currency in the Fund's portfolio.
As there is currently no index of real estate industry securities, the Fund's
use of stock index futures may involve a greater correlation risk than does
use of such futures by funds whose portfolios more closely match the
composition of stock indices. Successful use of futures or options contracts
is further dependent on the Investment Manager's ability to correctly predict
movements in the securities or foreign currency markets and no assurance can
be given that its judgment will be correct. Successful use of options on
securities or stock indices is subject to similar risk considerations.
There are further risk considerations, including possible losses through the
holding of securities in domestic and foreign custodian banks and
depositories, described in the SAI.
HOW TO BUY SHARES OF THE FUND
Shares of the Fund may be purchased at the Offering Price through any broker
which has a dealer agreement with Franklin Templeton Distributors, Inc.
("FTD"), the Principal Underwriter of the Shares of the Fund, or directly from
FTD upon receipt by FTD of a completed Shareholder Application and check. The
minimum initial purchase order is $100 (other than in monthly investment
plans, such as sponsored payroll deduction, automatic investment, split-
funding or comparable plans, which require a minimum of $25), with subsequent
investments of $25 or more.
ALTERNATIVE PURCHASE ARRANGEMENTS. The Fund offers two different classes of
Shares, each of which has its own initial, contingent, and Rule 12b-1 sales
charge structures. All Fund Shares outstanding before the implementation of
the multiclass structure have been designated as Class I Shares and continue
to possess their previous rights and privileges, except for legally required
modifications to Shareholder voting requirements. Shareholders may not convert
Shares of one class into Shares of the other at this time.
Class I. Class I Shares have higher initial sales charges than Class II
Shares and they have lower yearly asset-based Rule 12b-1 fees. Class I Shares
may be purchased at reduced initial sales charges, or without any initial
sales charge at all if certain conditions are
8
<PAGE>
met. In most circumstances, contingent deferred sales charges will not be
assessed against redemptions of Class I Shares. See "Management of the Fund"
and "How to Sell Shares of the Fund" for more information.
Class II. By contrast, Class II Shares have lower initial sales charges than
Class I Shares and higher yearly Rule 12b-1 fees. Also, although there are
certain exceptions, Class II Shares redeemed within 18 months of purchase will
generally be assessed a contingent deferred sales charge of 1% on the lesser
of the then-current net asset value or the original purchase price of such
Shares. See "Contingent Deferred Sales Charge--Class II Shares" under "How to
Sell Shares of the Fund" for a complete description of the contingent deferred
sales charge.
Purchases of Class II Shares are limited to amounts below $1 million. Any
purchases of $1 million or more will automatically be invested in Class I
Shares, since the Shareholder may purchase the Class I Shares at net asset
value and take advantage of the lower annual fees associated with Class I
Shares. Shareholders who intend to make large investments in the Fund should
consider purchasing Class I Shares through a Letter of Intent instead of
purchasing Class II Shares. With the exception of certain employee benefit
plans described below, however, a Shareholder may maintain an account balance
of an unlimited dollar amount in Class II Shares.
DECIDING WHICH CLASS TO PURCHASE. Each investor's individual objectives must
be carefully evaluated before determining which class of Shares will be more
beneficial to that investor. Generally speaking, an investor who expects to
invest less than $100,000 in the Franklin Group of Funds (R) and Templeton
Family of Funds (collectively, the "Franklin Templeton Group") and who expects
to make substantial redemptions within six years of investment should consider
Class II Shares. This is because it is more economical for a Shareholder to
invest, for example, $50,000 for two years in Class II Shares than in Class I
Shares. Over time, however, the higher annual Rule 12b-1 charges on the Class
II Shares will accumulate to outweigh the difference in initial sales charges.
For this reason, Class I Shares may be more attractive to long-term investors
even if no sales charge reductions are available to them.
Investors who qualify to purchase Class I Shares at reduced sales charges or
at net asset value should consider purchasing Class I Shares, especially if
they intend to hold their Shares for long periods of time. Similarly,
investors who intend to make large investments in the Fund should consider
purchasing Class I Shares through a Letter of Intent or under Cumulative
Quantity Discount rather than purchasing Class II Shares. Investors investing
over $1 million (in a single payment or through a Letter of Intent or
Cumulative Quantity Discount) will be prohibited from purchasing Class II
Shares because Class I Shares would always be more beneficial to such
investors.
In determining which Shares are more appropriate for a Shareholder's
investment objectives and income needs, a Shareholder should also consider
that the higher Rule 12b-1 fees for Class II will generally result in lower
dividends and consequently lower yields for Class II Shares as compared to
Class I Shares.
Each class also has a separate schedule for awarding compensation to
securities dealers for selling Fund Shares. A Shareholder should take all of
the circumstances surrounding each investment into account before deciding
which class of shares to purchase.
IMPORTANT NOTICE!
THE APPLICATION FORM ATTACHED TO THIS PROSPECTUS MUST BE USED FOR ALL FUTURE
PURCHASES. OLD APPLICATION FORMS SHOULD BE DISCARDED.
OFFERING PRICE. Shares of the Fund are offered at the public Offering Price,
which is the net asset value per share plus a sales charge, next computed (i)
after the Shareholder's securities dealer receives the order which is promptly
transmitted to the Fund or (ii) after receipt of an order by mail from the
Shareholder directly in proper form (which generally means a completed
Shareholder Application accompanied by a negotiable check).
9
<PAGE>
CLASS I. The sales charge for Class I Shares is a variable percentage of the
Offering Price depending upon the amount of the sale. A description of the
method of calculating net asset value per share is included under the caption
"Net Asset Value."
Set forth below is a table of total sales charges or underwriting
commissions and dealer concessions for all Class I Shares of the Fund,
including all designated Retirement Plans. The price to the public on
purchases of Class I Shares made by a single purchaser, by an individual, his
or her spouse and their children under the age of 21, or by a single trust or
fiduciary account other than an employee benefit plan holding Shares of the
Fund on or before February 1, 1995, is the net asset value per Share plus a
sales charge not exceeding 5.75% of the Offering Price (equivalent to 6.10% of
the net asset value), which is reduced on larger sales as shown below.
<TABLE>
<CAPTION>
CLASS I SHARES -- TOTAL SALES CHARGE
--------------------------------------------
AS A PERCENTAGE OF AS A PERCENTAGE OF PORTION OF TOTAL
AMOUNT OF SALE OFFERING PRICE OF THE NET ASSET VALUE OF THE OFFERING PRICE
AT OFFERING PRICE SHARES PURCHASED SHARES PURCHASED RETAINED BY DEALERS*
- ----------------- --------------------- ---------------------- --------------------
<S> <C> <C> <C>
Less than $50,000....... 5.75% 6.10% 5.00%
$50,000 but less than
$100,000............... 4.50% 4.71% 3.75%
$100,000 but less than
$250,000............... 3.50% 3.63% 2.80%
$250,000 but less than
$500,000............... 2.50% 2.56% 2.00%
$500,000 but less than
$1,000,000............. 2.00% 2.04% 1.60%
$1,000,000 or more...... none none (see below)**
</TABLE>
- -------
* Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
** The following commissions will be paid by FTD, from its own resources, to
securities dealers who initiate and are responsible for purchases of $1
million or more; 1% on sales of $1 million but less than $2 million, plus
0.80% on sales of $2 million but less than $3 million, plus 0.50% on sales
of $3 million but less than $50 million, plus 0.25% on sales of $50 million
but less than $100 million, plus 0.15% on sales of $100 million or more.
Dealer concession breakpoints are reset every 12 months for purposes of
additional purchases.
FTD, or one of its affiliates, may make payments, from its own resources, of
up to 1% of the amount purchased, to securities dealers who initiate and are
responsible for purchases made at net asset value by certain designated
retirement plans (as defined below) (excluding IRA and IRA rollovers), certain
non-designated plans (as defined below), certain trust companies and trust
departments of banks and certain retirement plans of organizations with
collective retirement plan assets of $10 million or more. Please refer to the
SAI for further information.
No initial sales charge applies on investments of $1 million or more, but a
contingent deferred sales charge of 1% is imposed on certain redemptions of
investments of $1 million or more within 12 months of the calendar month
following such investments ("contingency period"). See "How to Sell Shares of
the Fund -- Contingent Deferred Sales Charge."
A sales charge of 4% of the Offering Price (4.17% of the net asset value) is
applicable to all purchases of Shares made for any qualified or non-qualified
employee benefit plan which is a Shareholder in the Fund on or before February
1, 1995. Of the 4% sales charge applicable to such purchases, 3.20% of the
Offering Price will be retained by dealers.
At the discretion of FTD, the entire sales commission may at times be
reallowed to dealers. During periods when 90% or more of the sales commission
is reallowed, such dealers may be deemed to be underwriters as that term is
defined in the Securities Act of 1933.
10
<PAGE>
CUMULATIVE QUANTITY DISCOUNT. The schedule of reduced sales charges also may
be applied to qualifying sales of Class I Shares on a cumulative basis. For
this purpose, the dollar amount of the sale is added to the higher of (1) the
value (calculated at the applicable Offering Price) or (2) the purchase price,
of the following: (a) Class I Shares of the Fund; (b) Class I shares of other
funds in the Franklin Templeton Group (except Templeton Capital Accumulator
Fund, Inc., Templeton Variable Annuity Fund, Templeton Variable Products
Series Fund, Franklin Valuemark Funds and Franklin Government Securities
Trust); and (c) other investment products underwritten by FTD or its
affiliates (although certain investments may not have the same schedule of
sales charges and/or may not be subject to reduction in sales charges).
Clauses (a), (b) and (c) above are collectively referred to as "Franklin
Templeton Investments." The cumulative quantity discount applies to Franklin
Templeton Investments owned at the time of purchase by the purchaser, his or
her spouse, and their children under age 21. In addition, the aggregate
investments of a trustee or other fiduciary account (for an account under
exclusive investment authority) may be considered in determining whether a
reduced sales charge is available, even though there may be a number of
beneficiaries of the account. For example, if the investor held Class I Shares
valued at $40,000 (or, if valued at less than $40,000, had been purchased for
$40,000) and purchased an additional $20,000 of the Fund's Class I Shares, the
sales charge for the $20,000 purchase would be at the rate of 4.50%. It is
FTD's policy to give investors the best sales charge rate possible; however,
there can be no assurance that an investor will receive the appropriate
discount unless, at the time of placing the purchase order, the investor or
the dealer makes a request for the discount and gives FTD sufficient
information to determine whether the purchase will qualify for the discount.
On telephone orders from dealers for the purchase of Class I Shares to be
registered in "street name," FTD will accept the dealer's instructions with
respect to the applicable sales charge rate to be applied. The cumulative
quantity discount may be amended or terminated at any time.
LETTER OF INTENT. Investors may also reduce sales charges on all investments
in Class I Shares by means of a Letter of Intent ("LOI") which expresses the
investor's intention to invest a certain amount within a 13-month period in
Class I Shares of the Fund or any other fund in the Franklin Templeton Group
(except Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity
Fund, Templeton Variable Products Series Fund, Franklin Valuemark Funds and
Franklin Government Securities Trust). See the Shareholder Application. Except
for certain employee benefit plans, the minimum initial investment under an
LOI is 5% of the total LOI amount. Except for Shares purchased by certain
employee benefit plans, shares purchased with the first 5% of such amount will
be held in escrow to secure payment of the higher sales charge applicable to
the Shares actually purchased if the full amount indicated is not purchased,
and such escrowed Shares will be involuntarily redeemed to pay the additional
sales charge, if necessary. A purchase not originally made pursuant to an LOI
may be included under a subsequent LOI executed within 90 days of the
purchase. Any redemptions made by Shareholders, other than by certain employee
benefit plans, during the 13-month period will be subtracted from the amount
of the purchases for purposes of determining whether the terms of the LOI have
been completed. For a further description of the LOI, see "Purchase,
Redemption and Pricing of Shares -- Letter of Intent" in the SAI.
GROUP PURCHASES. An individual who is a member of a qualified group may also
purchase Class I Shares of the Fund at the reduced sales charge applicable to
the group as a whole. The sales charge is based upon the aggregate dollar
value of Class I Shares previously purchased and still owned by the group,
plus the amount of the current purchase. For example, if members of the group
had previously invested and still held $80,000 of Class I Shares and now were
investing $25,000, the sales charge would be 3.50%. Information concerning the
current sales charge applicable to a group may be obtained by contacting FTD.
A "qualified group" is one which (i) has been in existence for more than six
months, (ii) has a purpose other than acquiring Fund Shares at a discount, and
(iii) satisfies uniform criteria which enable FTD to realize economies of
scale in its costs of distributing Shares. A qualified group must have more
than 10 members, must be available to arrange for group meetings between
representatives of the Fund or FTD and the members, must agree to include
sales and other materials related to the Fund in its publications and mailings
to members at reduced or no cost to FTD, and must seek to arrange for payroll
deduction or other bulk transmission of investments to the Fund.
If an investor selects a payroll deduction plan, subsequent investments will
be automatic and will continue until such time as the investor notifies the
Fund and the investor's employer to discontinue further investments. Due to
the varying procedures to prepare,
11
<PAGE>
process and forward the payroll deduction information to the Fund, there may
be a delay between the time of the payroll deduction and the time the money
reaches the Fund. The investment in the Fund will be made at the Offering
Price per Share determined on the day that both the check and payroll
deduction data are received in required form by the Fund.
CLASS II. Unlike Class I Shares, the sales charges and dealer concessions
for Class II Shares do not vary depending on the amount of sale. The total
sales charges or underwriting commissions and dealer concessions for Class II
Shares are set forth below.
<TABLE>
<CAPTION>
CLASS II SHARES -- TOTAL SALES CHARGE
--------------------------------------------
AS A PERCENTAGE OF AS A PERCENTAGE OF PORTION OF TOTAL
AMOUNT OF SALE OFFERING PRICE OF THE NET ASSET VALUE OF THE OFFERING PRICE
AT OFFERING PRICE SHARES PURCHASED SHARES PURCHASED RETAINED BY DEALERS*
- ----------------- --------------------- ---------------------- --------------------
<S> <C> <C> <C>
any amount.............. 1.00% 1.01% 1.00%
</TABLE>
- -------
* FTD may pay the dealer, from its own resources, a commission of 1% of the
amount invested. FTD may retain a portion of the Rule 12b-1 fees assessed on
Class II Shares to partially recoup commissions FTD pays to a securities
dealer during the first year.
NET ASSET VALUE PURCHASES (BOTH CLASSES). Shares of the Fund may be
purchased without the imposition of either an initial sales charge ("net asset
value") or a contingent deferred sales charge by (i) officers, trustees,
directors, and full-time employees of the Fund, of the Investment Manager or
its affiliates, or of any fund in the Franklin Templeton Group, and their
spouses and family members; (ii) companies exchanging Shares with or selling
assets pursuant to a merger acquisition or exchange offer; (iii) insurance
company separate accounts for pension plan contracts; (iv) accounts managed by
the Investment Manager or its affiliates; (v) Shareholders of Templeton
Institutional Funds, Inc. reinvesting redemption proceeds from that fund under
an employee benefit plan qualified under Section 401 of the Internal Revenue
Code of 1986, as amended (the "Code"), in Shares of the Fund; (vi) certain
unit investment trusts and unit holders of such trusts reinvesting their
distributions from the trusts in the Fund; (vii) registered securities dealers
and their affiliates, for their investment account only; and (viii) registered
personnel and employees of securities dealers, and their spouses and family
members, in accordance with the internal policies and procedures of the
employing securities dealer.
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by registered investment
advisers and/or their affiliated broker-dealers, who have entered into a
supplemental agreement with FTD, on behalf of their clients who are
participating in a comprehensive fee program (also known as a wrap fee
program).
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by certain designated
retirement plans, including profit sharing, pension, 401(k) and simplified
employee pension plans ("designated plans"), subject to minimum requirements
with respect to number of employees or amount of purchase, which may be
established by FTD. Currently, those criteria require that the employer
establishing the plan have 200 or more employees or that the amount invested
or to be invested during the subsequent 13-month period in the Fund or in any
of the Franklin Templeton Investments totals at least $1 million. Employee
benefit plans not designated above or qualified under Section 401 of the Code
("non-designated plans") may be afforded the same privilege if they meet the
above requirements as well as the uniform criteria for qualified groups
previously described under "Group Purchases," which enable FTD to realize
economies of scale in its sales efforts and sales-related expenses.
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by anyone who has taken a
distribution from an existing retirement plan already invested in any other
fund(s) in the Franklin Templeton Group (including former participants of the
Franklin Templeton Profit Sharing 401(k) plan). In order to exercise this
privilege, a written order for the purchase of Shares of the Fund must be
received by Franklin Templeton Trust Company, the Fund, or Franklin Templeton
Investor Services, Inc. (the "Transfer Agent") within 120 days after the plan
distribution. To obtain a free Prospectus for any fund in the Franklin
Templeton Group, please call toll free at 1-800-DIAL BEN (1-800-342-5236).
12
<PAGE>
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trust companies and bank
trust departments for funds over which they exercise exclusive discretionary
investment authority and which are held in a fiduciary, agency, advisory,
custodial or similar capacity. Such purchases are subject to minimum
requirements with respect to amount of purchase, which may be established by
FTD. Currently, those criteria require that the amount invested or to be
invested during the subsequent 13-month period in the Fund or any of the
Franklin Templeton Investments must total at least $1 million. Orders for such
accounts will be accepted by mail accompanied by a check or by telephone or
other means of electronic data transfer directly from the bank or trust
company, with payment by federal funds received by the close of business on
the next business day following such order.
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by an investor who has,
within the past 60 days, redeemed an investment in an unaffiliated mutual fund
which charged the investor a contingent deferred sales charge upon redemption,
and which has investment objectives similar to those of the Fund.
Shares of the Fund may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge by any state, county or city,
or any instrumentality, department, authority or agency thereof which has
determined that the Fund is a legally permissible investment and which is
prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
management investment company (an "eligible governmental authority"). SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISERS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any,
of various payments made by the Fund or its investment manager on arbitrage
rebate calculations. If an investment by an eligible governmental authority at
net asset value is made through a securities dealer who has executed a dealer
agreement with FTD, FTD or one of its affiliates may make a payment, out of
its own resources, to such securities dealer in an amount not to exceed 0.25%
of the amount invested. Contact Franklin Templeton Institutional Services for
additional information.
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trustees or other
fiduciaries purchasing securities for certain retirement plans of
organizations with collective retirement plan assets of $10 million or more,
without regard to where such assets are currently invested.
ADDITIONAL DEALER COMPENSATION (BOTH CLASSES). FTD or its affiliates, at
their expense, may also provide additional compensation to dealers in
connection with sales of Shares of the Fund and other funds in the Franklin
Group of Funds (R) and the Templeton Family of Funds (collectively, the
"Franklin Templeton Group"). Compensation may include financial assistance to
dealers in connection with conferences, sales or training programs for their
employees, seminars for the public, advertising, sales campaigns and/or
shareholder services and programs regarding one or more funds in the Franklin
Templeton Group and other dealer-sponsored programs or events. In some
instances, this compensation may be made available only to certain dealers
whose representatives have sold or are expected to sell significant amounts of
such Shares. Compensation may include payment for travel expenses, including
lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside
of the U.S. for meetings or seminars of a business nature. Dealers may not use
sales of the Fund's Shares to qualify for this compensation to the extent such
may be prohibited by the laws of any state or any self-regulatory agency, such
as the National Association of Securities Dealers, Inc. In addition, FTD or
its affiliates may make ongoing payments to brokerage firms, financial
institutions (including banks) and others to facilitate the administration and
servicing of shareholder accounts. None of the aforementioned additional
compensation is paid for by the Fund or its Shareholders.
Ongoing payments will be made to qualifying dealers at the annual rate of
0.25% of the average daily net asset value of Class I Shares, and 1.00% of the
average daily net asset value of Class II Shares, registered in the name of
that broker-dealer as nominee or held in a Shareholder account that designates
that broker-dealer as dealer of record. These payments are made in order to
promote selling efforts and to compensate dealers for providing certain
services, including processing purchase and redemption transactions,
13
<PAGE>
establishing Shareholder accounts and providing certain information and
assistance with respect to the Fund. For purchases on or after February 1,
1995 of Class I Shares that are subject to a contingent deferred sales charge,
the dealer will receive ongoing payments beginning in the thirteenth month
after the date of purchase. For all purchases of Class II Shares that are
subject to a contingent deferred sales charge, the dealer will receive
payments representing a service fee (0.25% of average daily net asset value of
the Shares) beginning in the first month after the date of the purchase, and
will receive payments representing compensation for distribution (0.75% of
average daily net asset value of the Shares) beginning in the thirteenth month
after the date of the purchase.
PURCHASING CLASS I AND CLASS II SHARES. When placing purchase orders for
Class I and Class II Shares of the Fund, investors should clearly state
whether Class I or Class II Shares are intended to be purchased. All Share
purchase orders that fail to specify a class will automatically be invested in
Class I Shares. Initial purchases of more than $1 million must be for Class I
Shares. At the present time, there are no conversion features attached to
either class of Shares.
Shareholders who qualify to invest in Class I Shares at net asset value are
prohibited from purchasing Class II Shares. See "Net Asset Value Purchases."
As to telephone orders placed with FTD by dealers, the dealer must receive
the investor's order before the close of the New York Stock Exchange and
transmit it to FTD by 5:00 p.m., New York time, for the investor to receive
that day's Offering Price. Payment for such orders must be by check in U.S.
currency and must be promptly submitted to FTD. Orders mailed to FTD by
dealers or individual investors are effected at the net asset value of the
Fund's Shares next computed after the purchase order accompanied by payment
has been received by FTD. Such payment must be by check in U.S. currency drawn
on a commercial bank in the U.S. and, if over $100,000, may not be deemed to
have been received until the proceeds have been collected unless the check is
certified or issued by such bank. Any subscription may be rejected by FTD or
by the Fund.
The Fund may impose a $10 charge against a Shareholder account in the event
that a check or draft submitted for the purchase of Fund Shares is returned
unpaid to the Fund.
Investors should promptly check the confirmation advice that is mailed after
each purchase (or redemption) order to insure that it has been accurately
recorded in the investor's account.
AUTOMATIC INVESTMENT PLAN. Investors may accumulate Fund Shares regularly
each month by means of automatic debits to their checking accounts ($25
minimum). Forms for this purpose are in the Shareholder Application in this
Prospectus. Such a plan is voluntary and may be discontinued by written notice
to FTD, which must be received at least 10 days prior to the collection date,
or by FTD upon written notice to the investor at least 30 days prior to the
collection date.
INSTITUTIONAL ACCOUNTS. Institutional investors will likely be required to
complete an institutional account application. There may also be additional
methods of opening accounts, purchasing, redeeming or exchanging shares of the
Fund available for institutional accounts. To obtain an institutional account
application or additional information regarding institutional accounts,
contact Franklin Templeton Institutional Services at 1-800-321-8563.
ACCOUNT STATEMENTS. Shareholder accounts are opened in accordance with the
Shareholder's registration instructions. Transactions in the account, such as
additional investments and dividend reinvestments, will be reflected on
regular confirmation statements from the Transfer Agent.
TEMPLETON STAR SERVICE. Shareholders may check the current prices of Shares,
account balances/values, a description of the last transaction, and duplicate
account statements, 24 hours a day, 365 days a year, with Templeton STAR
Service by calling 1-800-654-0123 from a touch-tone telephone. A fund code
(the Fund's code is 110) and the Shareholder's account number are necessary
for accessing information (other than Share prices) from Templeton STAR
Service.
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RETIREMENT PLANS. Shares of the Fund may be purchased through various
retirement plans including the following plans for which Franklin Templeton
Trust Company or its affiliate acts as trustee or custodian: IRAs, Simplified
Employee Pensions, 403(b) plans, qualified plans for corporations, self-
employed individuals and partnerships, and 401(k) plans. For further
information about any of the plans, agreements, applications and annual fees,
contact Franklin Templeton Distributors, Inc. To determine which retirement
plan is appropriate, an investor should contact his or her tax adviser.
NET ASSET VALUE. The net asset value of the Shares of the Fund is computed
as the close of trading on each day the New York Stock Exchange is open for
trading, by dividing the value of the Fund's securities plus any cash and
other assets (including accrued interest and dividends receivable) less all
liabilities (including accrued expenses) by the number of Shares outstanding,
adjusted to the nearest whole cent. A security listed or traded on a
recognized stock exchange or NASDAQ is valued at its last sale price. The
value of a foreign security is determined in its national currency as of the
close of trading on the foreign exchange on which it is traded, or as of the
close of trading on the New York Stock Exchange, if that is earlier, and that
value is then converted into its U.S. dollar equivalent at the foreign
exchange rate in effect at noon, New York time, on the day the value of the
foreign security is determined. If no sale is reported at that time, the mean
between the current bid and asked price is used. Occasionally, events which
affect the values of such securities and such exchange rates may occur between
the times at which they are determined and the close of the New York Stock
Exchange, and will therefore not be reflected in the computation of the Fund's
net asset value. If events materially affecting the value of such securities
occur during such period, then these securities will be valued at fair value
as determined by the management and approved in good faith by the Board of
Trustees. All other securities for which over-the-counter market quotations
are readily available are valued at the mean between the current bid and asked
price. Securities for which market quotations are not readily available and
other assets are valued at fair value as determined by the management and
approved in good faith by the Board of Trustees.
EXCHANGE PRIVILEGE
A Shareholder may exchange Shares for the same class of shares of other
funds in the Franklin Templeton Group (except Templeton Capital Accumulator
Fund, Inc., Templeton Variable Annuity Fund, Templeton Variable Products
Series Fund, Franklin Valuemark Funds and Franklin Government Securities
Trust). A contingent deferred sales charge will not be imposed on exchanges.
If the exchanged Shares were subject to a contingent deferred sales charge in
the original fund purchased, and Shares are subsequently redeemed within 12
months (Class I Shares) or 18 months (Class II Shares) of the calendar month
of the original purchase date, a contingent deferred sales charge will be
imposed. The period will be tolled (or stopped) for the period Class I Shares
are exchanged into and held in a Franklin or Templeton money market fund. See
also "How to Sell Shares of the Fund -- Contingent Deferred Sales Charge."
Exchange purchases are subject to the minimum investment requirements of the
fund purchased and no sales charge generally applies. However, exchanges of
shares from the Franklin Templeton Money Funds are subject to applicable sales
charges on the funds being purchased, unless the Franklin Templeton Money Fund
shares were acquired by an exchange from a fund having a sales charge, or by
reinvestment of dividends or capital gains distributions. Exchanges of Class I
Shares of the Fund which were purchased with a lower sales charge to a fund
which has a higher sales charge will be charged the difference, unless the
shares were held in the original fund for at least six months prior to
executing the exchange. All exchanges are permitted only after at least 15
days have elapsed from the date of the purchase of the Shares to be exchanged.
A Shareholder may exchange Shares by writing to the Transfer Agent (see "How
to Sell Shares of the Fund"), by contacting his or her investment dealer or--
if the Shareholder Application indicates that the Shareholder has not declined
the option--by telephoning 1-800-354-9191. Telephone exchange instructions
must be received by FTD by 4:00 p.m., New York time. Telephonic exchanges can
involve only Shares in non-certificated form. Shares held in certificate form
are not eligible, but may be returned and qualify for these services. All
accounts involved in a telephonic exchange must have the same registration and
dividend option as the account from
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which the Shares are being exchanged. The Fund and the Transfer Agent will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Please refer to "Telephone Transactions--Verification
Procedures." Forms for declining the telephone exchange privilege and
prospectuses of the other funds in the Franklin Templeton Group may be
obtained from FTD. Exchange redemptions and purchases are processed
simultaneously at the share prices next determined after the exchange order is
received. (See "How to Buy Shares of the Fund--Offering Price.") A gain or
loss for tax purposes generally will be realized upon the exchange, depending
on the tax basis of the Shares redeemed.
This exchange privilege is available only in states where shares of the fund
being acquired may legally be sold and may be modified, limited or terminated
at any time by the Fund upon sixty (60) days' written notice. A Shareholder
who wishes to make an exchange should first obtain and review a current
prospectus of the fund into which he or she wishes to exchange. Broker-dealers
who process exchange orders on behalf of their customers may charge a fee for
their services. Such fee may be avoided by making requests for exchange
directly to the Transfer Agent.
The equivalent of an exchange involving retirement accounts (including IRAs)
between the Templeton Family of Funds and the Franklin Group of Funds (R)
requires the completion of additional documentation before it can be effected.
Call 1-800-354-9191 for further information and forms.
EXCHANGES OF CLASS II SHARES. When an account has some Shares subject to the
contingent deferred sales charge, and some that are not, the Shares will be
transferred proportionately from each type of Share into the new fund. Shares
received from reinvestment of dividends and capital gain distributions are
referred to as "free Shares," Shares which were originally subject to a
contingent deferred sales charge but to which the contingent deferred sales
charge no longer applies are called "matured Shares," and Shares still subject
to the contingent deferred sales charge are referred to as "CDSC liable
Shares," and each represents a different type of Share for purposes of
exchanging into a new fund. CDSC liable Shares held for different periods of
time are considered different types of CDSC liable Shares. For instance, if a
Shareholder has $1,000 in free Shares, $2,000 in matured Shares, and $3,000 in
CDSC liable Shares, and the Shareholder exchanges $3,000 into a new fund, $500
will be exchanged from free Shares, $1,000 from matured Shares, and $1,500
from CDSC liable Shares. Similarly, if CDSC liable Shares have been purchased
at different periods, a proportionate amount will be taken from Shares held
for each period. If, for example, the Shareholder holds $1,000 in Shares
bought three months ago, $1,000 bought six months ago, and $1,000 bought nine
months ago, $500 in each of these Shares will be exchanged into the new fund.
Class II Shares may be exchanged for shares of Franklin Templeton Money Fund
II ("Money Fund II"), a series of the Franklin Templeton Money Fund Trust. No
drafts (checks) may be written on Money Fund II accounts, nor may Shareholders
purchase shares in Money Fund II directly. Shares continue to age and a
contingent deferred sales charge will be assessed if CDSC liable Shares are
redeemed. No other money market funds are available for Class II Shareholders
for exchange purposes. On the other hand, Class I Shares may be exchanged for
shares of any money market funds in the Franklin Group of Funds (R) or the
Templeton Family of Funds except Money Fund II. Draft writing privileges and
direct purchases are allowed on these money market funds as described in their
respective prospectuses.
TRANSFERS. Transfers between accounts in the same fund and class are not
subject to a contingent deferred sales charge. The transferred Shares will
continue to age from the date of original purchase. Like exchanges, Shares
will be moved proportionately from each type of Share in the original account.
CONVERSION RIGHTS. It is not presently anticipated that Class II Shares will
be converted to Class I Shares at this time. A Shareholder may, however, sell
Class II Shares and use the proceeds to purchase Class I Shares. In that
event, the sales charge for the purchased Class I Shares will be decreased by
the value of any initial sales charge and contingent deferred sales charge
paid in connection with the purchase and redemption of the Class II Shares.
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EXCHANGES BY TIMING ACCOUNTS. In the case of market timing or allocation
services ("Timing Accounts"), FTD will deduct an administrative service fee of
$5.00 per exchange. Timing Accounts generally include accounts administered so
as to redeem or purchase Shares based upon certain predetermined market
indicators. In accordance with the terms of their respective prospectuses,
certain funds in the Franklin Templeton Group do not accept or may place
differing limitations than those described below on exchanges by Timing
Accounts.
The Fund reserves the right to temporarily or permanently terminate the
exchange privilege or reject any specific purchase order for any Timing
Account or any person whose transactions seem to follow a timing pattern who:
(i) makes an exchange request out of the Fund within two weeks of an earlier
exchange request out of the Fund, (ii) makes more than two exchanges out of
the Fund per calendar quarter, or (iii) exchanges shares equal in value to at
least $5 million, or more than 1% of the Fund's net assets. Accounts under
common ownership or control, including accounts administered so as to redeem
or purchase shares based upon certain predetermined market indicators, will be
aggregated for purposes of the exchange limits.
In addition, the Fund reserves the right to refuse the purchase side of
exchange requests by any Timing Account, person, or group if, in the
Investment Manager's judgment, the Fund would be unable to invest effectively
in accordance with its investment objectives and policies, or would otherwise
potentially be adversely affected. A Shareholder's exchanges into the Fund may
be restricted or refused if the Fund receives or anticipates simultaneous
orders affecting significant portions of the Fund's assets. In particular, a
pattern of exchanges that coincides with a "market timing" strategy may be
disruptive to the Fund and therefore may be refused.
Finally, as indicated above, the Fund and FTD reserve the right to refuse
any order for the purchase of Shares.
HOW TO SELL SHARES OF THE FUND
CONTINGENT DEFERRED SALES CHARGE. Class I. In order to recover commissions
paid to securities dealers on qualified investments of $1 million or more, or
for purchases made by certain retirement plans of corporations with collective
retirement plan assets of $10 million or more, a contingent deferred sales
charge of 1% applies to redemptions of those investments within 12 months of
the calendar month of their purchase. The charge is 1% of the lesser of the
then-current net asset value of the Shares redeemed (exclusive of reinvested
dividends and capital gain distributions) or the original purchase price of
such Shares, and is retained by FTD.
Class II. Class II Shares redeemed within 18 months of their purchase will
be assessed a contingent deferred sales charge of 1% on the lesser of the
then-current net asset value of the Shares redeemed or the original purchase
price of such Shares unless one of the exceptions described below applies. A
contingent deferred sales charge will not be assessed on increases in net
asset value above the initial purchase price, on Class II Shares held more
than 18 months, or on Shares originally derived from reinvestment of dividends
or capital gain distributions. For tax purposes, a contingent deferred sales
charge is treated as a reduction in redemption proceeds, rather than an
adjustment to the cost basis.
Class I and Class II. In determining if a charge applies, Shares not subject
to a contingent deferred sales charge are deemed to be redeemed first, in the
following order: (i) Shares representing amounts attributable to capital
appreciation of those Shares held less than the contingency period; (ii)
Shares purchased with reinvested dividends and capital gain distributions; and
(iii) other Shares held longer than the contingency period, followed by any
Shares held less than the contingency period, on a "first in, first out"
basis.
The contingent deferred sales charge is waived for: exchanges; distributions
to participants in Franklin Templeton Trust Company or Templeton Funds Trust
Company retirement plan accounts due to death, disability or attainment of age
59 1/2; tax-free returns of excess contributions to employee benefit plans;
distributions from employee benefit plans, including those due to plan
termination or
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plan transfer; redemptions through a Systematic Withdrawal Plan established
prior to February 1, 1995 and, for Systematic Withdrawal Plans established
thereafter, redemptions of up to 1% monthly of an account's net asset value
(3% quarterly, 6% semiannually or 12% annually); and redemptions initiated by
the Fund due to a Shareholder's account falling below the minimum specified
account size.
All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that
month, and each subsequent month.
Requests for redemptions for a specified dollar amount will result in
additional Shares being redeemed to cover any applicable contingent deferred
sales charge while requests for redemption of a specific number of Shares will
result in the applicable contingent deferred sales charge being deducted from
the total dollar amount redeemed.
Shares will be redeemed, without charge, on request of the Shareholder in
"Proper Order" to the Transfer Agent. "PROPER ORDER" MEANS THAT THE REQUEST TO
REDEEM MUST MEET ALL OF THE FOLLOWING REQUIREMENTS:
1. Except as provided below under "Redemptions by Telephone," it must be in
writing, signed by the Shareholder(s) exactly in the manner as the Shares are
registered, and must specify either the number of Shares, or the dollar amount
of Shares, to be redeemed and sent to Franklin Templeton Investor Services,
Inc., P.O. Box 33030, St. Petersburg, Florida 33733-8030;
2. The signature(s) of the redeeming Shareholder(s) must be guaranteed by an
"eligible guarantor," including (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities
exchanges, registered securities associations and clearing agencies; (3)
securities broker-dealers which are members of a national securities exchange
or a clearing agency or which have minimum net capital of $100,000; or (4)
institutions that participate in the Securities Transfer Agent Medallion
Program ("STAMP") or other recognized signature medallion program. A notarized
signature will not be sufficient for the request to be in Proper Order. If the
Shares are registered in more than one name, the signature of each of the
redeeming Shareholders must be guaranteed. A signature guarantee is not
required for redemptions of $50,000 or less, requested by and payable to all
Shareholders of record, to be sent to the address of record for that account.
However, the Fund reserves the right to require signature guarantees on all
redemptions. A signature guarantee is required in connection with any written
request for transfer of Shares. Also, a signature guarantee is required if the
Fund or the Transfer Agent believes that a signature guarantee would protect
against potential claims based on the transfer instructions, including, for
example, when (a) the current address of one or more joint owners of an
account cannot be confirmed, (b) multiple owners have a dispute or give
inconsistent instructions to the Fund, (c) the Fund has been notified of an
adverse claim, (d) the instructions received by the Fund are given by an
agent, not the actual registered owner, (e) the Fund determines that joint
owners who are married to each other are separated or may be the subject of
divorce proceedings, or (f) the authority of a representative of a
corporation, partnership, association, or other entity has not been
established to the satisfaction of the Fund;
3. Any outstanding certificates must accompany the request together with a
stock power signed by the Shareholder(s), with signature(s) guaranteed as
described in Item 2 above;
4. Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction, require the following
documentation to be in proper form:
. Corporation--(i) Signature guaranteed letter of instruction from the
authorized officer(s) of the corporation, and (ii) a corporate
resolution in a form satisfactory to the Transfer Agent;
. Partnership--(i) Signature guaranteed letter of instruction from a
general partner and, if necessary, (ii) pertinent pages from the
partnership agreement identifying the general partners or other
documentation in a form satisfactory to the Transfer Agent;
. Trust--(i) Signature guaranteed letter of instruction from the
trustee(s), and (ii) a copy of the pertinent pages of the trust document
listing the trustee(s) or a certificate of incumbency if the trustee(s)
are not listed on the account registration;
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. Custodial (other than a retirement account)--Signature guaranteed
letter of instruction from the custodian;
. Accounts under court jurisdiction--Check court documents and the
applicable state law since these accounts have varying requirements,
depending upon the state of residence; and
5. Redemption of Shares held in a retirement plan for which Franklin
Templeton Trust Company or its affiliate acts as trustee or custodian must
conform to the distribution requirements of the plan and the Fund's redemption
requirements above. Distributions from such plans are subject to additional
requirements under the Code, and certain documents (available from the
Transfer Agent) must be completed before the distribution may be made. For
example, distributions from retirement plans are subject to withholding
requirements under the Code, and the IRS Form W-4P (available from the
Transfer Agent) may be required to be submitted to the Transfer Agent with the
distribution request, or the distribution will be delayed. Franklin Templeton
Investor Services, Inc. and its affiliates assume no responsibility to
determine whether a distribution satisfies the conditions of applicable tax
laws and will not be responsible for any penalties assessed.
To avoid delay in redemption or transfer, Shareholders having questions
about these requirements should contact the Account Services Department by
calling 1-800-354-9191 or 813-823-8712.
The redemption price will be the net asset value of the Shares next computed
after the redemption request in Proper Order is received by the Transfer
Agent. Payment of the redemption price will be made by check (or by wire at
the sole discretion of the Transfer Agent if wire transfer is requested,
including name and address of the bank and the Shareholder's account number to
which payment of the redemption proceeds is to be wired) within seven days
after receipt of the redemption request in Proper Order. However, if Shares
have been purchased by check, the Fund will make redemption proceeds available
when a Shareholder's check received for the Shares purchased has been cleared
for payment by the Shareholder's bank, which, depending upon the location of
the Shareholder's bank, could take up to 15 days or more. The check will be
mailed by first-class mail to the Shareholder's registered address (or as
otherwise directed). Remittance by wire (to a commercial bank account in the
same name(s) as the Shares are registered) or express mail, if requested, are
subject to a handling charge of up to $15, which will be deducted from the
redemption proceeds.
The Fund, through FTD, also repurchases Shares (whether in certificate or
book-entry form) through securities dealers. The Fund normally will accept
orders to repurchase such Shares by wire or telephone from dealers for their
customers at the net asset value next computed after the dealer has received
the Shareholder's request for repurchase, if the dealer received such request
before closing time of the New York Stock Exchange on that day. Dealers have
the responsibility of submitting such repurchase requests by calling not later
than 5:00 p.m., New York time, on such day in order to obtain that day's
applicable redemption price. Repurchase of Shares is for the convenience of
Shareholders and does not involve a charge by the Fund; however, securities
dealers may impose a charge on the Shareholder for transmitting the notice of
repurchase to the Fund. The Fund reserves the right to reject any order for
repurchase, which right of rejection might adversely affect Shareholders
seeking redemption through the repurchase procedure. Ordinarily payment will
be made to the securities dealer within seven days after receipt of a
repurchase order and Share certificate (if any) in "Proper Order" as set forth
above. The Fund will also accept, from member firms of the New York Stock
Exchange, orders to repurchase Shares for which no certificates have been
issued by wire or telephone without a redemption request signed by the
Shareholder, provided the member firm indemnifies the Fund and FTD from any
liability resulting from the absence of the Shareholder's signature. Forms for
such indemnity agreement can be obtained from FTD.
The Fund may involuntarily redeem an investor's Shares if the net asset
value of such Shares is less than $100, provided that involuntary redemptions
will not result from fluctuations in the value of an investor's Shares. In
addition, the Fund may involuntarily redeem the Shares of any investor who has
failed to provide the Fund with a certified taxpayer identification number or
such other tax-related certifications as the Fund may require. A notice of
redemption, sent by first-class mail to the investor's address of record, will
fix a date not less than 30 days after the mailing date, and Shares will be
redeemed at the net asset value at the close of business on that date, unless
sufficient additional Shares are purchased to bring the aggregate account
value up to $100 or more, or unless a certified
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taxpayer identification number (or such other information as the Fund has
requested) has been provided, as the case may be. A check for the redemption
proceeds will be mailed to the investor at the address of record.
REINSTATEMENT PRIVILEGE. Shares of the Fund may be purchased at net asset
value with the proceeds from (i) a redemption of Shares of any fund in the
Franklin Templeton Group (except Templeton Capital Accumulator Fund, Inc.,
Templeton Variable Annuity Fund, Templeton Variable Products Series Fund,
Franklin Valuemark Funds and Franklin Government Securities Trust) which were
purchased with an initial sales charge or assessed a contingent deferred sales
charge on redemption, or (ii) a dividend or distribution paid by any fund in
the Franklin Templeton Group, within 120 days after the date of the redemption
or dividend or distribution. However, if a Shareholder's original investment
was in Class I shares of a fund with a lower sales charge, or no sales charge,
the Shareholder must pay the difference. While credit will be given for any
contingent deferred sales charge paid on the Shares redeemed, a new
contingency period will begin. Shares of the Fund redeemed in connection with
an exchange into another fund (see "Exchange Privilege") are not considered
"redeemed" for this privilege. In order to exercise this privilege, a written
order for the purchase of Shares of the Fund must be received by the Fund or
the Fund's Transfer Agent within 120 days after the redemption. The 120 days,
however, do not begin to run on redemption proceeds placed immediately after
redemption in a Franklin Bank Certificate of Deposit ("CD") until the CD
(including any rollover) matures. The amount of gain or loss resulting from a
redemption may be affected by exercise of the reinstatement privilege if the
Shares redeemed were held for 90 days or less, or if a Shareholder reinvests
in the same fund within 30 days. Reinvestment will be at the next calculated
net asset value after receipt.
SYSTEMATIC WITHDRAWAL PLAN. A Shareholder may establish a Systematic
Withdrawal Plan ("Plan") and receive periodic payments from the account
provided that the net asset value of the Shares held by the Shareholder is at
least $5,000. There are no service charges for establishing or maintaining a
Plan. The minimum amount which the Shareholder may withdraw is $50 per
withdrawal transaction although this is merely the minimum amount allowed
under the Plan and should not be mistaken for a recommended amount. The Plan
may be established on a monthly, quarterly, semi-annual or annual basis. If
the Shareholder establishes a Plan, any capital gain distributions and income
dividends paid by the Fund to the Shareholder's account must be reinvested for
the Shareholder's account in additional Shares at net asset value. Payments
are then made from the liquidation of Shares at net asset value on the day of
the liquidation (which is generally on or about the 25th of the month) to meet
the specified withdrawals. Payments are generally received three to five days
after the date of liquidation. By completing the "Special Payment Instructions
for Distributions" section of the Shareholder Application included with this
Prospectus, a Shareholder may direct the selected withdrawals to another fund
in the Franklin Templeton Group, to another person, or directly to a checking
account. Liquidation of Shares may reduce or possibly exhaust the Shares in
the Shareholder's account, to the extent withdrawals exceed Shares earned
through dividends and distributions, particularly in the event of a market
decline. If the withdrawal amount exceeds the total Plan balance the account
will be closed and the remaining balance will be sent to the Shareholder. As
with other redemptions, a liquidation to make a withdrawal payment is a sale
for Federal income tax purposes. Because the amount withdrawn under the Plan
may be more than the Shareholder's actual yield or income, part of such a Plan
payment may be a return of the Shareholder's investment.
Maintaining a Plan concurrently with purchases of additional Shares of the
Fund would be disadvantageous because of the sales charge on the additional
purchases. The Shareholder should ordinarily not make additional investments
of less than $5,000 or three times the annual withdrawals under the Plan
during the time such a Plan is in effect. A Plan may be terminated on written
notice by the Shareholder or the Fund, and it will terminate automatically if
all Shares are liquidated or withdrawn from the account, or upon the Fund's
receipt of notification of the death or incapacity of the Shareholder.
Shareholders may change the amount (but not below $50) and schedule of
withdrawal payments or suspend one such payment by giving written notice to
the Transfer Agent at least seven business days prior to the end of the month
preceding a scheduled payment. Share certificates may not be issued while a
Plan is in effect.
REDEMPTIONS BY TELEPHONE. Shareholders who file a Telephone Redemption
Authorization Agreement (the "Agreement") (a copy of which is included in this
Prospectus) may redeem Shares of the Fund by telephone, subject to the
Restricted Account exception
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noted under "Telephone Transactions--Restricted Accounts." The Fund and the
Transfer Agent will employ reasonable procedures to confirm that instructions
given by telephone are genuine. Shareholders, however, bear the risk of loss
in certain cases as described under "Telephone Transactions--Verification
Procedures."
For Shareholder accounts with a completed Agreement on file, redemptions of
uncertificated Shares or Shares which have previously been deposited with the
Fund or the Transfer Agent may be made for up to $50,000 per day per Fund
account. Telephone redemption requests received before 4:00 p.m., New York
time, on any business day will be processed that same day. The redemption
check will be sent within seven days, made payable to all the registered
owners on the account, and will be sent only to the address of record.
Redemption requests by telephone will not be accepted within 30 days following
an address change by telephone. In that case, a Shareholder should follow the
other redemption procedures set forth in this Prospectus. Institutional
accounts which wish to execute redemptions in excess of $50,000 must complete
an Institutional Telephone Privileges Agreement which is available from
Franklin Templeton Institutional Services by telephoning 1-800-321-8563.
TELEPHONE TRANSACTIONS
Shareholders of the Fund and their dealer of record, if any, may be able to
execute various transactions by calling the Transfer Agent at 1-800-354-9191.
All Shareholders will be able to: (i) effect a change in address, (ii) change
a dividend option (see "Restricted Accounts" below), (iii) transfer Fund
Shares in one account to another identically registered account in the Fund,
and (iv) exchange Fund Shares by telephone as described in this Prospectus. In
addition, Shareholders who complete and file an Agreement as described under
"How to Sell Shares of the Fund--Redemptions by Telephone" will be able to
redeem Shares of the Fund.
VERIFICATION PROCEDURES. The Fund and the Transfer Agent will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine. These will include: recording all telephone calls requesting
account activity by telephone, requiring that the caller provide certain
personal and/or account information requested by the telephone service agent
at the time of the call for the purpose of establishing the caller's
identification, and sending a confirmation statement on redemptions to the
address of record each time account activity is initiated by telephone. So
long as the Fund and the Transfer Agent follow instructions communicated by
telephone which were reasonably believed to be genuine at the time of their
receipt, neither they nor their affiliates will be liable for any loss to the
Shareholder caused by an unauthorized transaction. Shareholders are, of
course, under no obligation to apply for or accept telephone transaction
privileges. In any instance where the Fund or the Transfer Agent is not
reasonably satisfied that instructions received by telephone are genuine, the
requested transaction will not be executed, and neither the Fund, the Transfer
Agent, nor their affiliates will be liable for any losses which may occur
because of a delay in implementing a transaction.
RESTRICTED ACCOUNTS. Telephone redemptions and dividend option changes may
not be accepted on Franklin Templeton Trust Company ("FTTC") or Templeton
Funds Trust Company ("TFTC") retirement accounts. To assure compliance with
all applicable regulations, special forms are required for any distribution,
redemption, or dividend payment. Although the telephone exchange privilege is
extended to these retirement accounts, a Franklin Templeton Transfer
Authorization Form must be on file in order to transfer retirement plan assets
between the Franklin Group of Funds (R) and the Templeton Family of Funds
within the same plan type. Changes to dividend options for these accounts must
also be made in writing.
To obtain further information regarding distribution or transfer procedures,
including any required forms, FTTC retirement account shareholders may call 1-
800-527-2020 (toll free), and TFTC retirement account shareholders may call 1-
800-354-9191 (press "2") (also toll free).
GENERAL. During periods of drastic economic or market changes, it is
possible that the telephone transaction privileges will be difficult to
execute because of heavy telephone volume. In such situations, Shareholders
may wish to contact their dealer for assistance, or to send written
instructions to the Fund as detailed elsewhere in this Prospectus.
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Neither the Fund nor the Transfer Agent will be liable for any losses
resulting from the inability of a Shareholder to execute a telephone
transaction.
The telephone transaction privilege may be modified or discontinued by the
Fund at any time upon 60 days' written notice to Shareholders.
MANAGEMENT OF THE FUND
The Fund is managed by its Board of Trustees and all powers are exercised by
or under authority of the Board. Information relating to the Trustees and
Executive Officers is set forth under the heading "Management of the Fund" in
the SAI.
The Board has carefully reviewed the multiclass structure to ensure that no
material conflict exists between the two classes of Shares. Although the Board
does not expect to encounter material conflicts in the future, the Board will
continue to monitor the Fund and will take appropriate action to resolve such
conflicts if any should later arise.
INVESTMENT MANAGER. The Investment Manager of the Fund is Templeton,
Galbraith & Hansberger Ltd., Lyford Cay, Nassau, Bahamas. The Investment
Manager manages the investment and reinvestment of the Fund's assets. The
Investment Manager is an indirect wholly owned subsidiary of Franklin
Resources, Inc. ("Franklin"). Through its subsidiaries, Franklin is engaged in
various aspects of the financial services industry. The Investment Manager and
its affiliates serve as advisers for a wide variety of public investment
mutual funds and private clients in many nations. The Templeton organization
has been investing globally over the past 52 years and, with its affiliates,
provides investment management and advisory services to a worldwide client
base, including over 4.3 million mutual fund shareholders, foundations,
endowments, employee benefit plans and individuals. The Investment Manager and
its affiliates have approximately 4,100 employees in the United States,
Australia, Scotland, Germany, Hong Kong, Luxembourg, Bahamas, Singapore,
Canada and Russia.
The Investment Manager uses a disciplined, long-term approach to value-
oriented global and international investing. It has an extensive global
network of investment research sources. Securities are selected for the Fund's
portfolio on the basis of fundamental company-by-company analysis. Many
different selection methods are used for different funds and clients and these
methods are changed and improved by the Investment Manager's research on
superior selection methods.
The Investment Manager does not furnish any other services or facilities for
the Fund, although such expenses are paid by some investment advisers of other
investment companies. As compensation for its services, the Fund pays the
Investment Manager a fee which, during the most recent fiscal year,
represented 0.75% of its average daily net assets.
Currently, the lead portfolio manager of the Fund is Jeffrey A. Everett. Mr.
Everett joined the Templeton organization in 1989, and is Vice President of
the Investment Manager. Prior to joining the Templeton organization, Mr.
Everett was an investment officer at First Pennsylvania Investment Research, a
division of First Pennsylvania Corporation, where he analyzed equity and
convertible securities. Mr. Everett was also responsible for coordinating
research for Centre Square Investment Group, the pension management subsidiary
of First Pennsylvania Corporation. Dorian B. Foyil and Sean Farrington also
exercise significant portfolio management responsibilities with respect to the
Fund. Mr. Foyil is head of the Investment Manager's research technology group.
Prior to joining the Templeton organization, Mr. Foyil was a research analyst
for four years with UBS Phillips & Drew in London, England. Mr. Farrington is
a member of the Investment Manager's research technology group responsible for
the maintenance of the internal research database. Further information
concerning the Investment Manager is included under the heading "Investment
Management and Other Services" in the SAI.
BUSINESS MANAGER. Templeton Global Investors, Inc. provides certain
administrative facilities and services for the Fund, including payment of
salaries of officers, preparation and maintenance of books and records,
preparation of tax reports, preparation of financial
22
<PAGE>
reports, monitoring compliance with regulatory requirements and monitoring
tax-deferred retirement plans. For its services, the Fund pays the Business
Manager a monthly fee equivalent on an annual basis to 0.15% of the average
daily net assets of the Fund, reduced to 0.135% of such assets in excess of
$200 million, to 0.10% of such assets in excess of $700 million and to 0.075%
of such assets in excess of $1,200 million. The combined investment management
and business management fees paid by the Fund are higher than those paid by
most other investment companies.
TRANSFER AGENT. Franklin Templeton Investor Services, Inc. serves as
transfer agent and dividend disbursing agent for the Fund.
CUSTODIAN. The Chase Manhattan Bank, N.A. serves as custodian of the Fund's
assets.
PLANS OF DISTRIBUTION. Each class of Shares of the Fund has approved and
adopted a separate Plan of Distribution ("Class I Plan" and "Class II Plan,"
respectively, or "Plans") pursuant to Rule 12b-1 under the 1940 Act. The Rule
12b-1 fees charged to each class will be based solely on the distribution
and/or servicing fees attributable to that particular class. Any portion of
fees remaining from any Plan after distribution to securities dealers up to
the maximum amount permitted under each Plan may be used by the class to
reimburse FTD for routine ongoing promotion and distribution expenses. Such
expenses may include, but are not limited to, the printing of prospectuses and
reports used for sales purposes, expenses of preparing and distributing sales
literature and related expenses, advertisements, and other distribution-
related expenses, including a prorated portion of FTD's overhead expenses
attributable to the distribution of Fund Shares, as well as any distribution
or service fees paid to securities dealers or their firms or others who have
executed a servicing agreement with the Fund, FTD or its affiliates.
The maximum amount which the Fund may pay to FTD under the Class I Plan for
such distribution expenses is 0.25% per annum of Class I's average daily net
assets, payable on a quarterly basis. Under the Class II Plan, the maximum
amount which the Fund may pay to FTD for such distribution expenses
is 0.75% of Class II's average daily net assets per annum, payable on a
quarterly basis. All expenses of distribution and marketing over that amount
will be borne by FTD, or others who have incurred them without reimbursement
by the Fund. In addition to this amount, under the Class II Plan, the Fund
shall pay 0.25% per annum of the Class' average daily net assets as a serv-
icing fee. This fee will be used to pay dealers or others for, among other
things, assisting in establishing and maintaining customer accounts and
records; assisting with purchase and redemption requests; receiving and
answering correspondence; monitoring dividend payments from the Fund on
behalf of the customers; and similar activities related to furnishing
personal services and maintaining Shareholder accounts.
Under both Plans, costs and expenses not reimbursed in any one given month
(including costs and expenses not reimbursed because they exceed the
applicable limit under the Plan) may be reimbursed in subsequent months or
years, subject to applicable law. FTD has informed the Fund that the costs and
expenses of Class I Shares that may be reimbursable in future months or years
were $669 (0.0005% of its net assets) at August 31, 1994.
Each Plan also covers any payments to or by the Fund, the Investment
Manager, FTD, or other parties on behalf of the Fund, the Investment Manager
or FTD, to the extent such payments are deemed to be for the financing of any
activity primarily intended to result in the sale of Shares issued by the Fund
within the context of Rule 12b-1. The payments under the Plans are included in
the maximum operating expenses which may be borne by each class of the Fund.
For more information, please see the SAI.
EXPENSES. For the fiscal year ended August 31, 1994, expenses amounted to
1.58% of the Fund's average daily net assets.
BROKERAGE COMMISSIONS. The Fund's brokerage policies are described under the
heading "Brokerage Allocation" in the SAI. The Fund's brokerage policies
provide that the receipt of research services from a broker and the sale of
Shares by a broker are factors which may be taken into account in allocating
securities transactions, so long as the prices and execution provided by the
broker equal the best available within the scope of the Fund's brokerage
policies.
23
<PAGE>
GENERAL INFORMATION
DESCRIPTION OF SHARES/SHARE CERTIFICATES. The capitalization of the Fund
consists of an unlimited number of Shares of beneficial interest, par value
$0.01 per Share. The Board of Trustees is authorized, in its discretion, to
classify and allocate the unissued Shares of the Fund, each such class to
represent a different portfolio of securities. Each Share entitles the holder
to one vote.
Under Massachusetts law, Shareholders could, under certain circumstances, be
held personally liable for the obligations of the Fund. However, the
Declaration of Trust disclaims liability of the Shareholders, Trustees and
officers of the Fund for acts or obligations of the Fund, which are binding
only on the assets and property of the Fund. The Declaration of Trust provides
for indemnification out of Fund property for all loss and expense of any
Shareholder held personally liable for the obligations of the Fund. The risk
of a Shareholder incurring financial loss on account of Shareholder liability
is limited to circumstances in which the Fund itself would be unable to meet
its obligations and, thus, should be considered remote.
The Fund will not ordinarily issue certificates for Shares purchased. Share
certificates representing whole (not fractional) Shares are issued only upon
the specific request of the Shareholder made in writing to the Transfer Agent.
No charge is made for the issuance of one certificate for all or some of the
Shares purchased in a single order.
MEETINGS OF SHAREHOLDERS. The Fund is not required to hold regular annual
meetings of Shareholders and may elect not to do so. The Fund will call a
special meeting of Shareholders when requested to do so by the holders of not
less than 10% of the outstanding Shares of the Fund. The Fund is required to
assist in Shareholder communications in connection with the calling of a
Shareholder meeting to consider the removal of a Trustee or Trustees.
DIVIDENDS AND DISTRIBUTIONS. Dividends and capital gains distributions (if
any) are usually paid in October and (if necessary) in December representing
all or substantially all of the Fund's net investment income and any net
realized capital gains. Dividends will be calculated and distributed in the
same manner for both classes of Shares, and their value will differ only to
the extent that they are affected by the distribution plan fees and sales
charges. Because ongoing Rule 12b-1 expenses will be lower for Class I than
Class II, dividends distributed to Class I Shares will generally be higher
than those distributed to Class II Shares. Income dividends and capital gains
distributions paid by the Fund on its Shares, other than those Shares whose
owners keep them registered in the name of a broker-dealer, are automatically
reinvested in whole or fractional Shares at net asset value as of the ex-
dividend date, unless a Shareholder makes a written or telephonic request for
payments in cash. Dividend and capital gain distributions are eligible for
investment in the same class of Shares of the Fund or the same class of
another fund in the Franklin Group of Funds(R) or Templeton Family of Funds at
net asset value. The processing date for the reinvestment of dividends may
vary from month to month, and does not affect the amount or value of the
Shares acquired. Income dividends and capital gains distributions will be paid
in cash on Shares during the time their owners keep them registered in the
name of a broker-dealer, unless the broker-dealer has made arrangements with
the Transfer Agent for reinvestment.
Prior to purchasing Shares of the Fund, the impact of dividends or capital
gains distributions which have been declared but not yet paid should be
carefully considered. Any dividend or capital gains distribution paid shortly
after a purchase by a Shareholder prior to the record date will have the
effect of reducing the per Share net asset value of the Shares by the amount
of the dividend or distribution. All or a portion of such dividend or
distribution, although in effect a return of capital, generally will be
subject to tax.
Checks are forwarded by first-class mail to the address of record. The
proceeds of any such checks which are not accepted by the addressee and
returned to the Fund will be reinvested for the Shareholder's account in whole
or fractional Shares at net asset value next computed after the check has been
received by the Transfer Agent. Subsequent distributions will be reinvested
automatically at net asset value as of the ex-dividend date in additional
whole or fractional Shares.
FEDERAL TAX INFORMATION. The Fund intends to elect to be treated and to
qualify each year as a regulated investment company under Subchapter M of the
Code. See the SAI for a summary of the requirements that must be satisfied to
so qualify. A regulated
24
<PAGE>
investment company generally is not subject to Federal income tax on income
and gains distributed in a timely manner to its Shareholders. The Fund intends
to distribute substantially all of its net investment income and realized
capital gains to Shareholders, which will be taxable income or capital gains
in their hands. Distributions declared in October, November or December to
Shareholders of record on a date in such month and paid during the following
January will be treated as having been received by Shareholders on December 31
in the year such distributions were declared. The Fund will inform
Shareholders each year of the amount and nature of such income or gains. A
more detailed description of tax consequences to Shareholders is contained in
the SAI under the heading "Tax Status."
The Fund may be required to withhold Federal income tax at the rate of 31%
of all taxable distributions (including redemptions) paid to Shareholders who
fail to provide the Fund with their correct taxpayer identification number or
to make required certifications or where the Fund or the Shareholder has been
notified by the Internal Revenue Service that the Shareholder is subject to
backup withholding. Corporate Shareholders and certain other Shareholders
specified in the Code are exempt from backup withholding. Backup withholding
is not an additional tax. Any amounts withheld may be credited against the
Shareholder's Federal income tax liability.
INQUIRES. Shareholders' inquiries will be answered promptly. They should be
addressed to Franklin Templeton Investor Services, Inc., 700 Central Avenue,
P.O. Box 33030, St. Petersburg, Florida 33733-8030 -- telephone 1-800-354-9191
or 813-823-8712. Transcripts of Shareholder accounts less than three years old
are provided on request without charge; requests for transcripts going back
more than three years from the date the request is received by the Transfer
Agent are subject to a fee of up to $15 per account.
PERFORMANCE INFORMATION. The Fund may include its total return in
advertisements or reports to Shareholders or prospective investors. Quotations
of average annual total return will be expressed in terms of the average
annual compounded rate of return on a hypothetical investment in the Fund over
a period of 1, 5 and 10 years (or if less, up to the life of the Fund), will
reflect the deduction of the maximum initial sales charge and deduction of a
proportional share of Fund expenses (on an annual basis), and will assume that
all dividends and distributions are reinvested when paid. Total return may be
expressed in terms of the cumulative value of an investment in the Fund at the
end of a defined period of time. For a description of the methods used to
determine total return for the Fund, see "Performance Information" in the SAI.
STATEMENTS AND REPORTS. The Fund's fiscal year ends on August 31. Annual
reports (containing financial statements audited by independent auditors and
additional information regarding the Fund's performance) and semi-annual
reports (containing unaudited financial statements) are sent to Shareholders
each year. Additional copies may be obtained, without charge, upon request to
the Account Services Department. The Fund also sends to each Shareholder a
confirmation statement after every transaction that affects the Shareholder's
account and a year-end historical confirmation statement.
25
<PAGE>
INSTRUCTIONS AND IMPORTANT NOTICE
SUBSTITUTE W-9 INSTRUCTIONS INFORMATION
GENERAL. Backup withholding is not an additional tax. Rather, the tax
liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the IRS.
OBTAINING A NUMBER. If you do not have a Social Security Number/Taxpayer
Identification Number, you must obtain Form SS-5 or Form SS-4 from your local
Social Security or IRS office and apply for one. If you have checked the
"Awaiting TIN" box and signed the certification, withholding will apply to
payments relating to your account unless you provide a certified TIN within 60
days.
WHAT SSN/TIN TO GIVE. Please refer to the following guidelines:
<TABLE>
<CAPTION>
ACCOUNT TYPE GIVE SSN OF ACCOUNT TYPE GIVE TAXPAYER ID # OF
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
. Individual Individual . Trust, Estate, or Trust, Estate, or
Pension Plan Trust Pension Plan Trust
- -----------------------------------------------------------------------------------
. Joint Actual owner of . Corporation, Corporation,
Individual account, or if Partnership, or other Partnership, or other
combined funds, the organization organization
first-named
individual
- -----------------------------------------------------------------------------------
. Unif. Minor . Broker nominee Broker nominee
Gift/Transfer
to Minor
- -----------------------------------------------------------------------------------
. Sole Owner of business
Proprietor
- -----------------------------------------------------------------------------------
. Legal Ward, Minor, or
Guardian Incompetent
- -----------------------------------------------------------------------------------
</TABLE>
EXEMPT RECIPIENTS. Please provide your TIN and check the "Exempt Recipient"
box if you are an exempt recipient. Exempt recipients generally include:
A corporation A real estate investment trust
A financial institution A common trust fund operated by a bank
under section 584(a)
An organization exempt from tax An entity registered at all times
under section 501(a), or an under the Investment Company Act of
individual retirement plan 1940
A registered dealer in securities or
commodities registered in the U.S.
or a U.S. possession
IRS PENALTIES. If you do not supply us with your SSN/TIN, you will be subject
to an IRS $50 penalty unless your failure is due to reasonable cause and not
willful neglect. If you fail to report certain income on your federal income
tax return, you will be treated as negligent and subject to an IRS 20% penalty
on any underpayment of tax attributable to such negligence, unless there was
reasonable cause for the resulting underpayment and you acted in good faith.
If you falsify information on this form or make any other false statement
resulting in no backup withholding on an account which should be subject to
backup withholding, you may be subject to an IRS $500 penalty and certain
criminal penalties including fines and imprisonment.
SUBSTITUTE W-8 INSTRUCTIONS INFORMATION
EXEMPT FOREIGN PERSON. Check the "Exempt Foreign Person" box if you qualify as
a non-resident alien or foreign entity that is not subject to certain U.S.
information return reporting or to backup withholding rules. Dividends paid to
your account may be subject to withholding of up to 30%. Generally, you are an
"Exempt Foreign Person" if you are not (1) a citizen or resident of the U.S.,
or (2) a U.S. corporation, partnership, estate, or trust. In the case of an
individual, an "Exempt Foreign Person" is one who has been physically present
in the U.S. for less than 31 days during the current calendar year. An
individual who is physically present in the U.S. for at least 31 days during
the current calendar year will still be treated as an "Exempt Foreign Person,"
provided that the total number of days physically present in the current
calendar year and the two preceding calendar years does not equal or exceed
183 days (counting all of the days in the current calendar year, only one-
third of the days in the first preceding calendar year and only one-sixth of
the days in the second preceding calendar year). In addition, lawful permanent
residents or green card holders may not be treated as "Exempt Foreign
Persons." If you are an individual or an entity, you must not now be, or at
this time expect to be, engaged in a U.S. trade or business with respect to
which any gain derived from transactions effected by the Fund/Payer during the
calendar year is effectively connected to the U.S.
PERMANENT ADDRESS. The Shareholder Application must contain your permanent
address if you are an "Exempt Foreign Person." If you are an individual,
provide your permanent address. If you are a partnership or corporation,
provide the address of your principal office. If you are an estate or trust,
provide the address of your permanent residence or the principal office of any
fiduciary.
NOTICE OF CHANGE IN STATUS. If you become a U.S. citizen or resident after you
have provided certification of your foreign status, or if you cease to be an
"Exempt Foreign Person," you must notify the Fund/Payer within 30 days of your
change in status. Reporting will then begin on the account(s) listed, and
backup withholding may also begin unless you certify to the Fund/Payer that
(1) the tax payer identification number you have given is correct, and (2) the
Internal Revenue Service has not notified you that you are subject to backup
withholding because you failed to report certain interest or dividend income.
You may use Form W-9, "Payer's Request for Taxpayer Identification Number and
Certification," to make these certifications. If an account is no longer
active, you do not have to notify a Fund/Payer or broker of your change in
status unless you also have another account with the same Fund/Payer that is
still active. If you receive interest from more than one Fund/Payer or have
dealings with more than one broker or barter exchange, file a certificate with
each. If you have more than one account with the same Fund/Payer, the
Fund/Payer may require you to file a separate certificate for each account.
WHEN TO FILE. File these certifications with the Fund before a payment is made
to you, unless you have already done this in either of the two preceding
calendar years. Only certifications that are in proper order will be treated
as having been filed with the Fund.
HOW OFTEN YOU MUST FILE. This certificate generally remains in effect for
three calendar years. A Fund/Payer or broker, however, may require that a new
certificate be filed each time a payment is made. On joint accounts for which
each joint owner is a foreign person, each must provide a certification of
foreign status.
1/94
26
<PAGE>
FOR CORPORATE SHAREHOLDERS--FORM OF RESOLUTION
It will be necessary for corporate shareholders to provide a certified copy of
a resolution or other certificate of authority to authorize the purchase as
well as sale (redemption) of shares and withdrawals by checks or drafts. You
may use the following form of resolution or you may prefer to use your own. It
is understood that the Fund, Franklin Templeton Distributors, Inc., Franklin
Templeton Investor Services, Inc., the custodian bank and their affiliates may
rely upon these authorizations until revoked or amended by written notice
delivered by registered or certified mail to the Fund.
CERTIFIED COPY OF RESOLUTION (Corporation or Association)
The undersigned hereby certifies and affirms that he/she is the duly
elected _______________________________ of ____________________________________
TITLE CORPORATE NAME
a _________________________ organized under the laws of the State of __________
TYPE OF ORGANIZATION STATE
and that the following is a true and correct copy of a resolution adopted by
the Board of Directors at a meeting duly called and held on ____________________
DATE
RESOLVED, that the _________________________________________________ of this
OFFICERS' TITLES
Corporation or Association are authorized to open an account in the name of
the Corporation or Association with one or more of the Franklin Group of
Funds or Templeton Family of Funds (collectively, the "Funds") and to
deposit such funds of this Corporation or Association in this account as
they deem necessary or desirable; that the persons authorized below may
endorse checks and other instruments for deposit to said account or
accounts; and
FURTHER RESOLVED, that any of the following __________________ officers are
NUMBER
authorized to sign any share assignment on behalf of this Corporation or
Association and to take any other actions as may be necessary to sell or
redeem its shares in the Funds or to sign checks or drafts withdrawing funds
from the account; and
FURTHER RESOLVED, that this Corporation or Association shall hold harmless,
indemnify, and defend the Funds, their custodian bank, Franklin Templeton
Distributors, Inc., Franklin Templeton Investor Services, Inc., and their
affiliates, from any claim, loss or liability resulting in whole or in
part, directly or indirectly, from their reliance from time to time upon
any certifications by the secretary or any assistant secretary of this
Corporation or Association as to the names of the individuals occupying
such offices and their acting in reliance upon these resolutions until
actual receipt by them of a certified copy of a resolution of the Board of
Directors of the Corporation or Association modifying or revoking any or
all such resolutions.
The undersigned further certifies that the below named persons, whose
signatures appear opposite their names and office titles, are duly elected
officers of the Corporation or Association. (Attach additional list if
necessary)
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME OF CORPORATION OR ASSOCIATION DATE
Certified from minutes ________________________________________________________
NAME AND TITLE
CORPORATE SEAL (if appropriate)
27
<PAGE>
THE FRANKLIN TEMPLETON TELEPHONE REDEMPTION AUTHORIZATION AGREEMENT
You may use Franklin Templeton's telephone redemption privilege to redeem
uncertificated Franklin Templeton Fund shares for up to $50,000 (or your
Shareholder account balance, whichever is less) per day, per fund account in
accordance with the terms of the Fund's Prospectus.
The telephone redemption privilege is available only to Shareholders who
specifically request it. If you would like to add this redemption privilege to
the other telephone transaction privileges automatically available to Franklin
Templeton Fund shareholders, please sign and return this authorization to
Franklin Templeton Investor Services, Inc. ("Services"), transfer agent and
shareholder servicing agent for the Franklin Templeton Funds.
SHAREHOLDER AUTHORIZATION: I/We request the telephone redemption privilege
under the terms described below and in the prospectus for each investment
company in the Franklin Templeton Group (a "Franklin Templeton Fund" or a
"Fund"), now opened or opened at a later date, holding shares registered as
follows:
- ------------------------------------- ---------------------------------------
PRINT NAME(S) AS SHOWN IN YOUR ACCOUNT REGISTRATION ("SHAREHOLDER")
- ------------------------------------- ---------------------------------------
ACCOUNT NUMBER(S)
I/We authorize each Fund and Services to honor and act upon telephone requests
given as provided in this agreement to redeem shares from any
Shareholder account:
- ------------------------------------- ---------------------------------------
SIGNATURE(S) AND DATE
- ------------------------------------- ---------------------------------------
PRINT NAME(S) (AND TITLE/CAPACITY, IF APPLICABLE)
VERIFICATION PROCEDURES: I/We understand and agree that: (1) each Fund and
Services will employ reasonable procedures to confirm that redemption
instructions communicated by telephone are genuine and that if these
confirmation procedures are not followed, the Fund or Services may be liable
for any losses due to unauthorized or fraudulent telephone instructions; (2)
the confirmation procedures will include the recording of telephone calls
requesting redemptions, requiring that the caller provide certain personal
and/or account information requested by the telephone service agent at the
time of the call for the purpose of establishing the caller's identification,
and the sending of confirmation statements to the address of record each time
a redemption is initiated by telephone; and (3) so long as the Fund and
Services follow the confirmation procedures in acting on instructions
communicated by telephone which were reasonably believed to be genuine at the
time of receipt, neither they, nor their parent or affiliates, will be liable
for any loss, damages or expenses caused by an unauthorized or fraudulent
redemption request.
JOINTLY OWNED/CO-TRUSTEE ACCOUNTS: Each of us signing this agreement as either
joint owners or co-trustees authorizes each Fund and Services to honor
telephone redemption requests given by ANY ONE of the signers, or our
investment representative of record, if any, ACTING ALONE.
APPOINTMENT OF ATTORNEY-IN-FACT: In order to issue telephone redemption
requests acting alone, each of us individually makes the following
appointment: I hereby appoint the other joint owner(s)/co-trustee(s) as my
agent(s) (attorney[s]-in-fact) with full power and authority to individually
act for me in any lawful way with respect to the issuance of instructions to a
Fund or Services in accordance with the telephone redemption privilege we have
requested by signing this agreement. This appointment shall not be affected by
my subsequent disability or incompetency and shall remain in effect until it
is revoked by either written notice from any one of us delivered to a Fund or
Services by registered mail, return receipt requested or by a Fund or Services
upon receipt of any information that causes a Fund or Services to believe in
good faith that there is or that there may be a dispute among any of us with
respect to the Franklin Templeton Fund account(s) covered by this agreement.
Each of us agrees to notify the Fund or Services immediately upon the death of
any of the signers.
CORPORATE/PARTNERSHIP/TRUST/RETIREMENT ACCOUNTS: The Shareholder and each of
us signing this agreement on behalf of the Shareholder represent and warrant
to each Franklin Templeton Fund and Services that the Shareholder has the
authority to enter into this agreement and that each of us is duly authorized
to execute this agreement on behalf of the Shareholder. The Shareholder agrees
that its election of the telephone redemption privilege means that a Fund or
Services may honor a telephone redemption request given by ANY
officer/partner/member/administrator/or agent of the Shareholder ACTING ALONE.
RESTRICTED ACCOUNTS: Telephone redemptions may not be accepted on Franklin
Trust Company or Templeton Funds Trust Company retirement accounts.
PLEASE RETURN THIS FORM TO:
Franklin Templeton Investor Services, Inc., Attn.: Telephone Redemptions
Dept., 700 Central Avenue, St. Petersburg, Florida 33701-3628.
28
<PAGE>
THE FRANKLIN TEMPLETON GROUP
To receive a free brochure and prospectus, which contain more complete
information, including charges and expenses on each of the funds listed below,
call Franklin Fund Information, toll free, at 1-800-DIAL-BEN (1-800-342-5236)
or Templeton Fund Information at 1-800-292-9293. Please read the prospectus
carefully before you invest or send money.
TEMPLETON
FAMILY OF FUNDS
Franklin Templeton Japan Fund
Templeton American Trust
Templeton Americas
Government Securities Fund
Templeton Developing
Markets Trust
Templeton Foreign Fund
Templeton Global
Infrastructure Fund
Templeton Global
Opportunities Trust
Templeton Global Rising
Dividends Fund
Templeton Growth Fund
Templeton Income Fund
Templeton Money Fund
Templeton Real Estate
Securities Fund
Templeton Smaller
Companies Growth Fund
Templeton World Fund
FRANKLIN GROUP
OF FUNDS (R)
FRANKLIN GLOBAL/
INTERNATIONAL FUNDS
Franklin Global Health Care Fund
Franklin Global Government
Income Fund
Franklin Global Utilities Fund
Franklin International Equity Fund
Franklin Pacific Growth Fund
FUNDS SEEKING
CAPITAL GROWTH
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin Small Cap Growth Fund
FUNDS SEEKING GROWTH AND
INCOME
Franklin Balance Sheet
Investment Fund
Franklin Convertible
Securities Fund
Franklin Income Fund
Franklin Equity Income Fund
Franklin Utilities Fund
FUNDS SEEKING HIGH CURRENT
INCOME
Franklin's AGE High Income Fund
Franklin Investment Grade
Income Fund
Franklin Premier Return Fund
Franklin U.S. Government
Securities Fund
FUNDS SEEKING TAX-FREE
INCOME
Franklin Federal Tax-Free
Income Fund
Franklin High Yield Tax-Free
Income Fund
Franklin California High Yield
Municipal Fund
Franklin Alabama Tax-Free
Income Fund
Franklin Arizona Tax-Free
Income Fund
Franklin California Tax-Free
Income Fund
Franklin Colorado Tax-Free
Income Fund
Franklin Connecticut Tax-Free
Income Fund
Franklin Florida Tax-Free
Income Fund
Franklin Georgia Tax-Free
Income Fund
Franklin Hawaii Municipal
Bond Fund
Franklin Indiana Tax-Free
Income Fund
Franklin Kentucky Tax-Free
Income Fund
Franklin Louisiana Tax-Free
Income Fund
Franklin Maryland Tax-Free
Income Fund
Franklin Missouri Tax-Free
Income Fund
Franklin New Jersey Tax-Free
Income Fund
Franklin New York Tax-Free
Income Fund
Franklin North Carolina Tax-Free
Income Fund
Franklin Oregon Tax-Free
Income Fund
Franklin Pennsylvania Tax-Free
Income Fund
Franklin Puerto Rico Tax-Free
Income Fund
Franklin Texas Tax-Free
Income Fund
Franklin Virginia Tax-Free
Income Fund
Franklin Washington Municipal
Bond Fund
FUNDS SEEKING TAX-FREE
INCOME THROUGH INSURED
PORTFOLIOS
Franklin Insured Tax-Free
Income Fund
Franklin Arizona
Insured Tax-Free
Income Fund
Franklin California Insured Tax-Free
Income Fund
Franklin Florida Insured Tax-Free
Income Fund
Franklin Massachusetts Insured Tax-
Free Income Fund
Franklin Michigan Insured Tax-Free
Income Fund
Franklin Minnesota Insured Tax-
Free Income Fund
Franklin New York Insured Tax-Free
Income Fund
Franklin Ohio Insured Tax-Free
Income Fund
FUNDS SEEKING HIGH CURRENT
INCOME AND STABILITY OF
PRINCIPAL
Franklin Adjustable Rate
Securities Fund
Franklin Adjustable U.S.
Government Securities Fund
Franklin Short-Intermediate
U.S. Government Securities
Fund
FUND SEEKING HIGH AFTER-TAX
INCOME FOR CORPORATIONS
Franklin Corporate Qualified
Dividend Fund
MONEY MARKET FUNDS SEEKING
SAFETY OF PRINCIPAL AND
INCOME
Franklin Money Fund
Franklin Federal Money Fund
Franklin Tax-Exempt Money
Fund
Franklin California Tax-Exempt
Money Fund
Franklin New York Tax-Exempt
Money Fund
IFT Franklin U.S. Treasury
Money Market Portfolio
FUNDS FOR
NON-U.S. INVESTORS
FRANKLIN PARTNERS FUNDS(R)
Franklin Tax-Advantaged
High Yield Securities Fund
Franklin Tax-Advantaged
International Bond Fund
Franklin Tax-Advantaged
U.S. Government
Securities Fund
29
<PAGE>
NOTES
-----
30
<PAGE>
NOTES
-----
31
<PAGE>
NOTES
-----
32
<PAGE>
TEMPLETON REAL ESTATE
SECURITIES FUND
PRINCIPAL UNDERWRITER:
Franklin Templeton
Distributors, Inc.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Account Services
1-800-354-9191
Fund Information
1-800-292-9293
Institutional Services
1-800-321-8563
This Prospectus is not an offering of the
securities herein described in any state
in which the offering is not authorized. No
sales representative, dealer, or other person
is authorized to give any information or make
any representations other than those
contained in this Prospectus. Further
information may be obtained from the
Principal Underwriter.
TL10 P 1/95
[LOGO OF RECYCLED PAPER APPEARS HERE]
TEMPLETON
REAL
ESTATE
SECURITIES
FUND
Prospectus
January 1, 1995
as supplemented
April 1, 1995
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
TEMPLETON REAL ESTATE SECURITIES FUND
THIS STATEMENT OF ADDITIONAL INFORMATION DATED JANUARY 1, 1995,
AS SUPPLEMENTED APRIL 1, 1995, IS NOT A PROSPECTUS.
IT SHOULD BE READ IN CONJUNCTION WITH THE
PROSPECTUS OF TEMPLETON REAL ESTATE SECURITIES FUND
DATED JANUARY 1, 1995, AS SUPPLEMENTED APRIL 1, 1995,
WHICH MAY BE OBTAINED WITHOUT CHARGE
UPON REQUEST TO THE PRINCIPAL UNDERWRITER,
FRANKLIN TEMPLETON DISTRIBUTORS, INC.,
700 CENTRAL AVENUE, P.O. BOX 33030,
ST. PETERSBURG, FLORIDA 33733-8030
TOLL FREE TELEPHONE: (800) 237-0738
TABLE OF CONTENTS
General Information and History -The Investment Manager
Investment Objectives and Policies -Business Manager
-Investment Policies -Custodian and Transfer Agent
-Repurchase Agreements -Legal Counsel
-Futures Contracts -Independent Accountants
-Options on Securities and Stock -Reports to Shareholders
Indices Brokerage Allocation
-Foreign Currency Hedging Purchase, Redemption and
Transactions Pricing of Share
-Investment Restrictions -Ownership and Authority Disputes
-Risk Factors -Tax Deferred Retirement Plans
-Trading Policies -Letter of Intent
-Personal Securities Transactions -Purchases at Net Asset Value
Management of the Fund Tax Status
Principal Shareholders Principal Underwriter
Investment Management and Other Description of Shares
Services Performance Information
-Investment Management Agreement Financial Statements
-Management Fees
GENERAL INFORMATION AND HISTORY
Templeton Real Estate Securities Fund (the "Fund"), formerly
Templeton Real Estate Trust, was organized as a Massachusetts
business trust on July 17, 1989, and is registered under the
Investment Company Act of 1940 (the "1940 Act") as an open-end
diversified management investment company.
INVESTMENT OBJECTIVES AND POLICIES
Investment Policies. The investment objectives and policies
of the Fund are described in the Fund's Prospectus under the
heading "General Description--Investment Objectives and
Policies."
<PAGE>
Repurchase Agreements. Repurchase agreements are contracts
under which the buyer of a security simultaneously commits to
resell the security to the seller at an agreed-upon price and
date. Under a repurchase agreement, the seller is required to
maintain the value of the securities subject to the repurchase
agreement at not less than their repurchase price. Templeton,
Galbraith & Hansberger Ltd. (the "Investment Manager") will
monitor the value of such securities daily to determine that the
value equals or exceeds the repurchase price. Repurchase
agreements may involve risks in the event of default or
insolvency of the seller, including possible delays or
restrictions upon the Fund's ability to dispose of the underlying
securities. The Fund will enter into repurchase agreements only
with parties who meet creditworthiness standards approved by the
Board of Trustees, i.e., banks or broker-dealers which have been
determined by the Investment Manager to present no serious risk
of becoming involved in bankruptcy proceedings within the time
frame contemplated by the repurchase transaction.
Futures Contracts. The Fund may purchase and sell financial
futures contracts. 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 futures contract will
be deposited in a segregated account with the Fund's Custodian.
When writing a 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 an index
futures contract, a portfolio with a volatility substantially
similar to that of the index on which the futures contract is
based), or holding a call option permitting the Fund to purchase
the same futures contract at a price no higher than the price of
the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's
Custodian).
Options on Securities and Stock Indices. The Fund may write
covered call and put options and purchase call and put options on
securities or stock indices that are traded on United States and
foreign exchanges and in the over-the-counter markets.
An option on a security is a contract that gives the
purchaser of the option, in return for the premium paid, the
right to buy a specified security (in the case of a call option)
or to sell a specified security (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 written by the Fund is
covered if the Fund owns the underlying security 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 is also covered if the
Fund holds a call on the same security 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 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 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 stock indices by owning
securities whose price changes, in the opinion of the Investment
Manager, are expected to be similar to those of the index, or in
such other manner as may be in accordance with the rules of the
exchange on which the option is traded and applicable laws and
regulations. Nevertheless, where the Fund covers a call option
on a stock 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 stock indices 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 the Fund's gross income in the event the
option expires unexercised or is closed out at a profit. If the
value of a security or an index 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 or index rises, however, the Fund will
realize a loss in its call option position, which will reduce the
benefit of any unrealized appreciation in the Fund's stock
investments. By writing a put option, the Fund assumes the risk
of a decline in the underlying security or index. To the extent
that the price changes of the portfolio securities being hedged
correlate with changes in the value of the underlying security or
index, writing covered put options on securities or indices 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 purchase put options to hedge its
investments against a decline in value. By purchasing a put
option, the Fund will seek to offset a decline in the value of
the portfolio securities being hedged through appreciation of the
put option. If the value of the Fund's investments does not
decline as anticipated, or if the value of the option does not
increase, the Fund's 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 or index
and the changes in value of the Fund's security holdings being
hedged.
The Fund may purchase call options on individual securities
to hedge against an increase in the price of securities that the
Fund anticipates purchasing in the future. Similarly, the Fund
may purchase call options to attempt to reduce the risk of
missing a broad market advance, or an advance in an industry or
market segment, at a time when the Fund holds uninvested cash or
short-term debt securities awaiting investment. When purchasing
call options, the Fund will bear the risk of losing all or a
portion of the premium paid if the value of the underlying
security or index 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,
the Fund may experience losses in some cases as a result of such
inability.
Foreign Currency Hedging Transactions. In order to hedge
against foreign currency exchange rate risks, the Fund may enter
into forward foreign currency exchange contracts and foreign
currency futures contracts, as well as purchase put or call
options on foreign currencies, as described below. The Fund may
also conduct its foreign currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market.
The Fund may enter into forward foreign currency exchange
contracts ("forward contracts") to attempt to minimize the risk
to the Fund from adverse changes in the relationship between the
U.S. dollar and foreign currencies. A forward contract is an
obligation to purchase or sell a specific currency for an agreed
price at a future date which is individually negotiated and
privately traded by currency traders and their customers. The
Fund may enter into a forward contract, for example, when it
enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S.
dollar price of the security. In addition, for example, when the
Fund believes that a foreign currency may suffer or enjoy a
substantial movement against another currency, it may enter into
a forward contract to sell an amount of the former foreign
currency approximating the value of some or all of the Fund's
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 foreign currency
forward transactions an amount of the Fund's 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
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. In addition, the Investment Manager
does not intend to enter into such forward contracts if, as a
result, the Fund will have more than 20% of the value of its
total assets committed to such contracts. While these contracts
are not presently regulated by the Commodity Futures Trading
Commission ("CFTC"), the CFTC may in the future assert authority
to regulate forward contracts. In such event, 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 the Fund's 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 currency futures will usually depend on the
Investment Manager's ability to forecast currency exchange rate
movements correctly. Should exchange rates move in an unexpected
manner, the Fund may not achieve the anticipated benefits of
foreign currency futures or may realize losses.
Investment Restrictions. The Fund has imposed upon itself
certain investment restrictions which, together with its
investment objectives and policies, are fundamental policies
except as otherwise indicated. No changes in the Fund's
investment objectives, policies or investment restrictions
(except those which are not fundamental policies) can be made
without the approval of the Shareholders of the Fund. For this
purpose, the provisions of the 1940 Act require the affirmative
vote of the lesser of either (1) 67% or more of the Fund's Shares
present at a Shareholders' meeting at which more than 50% of the
outstanding Shares are present or represented by proxy or (2)
more than 50% of the outstanding Shares of the Fund.
In accordance with these restrictions, the Fund will not:
1. Invest more than 5% of its total assets in the
securities of any one issuer (exclusive of U.S.
Government securities).
2. Invest directly in real estate or interests in real
estate (although it may purchase securities secured by
real estate or interests therein, or issued by
companies or investment trusts which invest in 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 Fund's Prospectus).
3. Purchase or retain securities of any company in which
officers of the Fund or of the Investment Manager,
individually owning more than 1/2 of 1% of the
securities of such company, in the aggregate own more
than 5% of the securities of such company.
4. Purchase more than 10% of any class of securities of
any one company, including more than 10% of its
outstanding voting securities, or invest in any company
for the purpose of exercising control or management.
5. Act as an underwriter; issue senior securities;
purchase on margin or sell short, except that the Fund
may make margin payments in connection with futures
contracts.
6. Loan money apart from the purchase of a portion of an
issue of publicly distributed bonds, debentures, notes
and other evidences of indebtedness, although the Fund
may enter into repurchase agreements and lend its
portfolio securities.
7. 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.
8. Invest more than 15% of its total assets in securities
of foreign companies that are not listed on a
recognized United States or foreign securities
exchange, including no more than 10% of its total
assets in restricted securities and other securities
(including repurchase agreements having more than seven
days remaining to maturity and over-the-counter options
purchased by the Fund and the assets used as cover for
over-the-counter options written by the Fund) 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).
9. Concentrate its investments in any one industry, except
that the Fund may invest 25% or more of its total
assets in securities of companies principally engaged
in or related to the real estate industry.
10. Borrow money, except that the Fund may borrow money
from banks in an amount not exceeding 30% of the value
of the Fund's total assets (not including the amount
borrowed), or pledge, mortgage or hypothecate its
assets for any purpose, except to secure borrowings and
then only to an extent not greater than 15% of the
Fund's total assets. Arrangements with respect to
margin for futures contracts are not deemed to be a
pledge of assets.
11. Participate on a joint or a joint and several basis in
any trading account in securities. (See "Investment
Objectives and Policies--Trading Policies" as to
transactions in the same securities for the Fund and
other Templeton Funds and clients.)
12. Invest more than 5% of its total assets in warrants
whether or not listed on the New York or American Stock
Exchanges, and more than 2% of its total 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 has undertaken with a state securities commission
that it will limit investments in illiquid securities to no more
than 5% of its total assets. In addition, the Fund has no
present intention of investing in collateralized mortgage
obligations.
Whenever any investment policy or investment restriction
states a maximum percentage of the Fund's assets which may be
invested in any security or other property, it is intended that
such maximum percentage limitation be determined immediately
after and as a result of the Fund's acquisition of such security
or property. The investment restrictions do not preclude the
Fund from purchasing the securities of any issuer pursuant to the
exercise of subscription rights distributed to the Fund by the
issuer, unless such purchase would result in a violation of
restrictions 8 or 9.
Risk Factors. The Fund has an unlimited right to purchase
securities in any developed foreign country and may invest up to
10% of its assets in underdeveloped countries, if such securities
are listed on an exchange, as well as a limited right to purchase
such securities if they are unlisted. Investors should consider
carefully the substantial risks involved in securities of
companies and governments of foreign nations, which are in
addition to the usual risks inherent in domestic investments.
There may be less publicly available information about
foreign companies comparable to the reports and ratings published
about companies in the United States. Foreign companies are not
generally subject to uniform accounting, auditing and financial
reporting standards, and auditing practices and requirements may
not be comparable to those applicable to United States companies.
Foreign markets have substantially less volume than the New York
Stock Exchange and securities of some foreign companies are less
liquid and more volatile than securities of comparable United
States companies. Commission rates in foreign countries, which
are generally fixed rather than subject to negotiation as in the
United States, are likely to be higher. In many foreign
countries there is less government supervision and regulation of
stock exchanges, brokers and listed companies than in the United
States.
Investments in companies domiciled in developing countries
may be subject to potentially higher risks than investments in
developed countries. These risks include (i) less social,
political and economic stability; (ii) the small current size of
the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of
liquidity and in greater price volatility; (iii) certain national
policies which may restrict 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 legal structures governing private
or foreign investment or allowing for judicial redress for injury
to private property; (vi) the absence, until recently in certain
Eastern European countries, of a capital market structure or
market-oriented economy; and (vii) the possibility that recent
favorable economic developments in Eastern Europe may be slowed
or reversed by unanticipated political or social events in such
countries.
Investments in Eastern European countries may involve risks
of nationalization, expropriation and confiscatory taxation. The
Communist governments of a number of Eastern European countries
expropriated large amounts of private property in the past, in
many cases without adequate compensation, and there can be no
assurance that such expropriation will not occur in the future.
In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the
affected countries. Further, no accounting standards exist in
Eastern European countries. Finally, even though certain Eastern
European currencies may be convertible into United States
dollars, the conversion rates may be artificial to the actual
market values and may be adverse to Fund Shareholders.
The Fund endeavors to buy and sell foreign currencies on as
favorable a basis as practicable. Some price spread on currency
exchange (to cover service charges) may be incurred, particularly
when the Fund changes investments from one country to another or
when proceeds of the sale of Shares in U.S. dollars are used for
the purchase of securities in foreign countries. Also, some
countries may adopt policies which would prevent the Fund from
transferring cash out of the country or withhold portions of
interest and dividends at the source. There is the possibility
of 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. 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 purchase securities with substantial risk characteristics and
other decisions such as changing the emphasis on investments from
one nation to another and from one type of security to another.
Some of these decisions may later prove profitable and others may
not. No assurance can be given that profits, if any, will exceed
losses.
The Trustees consider at least annually the likelihood of
the imposition by any foreign government of exchange control
restrictions which would affect the liquidity of the Fund's
assets maintained with custodians in foreign countries, as well
as the degree of risk from political acts of foreign governments
to which such assets may be exposed. They also consider the
degree of risk involved through the holding of portfolio
securities in domestic and foreign securities depositories (see
"Investment Management and Other Services--Custodian and Transfer
Agent"). However, in the absence of willful misfeasance, bad
faith or gross negligence on the part of the Investment Manager,
any losses resulting from the holding of the Fund's portfolio
securities in foreign countries and/or with securities
depositories will be at the risk of the Shareholders. No
assurance can be given that the Fund's appraisal of the risks
will always be correct or that such exchange control restrictions
or political acts of foreign governments might not occur.
Additional risks may be involved with the Fund's special
investment techniques, including loans of portfolio securities
and borrowing for investment purposes. These risks are described
under the heading "Investment Techniques" in the Prospectus.
Trading Policies. The Investment Manager and its affiliated
companies serve as investment adviser to other investment
companies and private clients. Accordingly, the respective
portfolios of these funds and clients may contain many or some of
the same securities. When any two or more of these funds or
clients are engaged simultaneously in the purchase or sale of the
same security, the transactions are placed for execution in a
manner designed to be equitable to each party. The larger size
of the transaction may affect the price of the security and/or
the quantity which may be bought or sold for each party. If the
transaction is large enough, brokerage commissions in certain
countries may be negotiated below those otherwise chargeable.
Sale or purchase of securities, without payment of brokerage
commissions, fees (except customary transfer fees) or other
remuneration in connection therewith, may be effected between any
of these funds, or between funds and private clients, under
procedures adopted pursuant to Rule 17a-7 under the 1940 Act.
Personal Securities Transactions. Access persons of the
Franklin Templeton Group, as defined in SEC Rule 17(j) under the
1940 Act, who are employees of Franklin Resources, Inc. or their
subsidiaries, are permitted to engage in personal securities
transactions subject to the following general restrictions and
procedures: (1) The trade must receive advance clearance from a
Compliance Officer and must be completed within 24 hours after
this clearance; (2) Copies of all brokerage confirmations must be
sent to the Compliance Officer and within 10 days after the end
of each calendar quarter, a report of all securities transactions
must be provided to the Compliance Officer; (3) In addition to
items (1) and (2), access persons involved in preparing and
making investment decisions must file annual reports of their
securities holdings each January and also inform the Compliance
Officer (or other designated personnel) if they own a security
that is being considered for a fund or other client transaction
or if they are recommending a security in which they have an
ownership interest for purchase or sale by a fund or other
client.
MANAGEMENT OF THE FUND
The name, address, principal occupation during the past five
years and other information with respect to each of the Trustees
and Principal Executive Officers of the Fund are as follows:
Name, Address and Principal Occupation
Offices with Fund During Past Five Years
JOHN M. TEMPLETON* Chairman of the Board of other
Lyford Cay Templeton Funds; president of First
Nassau, Bahamas Trust Bank, Ltd., Nassau, Bahamas;
Chairman of the Board and previously the chairman of the
board and employee of Templeton,
Galbraith & Hansberger Ltd. (prior
to October 30, 1992).
F. BRUCE CLARKE Retired; former credit advisor,
19 Vista View Blvd. National Bank of Canada, Toronto; a
Thornhill, Ontario director or trustee of other
Trustee Templeton Funds.
HASSO-G VON DIERGARDT-NAGLO Farmer; president of Clairhaven
R.R. 3 Investments, Ltd. and other private
Stouffville, Ontario investment companies; a director or
Trustee trustee of other Templeton Funds.
BETTY P. KRAHMER A director or trustee of other
2201 Kentmere Parkway Templeton Funds; director or
Wilmington, Delaware trustee of various civic
Trustee associations; former economic
analyst, U.S. Government.
JOHN G. BENNETT, JR. A director or trustee of other
3 Radnor Corporate Center Templeton Funds; founder, chairman
Suite 150 of the board, and president of the
100 Matsonford Road Foundation for New Era
Radnor, Pennsylvania Philanthropy; president and
Trustee chairman of the boards of the
Evelyn M. Bennett Memorial
Foundation and NEP International
Trust; chairman of the board and
chief executive officer of The
Bennett Group International, LTD;
chairman of the boards of Human
Service Systems, Inc. and Multi-
Media Communicators, Inc.; a
director or trustee of many
national and international
organizations, universities, and
grant-making foundations serving in
various executive board capacities;
member of the Public Policy
Committee of the Advertising
Council.
FRED R. MILLSAPS A director or trustee of other
2665 NE 37th Drive Templeton Funds; manager of
Fort Lauderdale, Florida personal investments (1978-
Trustee present); chairman and chief
executive officer of Landmark
Banking Corporation (1969-1978);
financial vice president of Florida
Power and Light (1965-1969); vice
president of Federal Reserve Bank
of Atlanta (1958-1965); director of
various business and nonprofit
organizations.
ANDREW H. HINES, JR. Consultant, Triangle Consulting
150 2nd Avenue N. Group; chairman of the board and
St. Petersburg, Florida chief executive officer of Florida
Trustee Progress Corporation (1982-February
1990) and director of various of
its subsidiaries; chairman and
director of Precise Power
Corporation; Executive-in-Residence
of Eckerd College (1991-present);
director of Checkers Drive-In
Restaurants, Inc.; a director or
trustee of other Templeton Funds.
RUPERT H. JOHNSON, JR.* Executive vice president and
777 Mariners Island Blvd. director of Franklin Resources,
San Mateo, California Inc.; president and director,
Trustee Franklin Advisers, Inc.; executive
vice president and director,
Franklin Templeton Distributors,
Inc.; director, Franklin
Administrative Services, Inc.; and
officer and/or director, trustee or
managing general partner, as the
case may be, of most other
subsidiaries of Franklin Resources,
Inc., and of most of the investment
companies in the Franklin Templeton
Group.
HARRIS J. ASHTON Chairman of the board, president
Metro Center, 1 Station and chief executive officer of
Place General Host Corporation (nursery
Stamford, Connecticut and craft centers); director of RBC
Trustee Holdings Inc. (a bank holding
company) and Bar-S Foods; director
or trustee of other Templeton
Funds; and director, trustee or
managing general partner, as the
case may be, for most of the
investment companies in the
Franklin Group of Funds.
S. JOSEPH FORTUNATO Member of the law firm of Pitney,
200 Campus Drive Hardin, Kipp & Szuch; director of
Florham Park, New Jersey General Host Corporation; director
Trustee or trustee of other Templeton
Funds; and director, trustee or
managing general partner, as the
case may be, for most of the
investment companies in the
Franklin Group of Funds.
GORDON S. MACKLIN Chairman of White River Corporation
8212 Burning Tree Road (information services); director of
Bethesda, Maryland Infovest Corporation, Fund America
Trustee Enterprise Holdings, Inc., Martin
Marietta Corporation, MCI
Communications Corporation and
Medimmune, Inc.; director or
trustee of other Templeton Funds;
director, trustee, or managing
general partner, as the case may
be, of most of the investment
companies in the Franklin Group of
Funds; formerly: chairman,
Hambrecht and Quist Group;
director, H&Q Healthcare Investors;
and president, National Association
of Securities Dealers, Inc.
NICHOLAS F. BRADY* A director or trustee of other
The Bullitt House Templeton Funds; chairman of
102 East Dover Street Templeton Emerging Markets
Easton, Maryland Investment Trust PLC; chairman and
Trustee president of Darby Advisors, Inc.
(an investment firm) since January,
1993; director of the H. J. Heinz
Company, Capital Cities/ABC, Inc.
and the Christiana Companies;
Secretary of the United States
Department of the Treasury from
1988 to January, 1993; Chairman of
the Board of Dillon, Read & Co.
Inc. (investment banking) prior
thereto.
MARK G. HOLOWESKO President and director of
Lyford Cay Templeton, Galbraith & Hansberger
Nassau, Bahamas Ltd.; director of global equity
President research for Templeton Worldwide,
Inc.; president or vice president
of other Templeton Funds;
investment administrator with Roy
West Trust Corporation (Bahamas)
Limited (1984-1985).
CHARLES B. JOHNSON President, chief executive officer,
777 Mariners Island Blvd. and director of Franklin Resources,
San Mateo, California Inc.; chairman of the board,
Vice President Franklin Templeton Distributors,
Inc.; chairman of the board and
director, Franklin Advisers, Inc.;
director, Franklin Administrative
Services, Inc. and General Host
Corporation; director of Templeton
Global Investors, Inc.; and officer
and director, trustee or managing
general partner, as the case may
be, of most other subsidiaries of
Franklin Resources, Inc. and of
most of the investment companies in
the Franklin Templeton Group.
MARTIN L. FLANAGAN Senior vice president, treasurer,
777 Mariners Island Blvd. and chief financial officer of
San Mateo, California Franklin Resources, Inc.; director
Vice President and executive vice president of
Templeton Investment Counsel, Inc.
and Templeton Global Investors,
Inc.; president or vice president
of the Templeton Funds; accountant,
Arthur Andersen & Company (1982-
1983); member of the International
Society of Financial Analysts and
the American Institute of Certified
Public Accounts.
JEFFREY A. EVERETT Vice president, Portfolio
Lyford Cay Management/Research, Templeton,
Nassau, Bahamas Galbraith & Hansberger Ltd.;
Vice President formerly, investment officer, First
Pennsylvania Investment Research
(until 1989).
JOHN R. KAY Vice president of the Templeton
500 East Broward Blvd. Funds; vice president and treasurer
Fort Lauderdale, Florida of Templeton Global Investors, Inc.
Vice President and Templeton Worldwide, Inc.;
assistant vice president of
Franklin Templeton Distributors,
Inc.; formerly, vice president and
controller of the Keystone Group,
Inc.
THOMAS M. MISTELE Senior vice president of Templeton
700 Central Avenue Global Investors, Inc.; vice
St. Petersburg, Florida president of Franklin Templeton
Secretary Distributors, Inc.; secretary of
the Templeton Funds; attorney,
Dechert Price & Rhoads (1985-1988)
and Freehill, Hollingdale & Page
(1988); judicial clerk, U.S.
District Court (Eastern District of
Virginia) (1984-1985).
JAMES R. BAIO Certified public accountant;
500 East Broward Blvd. treasurer of the Templeton Funds;
Fort Lauderdale, Florida senior vice president of Templeton
Treasurer Worldwide, Inc., Templeton Global
Investors, Inc., and Templeton
Funds Trust Company; formerly,
senior tax manager of Ernst & Young
(certified public accountants)
(1977-1989).
JACK L. COLLINS Assistant treasurer of the
700 Central Avenue Templeton Funds; assistant vice
St. Petersburg, Florida president of Franklin Templeton
Assistant Treasurer Investor Services, Inc.; former
partner of Grant Thornton,
independent public accountants.
JEFFREY L. STEELE Partner, Dechert Price & Rhoads.
1500 K Street, N.W.
Washington, D.C.
Assistant Secretary
__________________
* Messrs. Templeton, Johnson and Brady are Trustees who are
"interested persons" of the Fund as that term is defined in
the 1940 Act. Mr. Brady and Franklin Resources, Inc. are
limited partners of Darby Overseas Partners, L.P. ("Darby
Overseas"). Mr. Brady established Darby Overseas in
February, 1994, and is Chairman and a shareholder of the
corporate general partner of Darby Overseas. In addition,
Darby Overseas and Templeton, Galbraith & Hansberger, Ltd.
are limited partners of Darby Emerging Markets Fund, L.P.
Messrs. von Diergardt, Bennett, Millsaps, Hines, Clarke,
Ashton, Macklin and Fortunato and Ms. Krahmer are Trustees
who are not "interested persons" of the Fund.
As indicated above, certain of the Trustees and Officers
hold positions with other funds in the Franklin Group of Funds
and the Templeton Family of Funds. Each fund in the Templeton
Family of Funds pays its independent directors/trustees and Mr.
Brady an annual retainer and/or fees for attendance at board and
committee meetings, the amount of which is based on the level of
assets in the fund. Accordingly, the Fund pays each independent
Trustee and Mr. Brady an annual retainer of $100. Trustees are
reimbursed for any expenses incurred in attending meetings.
During the fiscal year ended August 31, 1994, pursuant to the
compensation arrangement then in effect, fees totalling $22,500
were paid by the Fund to Messrs. Ashton ($1,850), Bennett
($2,850), Brady ($1,850), Clarke ($2,850), Fortunato ($1,850),
Hines ($2,850), Macklin ($1,850), Millsaps ($2,850), and von
Diergardt-Naglo ($1,850) and Mrs. Krahmer ($1,850). For the
fiscal year ended August 31, 1994, pursuant to the compensation
arrangement then in effect, Messrs. Ashton, Bennett, Brady,
Clarke, Fortunato, Hines, Johnson, Macklin, Millsaps, Templeton
and von Diergardt-Naglo and Mrs. Krahmer received total fees of
$__________, $105,625, $86,125, $95,275, $__________, $106,125,
$__________, $__________, $106,125, $__________, $75,275, and
$75,275, respectively, from the various Franklin and Templeton
funds for which they serve as directors, trustees, or managing
general partners. No Officer or Trustee received any other
compensation directly from the Fund.
PRINCIPAL SHAREHOLDERS
As of ________, 1995 there were ________ Shares of the Fund
outstanding, of which ______ Shares (_____%) were owned
beneficially, directly or indirectly, by all the Trustees and
officers of the Fund as a group. As of _______, 1995, to the
knowledge of management, no person owned beneficially 5% or more
of the outstanding Shares, except Merrill Lynch, Pierce, Fenner &
Smith, Inc., owned ______ Shares (____% of the outstanding
Shares).
INVESTMENT MANAGEMENT AND OTHER SERVICES
Investment Management Agreement. The Investment Manager of
the Fund is Templeton, Galbraith & Hansberger Ltd., a Bahamian
corporation with offices in Nassau, Bahamas. On April 15, 1994,
the Investment Manager assumed the investment management duties
of Templeton Investment Counsel, Inc., a Florida corporation,
with respect to the Fund under the Investment Management
Agreement. The Investment Management Agreement dated October 30,
1992 (the "Agreement") was approved by the Shareholders of the
Fund on October 30, 1992, was last approved by the Board of
Trustees, including a majority of the Trustees who were not
parties to the Agreement or interested persons of any such party,
at a meeting on December 6, 1994, and will run through
December 31, 1995. The Agreement continues from year to year
subject to approval annually by the Board of Trustees or by vote
of a majority of the outstanding Shares of the Fund (as defined
in the 1940 Act) and also, in either event, with the approval of
a majority of those Trustees who are not parties to the Agreement
or interested persons of any such party in person at a meeting
called for the purpose of voting on such approval.
The Agreement requires the Investment Manager to manage the
investment and reinvestment of the Fund's assets. The Investment
Manager is not required to furnish any personnel, overhead items
or facilities for the Fund, including daily pricing or trading
desk facilities, although such expenses are paid by investment
advisers of some other investment companies.
The Agreement provides that the Investment Manager will
select brokers and dealers for execution of the Fund's portfolio
transactions consistent with the Fund's brokerage policies (see
"Brokerage Allocation"). Although the services provided by
broker-dealers in accordance with the brokerage policies
incidentally may help reduce the expenses of or otherwise benefit
the Investment Manager and other investment advisory clients of
the Investment Manager and of its affiliates, as well as the
Fund, the value of such services is indeterminable and the
Investment Manager's fee is not reduced by any offset arrangement
by reason thereof.
When the Investment Manager determines to buy or sell the
same security for the Fund that the Investment Manager or one or
more of its affiliates has selected for one or more of its other
clients or for clients of its affiliates, the orders for all such
securities transactions are placed for execution by methods
determined by the Investment Manager, with approval by the Board
of Trustees, to be impartial and fair, in order to seek good
results for all parties (see "Investment Objectives and Policies
-- Trading Policies"). Records of securities transactions of
persons who know when orders are placed by the Fund are available
for inspection at least four times annually by the Compliance
Officer of the Fund so that the non-interested Trustees (as
defined in the 1940 Act) can be satisfied that the procedures are
generally fair and equitable to all parties.
The Agreement provides that the Investment Manager shall
have no liability to the Fund or any Shareholder of the Fund for
any error of judgment, mistake of law, or any loss arising out of
any investment or other act or omission in the performance by the
Investment Manager of its duties under the Agreement, except
liability resulting from willful misfeasance, bad faith or gross
negligence on the Investment Manager's part or reckless disregard
of its duties under the Agreement. The Agreement will terminate
automatically in the event of its assignment, and may be
terminated by the Fund at any time without payment of any penalty
on 60 days' written notice, with the approval of a majority of
the Trustees in office at the time or by vote of a majority of
the outstanding voting securities of the Fund (as defined in the
1940 Act).
Management Fees. For its services, the Fund pays the
Investment Manager a monthly fee equal on an annual basis to
0.75% of its average daily net assets during the year. Each
class of Shares pays a portion of the fee, determined by the
proportion of the Fund that it represents. During the fiscal
years ended August 31, 1994, 1993, and 1992, the Investment
Manager (and, prior to October 30, 1992, TGH, the Fund's previous
investment manager) received from the Fund under the Agreement
and under agreements in effect prior to October 30, 1992 fees of
$733,198, $341,213, and $265,021, respectively. The Investment
Manager will comply with any applicable state regulations which
may require the Investment Manager to make reimbursements to the
Fund in the event that the Fund's aggregate operating expenses,
including the management fee, but generally excluding interest,
taxes, brokerage commissions and extraordinary expenses, are in
excess of specific applicable limitations. The strictest rule
currently applicable to the Fund is 2.5% of the first $30,000,000
of net assets, 2% of the next $70,000,000 of net assets and 1.5%
of the remainder.
The Investment Manager. The Investment Manager is an
indirect wholly owned subsidiary of Franklin, a publicly traded
company whose shares are listed on the New York Stock Exchange.
Charles B. Johnson (a vice president of the Fund) and Rupert H.
Johnson, Jr. (a Trustee of the Fund) are principal shareholders
of Franklin and own, respectively, approximately 20% and 16% of
its outstanding shares. Messrs. Charles B. Johnson and Rupert H.
Johnson, Jr. are brothers.
Business Manager. Templeton Global Investors, Inc. performs
certain administrative functions as Business Manager for the
Fund, including:
o providing office space, telephone, office equipment and
supplies for the Fund;
o paying compensation of the Fund's officers for services
rendered as such;
o authorizing expenditures and approving bills for
payment on behalf of the Fund;
o supervising preparation of annual and semiannual
reports to Shareholders, notices of dividends, capital
gain distributions and tax credits, and attending to
routine correspondence and other communications with
individual Shareholders;
o daily pricing of the Fund's investment portfolio and
preparing and supervising publication of daily
quotations of the bid and asked prices of the Fund's
Shares, earnings reports and other financial data;
o monitoring relationships with organizations serving the
Fund, including the custodian and printers;
o providing trading desk facilities for the Fund;
o supervising compliance by the Fund with recordkeeping
requirements under the 1940 Act and the rules and
regulations thereunder, with state regulatory
requirements, maintaining books and records for the
Fund (other than those maintained by the custodian and
transfer agent), and preparing and filing tax reports
other than the Fund's income tax returns;
o monitoring the qualifications of tax deferred
retirement plans providing for investment in Shares of
the Fund; and
o providing executive, clerical and secretarial help
needed to carry out these responsibilities.
For its services, the Business Manager receives a monthly
fee equal on an annual basis to 0.15% of the first $200,000,000
of the Fund's average daily net assets, reduced to 0.135%
annually of such net assets in excess of $200,000,000, further
reduced to 0.1% annually of such net assets in excess of
$700,000,000, and further reduced to 0.075% annually of such net
assets in excess of $1,200,000,000. Each class of Shares pays a
portion of the fee, determined by the proportion of the Fund that
it represents. Since the Business Manager's fee covers services
often provided by investment advisers to other funds, the Fund's
combined expenses for advisory and administrative services
together may be higher than those of some other investment
companies. During the fiscal years ended August 31, 1994, 1993,
and 1992, the Business Manager (and, prior to April 1, 1993,
Templeton Funds Management, Inc., the previous business manager)
received business management fees of $146,640, $68,243, and
$53,004, respectively.
The Business Manager is relieved of liability to the Fund
for any act or omission in the course of its performance under
the Business Management Agreement, in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
its duties and obligations under the Agreement. The Business
Management Agreement may be terminated by the Fund at any time on
60 days' written notice without payment of penalty, provided that
such termination by the Fund shall be directed or approved by
vote of a majority of the Trustees of the Fund in office at the
time or by vote of a majority of the outstanding voting
securities of the Fund, and shall terminate automatically and
immediately in the event of its assignment.
Templeton Global Investors, Inc. is an indirect wholly owned
subsidiary of Franklin.
Custodian and Transfer Agent. The Chase Manhattan Bank,
N.A., serves as Custodian of the Fund's assets, which are
maintained at the Custodian's principal office, MetroTech Center,
Brooklyn, New York 11245, and at the offices of its branches and
agencies throughout the world. The Custodian has entered into
agreements with foreign sub-custodians approved by the Trustees
pursuant to Rule 17f-5 under the 1940 Act. The Custodian, its
branches and sub-custodians generally domestically, and
frequently abroad, do not actually hold certificates for the
securities in their custody, but instead have book records with
domestic and foreign securities depositories, which in turn have
book records with the transfer agents of the issuers of the
securities. Compensation for the services of the Custodian is
based on a schedule of charges agreed on from time to time.
Franklin Templeton Investor Services, Inc. serves as the
Fund's Transfer Agent. Services performed by the Transfer Agent
include processing purchase, transfer and redemption orders,
making dividend payments, capital gain distributions and
reinvestments, and handling routine communications with
Shareholders. The Transfer Agent receives from the Fund an
annual fee of $13.74 per Shareholder account plus out-of-pocket
expenses. This fee is adjusted each year to reflect changes in
the Department of Labor Consumer Price Index.
Legal Counsel. Dechert Price & Rhoads, 1500 K Street, N.W.,
Washington, D.C. 20005, is legal counsel for the Fund.
Independent Accountants. The firm of McGladrey & Pullen,
555 Fifth Avenue, New York, New York 10017, serves as independent
accountants for the Fund. Its audit services comprise
examination of the Fund's financial statements and review of the
Fund's filings with the Securities and Exchange Commission and
the Internal Revenue Service.
Reports to Shareholders. The Fund's fiscal year ends on
August 31. Shareholders are provided at least semiannually with
reports showing the Fund's portfolio and other information,
including an annual report with financial statements audited by
independent accountants.
BROKERAGE ALLOCATION
The Investment Management Agreement provides that the
Investment Manager is responsible for selecting members of
securities exchanges, brokers and dealers (such members, brokers
and dealers being hereinafter referred to as "brokers") for the
execution of the Fund's portfolio transactions and, when
applicable, the negotiation of commissions in connection
therewith. All decisions and placements are made in accordance
with the following principles:
1. Purchase and sale orders are usually placed with
brokers who are selected by the Investment Manager as
able to achieve "best execution" of such orders. "Best
execution" means prompt and reliable execution at the
most favorable securities price, taking into account
the other provisions hereinafter set forth. The
determination of what may constitute best execution and
price in the execution of a securities transaction by a
broker involves a number of considerations, including,
without limitation, the overall direct net economic
result to the Fund (involving both price paid or
received and any commissions and other costs paid), the
efficiency with which the transaction is effected, the
ability to effect the transaction at all where a large
block is involved, availability of the broker to stand
ready to execute possibly difficult transactions in the
future, and the financial strength and stability of the
broker. Such considerations are judgmental and are
weighed by the Investment Manager in determining the
overall reasonableness of brokerage commissions.
2. In selecting brokers for portfolio transactions, the
Investment Manager takes into account its past
experience as to brokers qualified to achieve "best
execution," including brokers who specialize in any
foreign securities held by the Fund.
3. The Investment Manager is authorized to allocate
brokerage business to brokers who have provided
brokerage and research services, as such services are
defined in Section 28(e) of the Securities Exchange Act
of 1934 (the "1934 Act"), for the Fund and/or other
accounts, if any, for which the Investment Manager
exercises investment discretion (as defined in Section
3(a)(35) of the 1934 Act) and, as to transactions to
which fixed minimum commission rates are not
applicable, to cause the Fund to pay a commission for
effecting a securities transaction in excess of the
amount another broker would have charged for effecting
that transaction, if the Investment Manager in making
the selection in question determines in good faith that
such amount of commission is reasonable in relation to
the value of the brokerage and research services
provided by such broker, viewed in terms of either that
particular transaction or the Investment Manager's
overall responsibilities with respect to the Fund and
the other accounts, if any, as to which it exercises
investment discretion. In reaching such determination,
the Investment Manager is not required to place or
attempt to place a specific dollar value on the
research or execution services of a broker or on the
portion of any commission reflecting either of said
services. In demonstrating that such determinations
were made in good faith, the Investment Manager shall
be prepared to show that all commissions were allocated
and paid for purposes contemplated by the Fund's
brokerage policy; that the research services provide
lawful and appropriate assistance to the Investment
Manager in the performance of its investment
decision-making responsibilities; and that the
commissions paid were within a reasonable range. The
determination that commissions were within a reasonable
range shall be based on any available information as to
the level of commissions known to be charged by other
brokers on comparable transactions, but there shall be
taken into account the Fund's policies that (i)
obtaining a low commission is deemed secondary to
obtaining a favorable securities price, since it is
recognized that usually it is more beneficial to the
Fund to obtain a favorable price than to pay the lowest
commission; and (ii) the quality, comprehensiveness and
frequency of research studies which are provided for
the Investment Manager are useful to the Investment
Manager in performing its advisory services under its
Agreement with the Fund. Research services provided by
brokers to the Investment Manager are considered to be
in addition to, and not in lieu of, services required
to be performed by the Investment Manager under its
Investment Management Agreement with the Fund.
Research furnished by brokers through whom the Fund
effects securities transactions may be used by the
Investment Manager for any of its accounts, and not all
such research may be used by the Investment Manager for
the Fund. When execution of portfolio transactions is
allocated to brokers trading on exchanges with fixed
brokerage commission rates, account may be taken of
various services provided by the broker, including
quotations outside the United States for daily pricing
of foreign securities held in the Fund's portfolio.
4. Purchases and sales of portfolio securities within the
United States other than on a securities exchange are
executed with primary market makers acting as
principal, except where, in the judgment of the
Investment Manager, better prices and execution may be
obtained on a commission basis or from other sources.
5. Sales of the Fund's Shares (which shall be deemed to
include Shares of other companies registered under the
1940 Act which have either the same investment adviser
or an investment adviser affiliated with the Fund's
Investment Manager) made by a broker are one factor
among others to be taken into account in deciding to
allocate portfolio transactions (including agency
transactions, principal transactions, purchases in
underwritings or tenders in response to tender offers)
for the account of the Fund to that broker; provided
that the broker shall furnish "best execution," as
defined in paragraph 1 above, and that such allocation
shall be within the scope of the Fund's other policies
as stated above; and provided further, that in every
allocation made to a broker in which the sale of Shares
is taken into account there shall be no increase in the
amount of the commissions or other compensation paid to
such broker beyond a reasonable commission or other
compensation determined, as set forth in paragraph 3
above, on the basis of best execution alone or best
execution plus research services, without taking
account of or placing any value upon such sale of
Shares.
Insofar as known to management, no Trustee or officer of the
Fund, nor the Investment Manager or Principal Underwriter or any
person affiliated with either of them, has any material direct or
indirect interest in any broker employed by or on behalf of the
Fund. Franklin Templeton Distributors, Inc., the Fund's
Principal Underwriter, is a registered broker-dealer, but has
never executed any purchase or sale transactions for the Fund's
portfolio or participated in any commissions on any such
transactions, and has no intention of doing so in the future.
The total brokerage commissions on the portfolio transactions for
the Fund during the fiscal years ended August 31, 1994, 1993, and
1992, (not including any spreads or concessions on principal
transactions) were $412,000, $156,000, and $64,989, respectively.
All portfolio transactions are allocated to broker-dealers only
when their prices and execution, in the judgment of the
Investment Manager, are equal to the best available within the
scope of the Fund's policies. There is no fixed method used in
determining which broker-dealers receive which order or how many
orders.
PURCHASE, REDEMPTION AND PRICING OF SHARES
The Prospectus describes the manner in which the Fund's
Shares may be purchased and redeemed. See "How to Buy Shares of
the Fund" and "How to Sell Shares of the Fund" in the Prospectus.
Net asset value per Share is determined as of the close of
business on the New York Stock Exchange, every Monday through
Friday (exclusive of national business holidays). The Fund's
offices will be closed, and net asset value will not be
calculated, on those days on which the New York Stock Exchange is
closed, which currently are: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Trading in securities on European and Far Eastern securities
exchanges and over-the-counter markets is normally completed well
before the close of business in New York on each day on which the
New York Stock Exchange is open. Trading of European or Far
Eastern securities generally, or in a particular country or
countries, may not take place on every New York business day.
Furthermore, trading takes place in various foreign markets on
days which are not business days in New York and on which the
Fund's net asset value is not calculated. The Fund calculates
net asset value per Share, and therefore effects sales,
redemptions and repurchases of its Shares, as of the close of the
New York Stock Exchange once on each day on which that Exchange
is open. Such calculation does not take place contemporaneously
with the determination of the prices of many of the portfolio
securities used in such calculation and if events occur which
materially affect the value of those foreign securities, they
will be valued at fair market value as determined by the
management and approved in good faith by the Board of Trustees.
The Board of Trustees may establish procedures under which
the Fund may suspend the determination of net asset value for the
whole or any part of any period during which (1) the New York
Stock Exchange is closed other than for customary weekend and
holiday closings, (2) trading on the New York Stock Exchange is
restricted, (3) an emergency exists as a result of which disposal
of securities owned by the Fund is not reasonably practicable or
it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (4) for such other period as the
Securities and Exchange Commission may by order permit for the
protection of the holders of the Fund's Shares.
Ownership and Authority Disputes. In the event of disputes
involving multiple claims of ownership or authority to control a
shareholder's account, the Fund has the right (but has no
obligation) to: (a) freeze the account and require the written
agreement of all persons deemed by the Fund to have a potential
property interest in the account, prior to executing instructions
regarding the account; or (b) interplead disputed funds or
accounts with a court of competent jurisdiction. Moreover, the
Fund may surrender ownership of all or a portion of an account to
the Internal Revenue Service in response to a Notice of Levy.
In addition to the special purchase plans described in the
Prospectus, other special purchase plans also are available:
Tax Deferred Retirement Plans. The Fund offers its
Shareholders the opportunity to participate in the following
types of retirement plans:
o For individuals whether or not covered by other
qualified plans;
o For simplified employee pensions;
o For employees of tax-exempt organizations; and
o For corporations, self-employed individuals and
partnerships.
Capital gains and income received by the foregoing plans
generally are exempt from taxation until distribution from the
plans. Investors considering participation in any such plan
should review specific tax laws relating thereto and should
consult their attorneys or tax advisers with respect to the
establishment and maintenance of any such plan. Additional
information, including the fees and charges with respect to all
of these plans, is available upon request to the Principal
Underwriter. No distribution under a retirement plan will be
made until Templeton Funds Trust Company receives the
participant's election on IRS Form W-4P (available on request
from the Transfer Agent) and such other documentation as it deems
necessary, as to whether or not U.S. income tax is to be withheld
from such distribution.
Individual Retirement Account (IRA). All individuals
(whether or not covered by qualified private or governmental
retirement plans) may purchase Shares of the Fund pursuant to an
Individual Retirement Account. However, contributions to an IRA
by an individual who is covered by a qualified private or
governmental plan may not be tax-deductible depending on the
individual's income. Custodial services for Individual
Retirement Accounts are available through Templeton Funds Trust
Company. Disclosure statements summarizing certain aspects of
Individual Retirement Accounts are furnished to all persons
investing in such accounts, in accordance with Internal Revenue
Service regulations.
Simplified Employee Pensions (SEP-IRA). For employers who
wish to establish a simplified form of employee retirement
program investing in Shares of the Fund, there are available
Simplified Employee Pensions invested in IRA plans. Details and
materials relating to these plans will be furnished upon request
to the Principal Underwriter.
Retirement Plan for Employees of Tax-Exempt Organizations
(403(b)). Employees of public school systems and certain types
of charitable organizations may enter into a deferred
compensation arrangement for the purchase of Shares of the Fund
without being taxed currently on the investment. Contributions
which are made by the employer through salary reduction are
excludable from the gross income of the employee. Such deferred
compensation plans, which are intended to qualify under Section
403(b) of the Internal Revenue Code of 1986, as amended, are
available through the Principal Underwriter. Custodial services
are provided by Templeton Funds Trust Company.
Qualified Plan for Corporations, Self-Employed Individuals
and Partnerships. For employers who wish to purchase Shares of
the Fund in conjunction with employee retirement plans, there is
a prototype master plan which has been approved by the Internal
Revenue Service. A "Section 401(k) plan" is also available.
Templeton Funds Trust Company furnishes custodial services for
these plans. For further details, including custodian fees and
plan administration services, see the master plan and related
material which is available from the Principal Underwriter.
Letter of Intent. Purchasers who intend to invest $50,000 or
more in Class I Shares of the Fund or any other fund in the
Franklin Templeton Group (except Templeton Capital Accumulator
Fund, Inc., Templeton Variable Annuity Fund, Templeton Variable
Products Series Fund, Franklin Valuemark Funds and Franklin
Government Securities Trust) within 13 months (whether in one
lump sum or in installments, the first of which may not be less
than 5% of the total intended amount and each subsequent
installment not less than $25 unless the investor is a qualifying
employee benefit plan (the "Benefit Plan"), including automatic
investment and payroll deduction plans), and to beneficially hold
the total amount of such Class I Shares fully paid for and
outstanding simultaneously for at least one full business day
before the expiration of that period, should execute a Letter of
Intent ("LOI") on the form provided in the Shareholder
Application in the Prospectus. Payment for not less than 5% of
the total intended amount must accompany the executed LOI unless
the investor is a Benefit Plan. Except for purchases of Shares
by a Benefit Plan, those Class I Shares purchased with the first
5% of the intended amount stated in the LOI will be held as
"Escrowed Shares" for as long as the LOI remains unfulfilled.
Although the Escrowed Shares are registered in the investor's
name, his full ownership of them is conditional upon fulfillment
of the LOI. No Escrowed Shares can be redeemed by the investor
for any purpose until the LOI is fulfilled or terminated. If the
LOI is terminated for any reason other than fulfillment, the
Transfer Agent will redeem that portion of the Escrowed Shares
required and apply the proceeds to pay any adjustment that may be
appropriate to the sales commission on all Class I Shares
(including the Escrowed Shares) already purchased under the LOI
and apply any unused balance to the investor's account. The LOI
is not a binding obligation to purchase any amount of Shares, but
its execution will result in the purchaser paying a lower sales
charge at the appropriate quantity purchase level. A purchase
not originally made pursuant to an LOI may be included under a
subsequent LOI executed within 90 days of such purchase. In this
case, an adjustment will be made at the end of 13 months from the
effective date of the LOI at the net asset value per Share then
in effect, unless the investor makes an earlier written request
to the Principal Underwriter upon fulfilling the purchase of
Shares under the LOI. In addition, the aggregate value of any
Shares purchased prior to the 90-day period referred to above may
be applied to purchases under a current LOI in fulfilling the
total intended purchases under the LOI. However, no adjustment
of sales charges previously paid on purchases prior to the 90-day
period will be made.
If an LOI is executed on behalf of a benefit plan (such
plans are described under "How to Buy Shares of the Fund--Net
Asset Value Purchases" in the Prospectus), the level and any
reduction in sales charge for these employee benefit plans will
be based on actual plan participation and the projected
investments in the Franklin Templeton Group (except Templeton
Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund,
Templeton Variable Products Series Fund, Franklin Valuemark Funds
and Franklin Government Securities Trust) under the LOI. Benefit
Plans are not subject to the requirement to reserve 5% of the
total intended purchase, or to any penalty as a result of the
early termination of a plan, nor are Benefit Plans entitled to
receive retroactive adjustments in price for investments made
before executing LOIs.
Purchases at Net Asset Value. The following amounts will be
paid by FTD, from its own resources, to securities dealers who
initiate and are responsible for purchases of $1 million or more
and for purchases made at net asset value by certain designated
retirement plans (excluding IRA and IRA rollovers), certain trust
companies and trust departments of banks and certain retirement
plans of organizations with collective retirement plan assets of
$10 million or more: 1.00% on sales of $1 million but less $2
million, plus 0.80% on sales of $2 million but less than $3
million, plus 0.50% on sales of $3 million but less than $50
million, plus 0.25% on sales of $50 million but less than $100
million, plus 0.15% on sales of $100 million or more. Dealer
concession breakpoints are reset every 12 months for purposes of
additional purchases.
As described in the Prospectus, FTD or its affiliates may
make payments, from its own resources, to securities dealers
responsible for certain purchases at net asset value. As a
condition of such payments, FTD or its affiliates may require
reimbursement from such securities dealers with respect to
certain redemptions made within 12 months of the calendar month
following purchase as well as other conditions, all of which may
be imposed by an agreement between FTD, or its affiliates, and
the securities dealers.
TAX STATUS
The Fund intends normally to pay a dividend at least once
annually representing substantially all of its net investment
income and to distribute at least annually any realized capital
gains. By so doing and meeting certain diversification of assets
and other requirements of the Internal Revenue Code of 1986, as
amended (the "Code"), the Fund intends to qualify annually as a
regulated investment company under the Code. The status of the
Fund as a regulated investment company does not involve
government supervision of management or of its investment
practices or policies. As a regulated investment company, the
Fund generally will be relieved of liability for United States
Federal income tax on that portion of its net investment income
(which includes, among other items, dividends and interest) and
net realized capital gains which it distributes to its
Shareholders. Amounts not distributed on a timely basis in
accordance with a calendar year distribution requirement also are
subject to a nondeductible 4% excise tax. To prevent application
of the excise tax, the Fund intends to make distributions in
accordance with the calendar year distribution requirement.
Among other things, in order for the Fund to qualify as a
regulated investment company, at least 90% of its income for each
taxable year must be so-called "qualifying income" (e.g.,
interest, dividends, gains from the sale or other disposition of
stocks and securities, and other income (including gains from
options, futures, and forward contracts) derived with respect to
the business of investing in stocks or securities). Certain of
the debt securities acquired by the Fund may be secured in whole
or in part by interests in real estate. If the Fund were to
acquire real estate (by foreclosure, for example), income, if
any, generated by that real estate (including rental income and
gain on its disposition) may not be regarded as qualifying
income. If the Fund's non-qualifying income for a taxable year
exceeded 10% of its gross income, it would fail to qualify as a
regulated investment company and it would be taxed in the same
manner as an ordinary corporation. In that case, the Fund would
be ineligible to deduct its distributions to its Shareholders and
those distributions, to the extent derived from the Fund's
current and accumulated earnings and profits, would constitute
dividends (which may be eligible for the corporate dividends-
received deduction) which are taxable to Shareholders as ordinary
income, even though those distributions might otherwise, at least
in part, have been treated in the Shareholder's hands as
long-term capital gain. If the Fund fails to qualify as a
regulated investment company in a given taxable year, it must
distribute its earnings and profits accumulated in that year in
order to qualify again as a regulated investment company.
Amounts not distributed on a timely basis in accordance with
a calendar year distribution requirement are subject to a
nondeductible 4% excise tax. To prevent application of the tax,
the Fund must distribute or be deemed to have distributed with
respect to each calendar year an amount equal to the sum of: (1)
at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year; (2) at least 98%
of its capital gains in excess of its capital losses (adjusted
for certain ordinary losses) for the 12-month period ending on
October 31 of the calendar year; and (3) all taxable ordinary
income and capital gains for previous years that were not
distributed during such years. A distribution will be treated as
paid on December 31 of the calendar year if it is declared by the
Fund in October, November, or December of that year to
Shareholders of record on a date in such a month and paid by the
Fund during January of the following calendar year. Such
distributions will be treated as received by Shareholders in the
calendar year in which the distributions are declared, rather
than the calendar year in which the distributions are received.
Dividends of net investment income and net short-term
capital gains are taxable to Shareholders as ordinary income.
Distributions of net investment income may be eligible for the
corporate dividends-received deduction to the extent attributable
to the Fund's qualifying dividend income. However, the
alternative minimum tax applicable to corporations may reduce the
benefit of the dividends-received deduction. Distributions of
net capital gains (the excess of net long-term capital gains over
net short-term capital losses) designated by the Fund as capital
gain dividends are taxable to Shareholders as long-term capital
gains, regardless of the length of time the Fund's Shares have
been held by a Shareholder, and are not eligible for the
dividends-received deduction. All dividends and distributions
are taxable to Shareholders, whether or not reinvested in Shares
of the Fund. Shareholders will be notified annually as to the
Federal tax status of dividends and distributions they receive
and any tax withheld thereon.
Distributions by the Fund reduce the net asset value of the
Fund Shares. Should a distribution reduce the net asset value
below a Shareholder's cost basis, the distribution nevertheless
would be taxable to the Shareholder as ordinary income or capital
gain as described above, even though, from an investment
standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax
implications of buying Shares just prior to a distribution by the
Fund. The price of Shares purchased at that time includes the
amount of the forthcoming distribution, but the distribution will
generally be taxable to them.
The Fund may invest in real estate investment trusts
("REITs") that hold residual interests in real estate mortgage
investment conduits ("REMICs"). Under Treasury regulations that
have not yet been issued, but may apply retroactively, a portion
of the Fund's income from a REIT that is attributable to the
REITs residual interest in a REMIC (referred to in the Code as an
"excess inclusion") will be subject to Federal income tax in all
events. These regulations are also expected to provide that
excess inclusion income of a regulated investment company, such
as the Fund, will be allocated to shareholders of the regulated
investment company in proportion to the dividends received by
such shareholders, with the same consequences as if the
shareholders held the related REMIC residual interest directly.
In general, excess inclusion income allocated to shareholders (i)
cannot be offset by net operating losses (subject to a limited
exception for certain thrift institutions), (ii) will constitute
unrelated business taxable income to entities (including a
qualified pension plan, an individual retirement account, a
401(k) plan, a Keogh plan or other tax-exempt entity) subject to
tax on unrelated business income, thereby potentially requiring
such an entity that is allocated excess inclusion income, and
otherwise might not be required to file a tax return, to file a
tax return and pay tax on such income, and (iii) in the case of a
foreign shareholder, will not qualify for any reduction in U.S.
federal withholding tax. In addition, if at any time during any
taxable year a "disqualified organization" (as defined in the
Code) is a record holder of a share in a regulated investment
company, then the regulated investment company will be subject to
a tax equal to that portion of its excess inclusion income for
the taxable year that is allocable to the disqualified
organization, multiplied by the highest federal income tax rate
imposed on corporations. The Investment Manager does not intend
on behalf of the Fund to invest in REITs, a substantial portion
of the assets of which consists of residual interests in REMICs.
The Fund may invest in stocks of foreign companies that are
classified under the Code as passive foreign investment companies
("PFICs"). In general, a foreign company is classified as a PFIC
if at least one-half of its assets constitute investment-type
assets or 75% or more of its gross income is investment-type
income. Under the PFIC rules, an "excess distribution" received
with respect to PFIC stock is treated as having been realized
ratably over the period during which the Fund held the PFIC
stock. The Fund itself will be subject to tax on the portion, if
any, of the excess distribution that is allocated to the Fund's
holding period in prior taxable years (and an interest factor
will be added to the tax, as if the tax had actually been payable
in such prior taxable years) even though the Fund distributes the
corresponding income to Shareholders. Excess distributions
include any gain from the sale of PFIC stock as well as certain
distributions from a PFIC. All excess distributions are taxable
as ordinary income.
The Fund may be able to elect alternative tax treatment with
respect to PFIC stock. Under an election that currently may be
available, the Fund generally would be required to include in its
gross income its share of the earnings of a PFIC on a current
basis, regardless of whether any distributions are received from
the PFIC. If this election were made, the special rules,
discussed above, relating to the taxation of excess
distributions, would not apply. In addition, another election
may be available that would involve marking to market the Fund's
PFIC shares at the end of each taxable year (and on certain other
dates prescribed in the Code), with the result that unrealized
gains are treated as though they were realized. If this election
were made, tax at the fund level under the PFIC rules would
generally be eliminated, but the Fund could, in limited
circumstances, incur nondeductible interest charges. The Fund's
intention to qualify annually as a regulated investment company
may limit its elections with respect to PFIC shares.
Because the application of the PFIC rules may affect, among
other things, the character of gains, the amount of gain or loss
and the timing of the recognition of income with respect to PFIC
stock, as well as subject the Fund itself to tax on certain
income from PFIC stock, the amount that must be distributed to
Shareholders, and which will be taxed to Shareholders as ordinary
income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not invest in PFIC
stock.
Income received by the Fund from sources within foreign
countries may be subject to withholding and other income or
similar taxes imposed by such countries. If more than 50% of the
value of the Fund's total assets at the close of its taxable year
consists of securities of foreign corporations, the Fund will be
eligible and intends to elect to "pass through" to the Fund's
Shareholders the amount of foreign taxes paid by the Fund.
Pursuant to this election, a Shareholder will be required to
include in gross income (in addition to taxable dividends
actually received) his pro rata share of the foreign taxes paid
by the Fund, and will be entitled either to deduct (as an
itemized deduction) his pro rata share of foreign income and
similar taxes in computing his taxable income or to use it as a
foreign tax credit against his U.S. Federal income tax liability,
subject to limitations. No deduction for foreign taxes may be
claimed by a Shareholder who does not itemize deductions, but
such a Shareholder may be eligible to claim the foreign tax
credit (see below). Each Shareholder will be notified within 60
days after the close of the Fund's taxable year whether the
foreign taxes paid by the Fund will "pass through" for that year.
Generally, a credit for foreign taxes is subject to the
limitation that it may not exceed the Shareholder's U.S. tax
attributable to his foreign source taxable income. For this
purpose, if the pass-through election is made, the source of the
Fund's income flows through to its Shareholders. With respect to
the Fund, gains from the sale of securities will be treated as
derived from U.S. sources and certain currency fluctuation gains,
including fluctuation gains from foreign currency denominated
debt securities, receivables and payables, will be treated as
ordinary income derived from U.S. sources. The limitation on the
foreign tax credit is applied separately to foreign source
passive income (as defined for purposes of the foreign tax
credit), including the foreign source passive income passed
through by the Fund. Shareholders may be unable to claim a
credit for the full amount of their proportionate share of the
foreign taxes paid by the Fund. Foreign taxes may not be
deducted in computing alternative minimum taxable income and the
foreign tax credit can be used to offset only 90% of the
alternative minimum tax (as computed under the Code for purposes
of this limitation) imposed on corporations and individuals. If
the Fund is not eligible to make the election to "pass through"
to its Shareholders its foreign taxes, the foreign income taxes
it pays generally will reduce investment company taxable income
and the distributions by the Fund will be treated as United
States source income.
Certain options, futures contracts and forward contracts in
which the Fund may invest are "section 1256 contracts." Gains or
losses on section 1256 contracts generally are considered 60%
long-term and 40% short-term capital gains or losses ("60/40");
however, foreign currency gains or losses (as discussed below)
arising from certain section 1256 contracts may be treated as
ordinary income or loss. Also, section 1256 contracts held by
the Fund at the end of each taxable year (and at certain other
times prescribed pursuant to the Code) are "marked-to-market"
with the result that unrealized gains or losses are treated as
though they were realized.
Generally, the hedging transactions undertaken by the Fund
may result in "straddles" for U.S. Federal income tax purposes.
The straddle rules may affect the character of gains (or losses)
realized by the Fund. In addition, losses realized by the Fund
on positions that are part of a straddle may be deferred under
the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which the
losses are realized. Because only a few regulations implementing
the straddle rules have been promulgated, the tax consequences to
the Fund of hedging transactions are not entirely clear. The
hedging transactions may increase the amount of short-term
capital gain realized by the Fund which is taxed as ordinary
income when distributed to Shareholders.
The Fund may make one or more of the elections available
under the Code which are applicable to straddles. If the Fund
makes any of the elections, the amount, character, and timing of
the recognition of gains or losses from the affected straddle
positions will be determined under rules that vary according to
the election(s) made. The rules applied under certain of the
elections may operate to accelerate the recognition of gains or
losses from the affected straddle positions.
Because application of the straddle rules may affect the
character of gains or losses, defer losses and/or accelerate the
recognition of gains or losses from the affected straddle
positions, the amount which must be distributed to Shareholders
and which will be taxed to Shareholders as ordinary income or
long-term capital gain may be increased or decreased as compared
to a fund that did not engage in such hedging transactions.
Requirements relating to the Fund's tax status as a
regulated investment company may limit the extent to which the
Fund will be able to engage in transactions in options, futures
contracts and forward contracts.
Under the Code, gains or losses attributable to fluctuations
in foreign currency exchange rates which occur between the time
the Fund accrues income or other receivables or accrues expenses
or other liabilities denominated in a foreign currency and the
time the Fund actually collects such receivables or pays such
liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of debt securities denominated
in a foreign currency and on disposition of certain futures
contracts, forward contracts, and options, gains or losses
attributable to fluctuations in the value of foreign currency
between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or
loss. These gains and losses, referred to under the Code as
"section 988" gains and losses, may increase or decrease the
amount of the Fund's net investment income to be distributed to
its Shareholders as ordinary income. For example, fluctuations
in exchange rates may increase the amount of income that the Fund
must distribute in order to qualify for treatment as a regulated
investment company and to prevent application of an excise tax on
undistributed income. Alternatively, fluctuations in exchange
rates may decrease or eliminate income available for
distribution. If section 988 losses exceed other net investment
income during a taxable year, the Fund would not be able to make
ordinary dividend distributions, or distributions made before the
losses were realized would be recharacterized as a return of
capital to Shareholders for Federal income tax purposes, rather
than as an ordinary dividend, reducing each Shareholder's basis
in his Fund Shares.
Upon the sale or exchange of his Shares, a Shareholder will
realize a taxable gain or loss depending upon his basis in the
Shares. Such gain or loss will be treated as capital gain or
loss if the Shares are capital assets in the Shareholder's hands,
and generally will be long-term if the Shareholder's holding
period for the Shares is more than one year and generally
otherwise will be short-term. Any loss realized on a sale or
exchange will be disallowed to the extent that the Shares
disposed of are replaced (including replacement through the
reinvesting of dividends and capital gain distributions in the
Fund) within a period of 61 days beginning 30 days before and
ending 30 days after the disposition of the Shares. In such a
case, the basis of the Shares acquired will be adjusted to
reflect the disallowed loss. Any loss realized by a Shareholder
on the sale of Fund Shares held by the Shareholder for six months
or less will be treated for Federal income tax purposes as a
long-term capital loss to the extent of any distributions of
long-term capital gains received by the Shareholder with respect
to such Shares.
Under certain circumstances, the sales charge incurred in
acquiring Shares of the Fund may not be taken into account in
determining the gain or loss on the disposition of those Shares.
This rule applies where Shares of the Fund are exchanged within
90 days after the date they were purchased and new Shares of the
Fund or another eligible regulated investment company are
acquired without a sales charge or at a reduced sales charge. In
that case, the gain or loss recognized on the exchange will be
determined by excluding from the tax basis of the Shares
exchanged all or a portion of the sales charge incurred in
acquiring those Shares. This exclusion applies to the extent
that the otherwise applicable sales charge with respect to the
newly acquired Shares is reduced as a result of having incurred a
sales charge initially. The portion of the sales charge affected
by this rule will be treated as a sales charge paid for the new
Shares.
The Fund generally will be required to withhold Federal
income tax at a rate of 31% ("backup withholding") from dividends
paid, capital gain distributions, and redemption proceeds to
Shareholders if (1) the Shareholder fails to furnish the Fund
with the Shareholder's correct taxpayer identification number or
social security number and to make such certifications as the
Fund may require, (2) the Internal Revenue Service notifies the
Shareholder or the Fund that the Shareholder has failed to report
properly certain interest and dividend income to the Internal
Revenue Service and to respond to notices to that effect, or (3)
when required to do so, the Shareholder fails to certify that he
is not subject to backup withholding. Any amounts withheld may
be credited against the Shareholder's Federal income tax
liability.
Distributions also may be subject to state, local and
foreign taxes. U.S. tax rules applicable to foreign investors
may differ significantly from those outlined above. Shareholders
are advised to consult their own tax advisers for details with
respect to the particular tax consequences to them of an
investment in the Fund.
PRINCIPAL UNDERWRITER
Franklin Templeton Distributors, Inc. ("FTD" or the
"Principal Underwriter"), 700 Central Avenue, P.O. Box 33030, St.
Petersburg, Florida 33733-8030, toll free telephone (800) 237-
0738, is the Principal Underwriter of the Fund's Shares. FTD is
a wholly owned subsidiary of Franklin.
The Fund, pursuant to Rule 12b-1 under the 1940 Act, has
adopted Distribution Plans (the "Plans"). Under the Plans
adopted with respect to Class I Shares, the Fund may reimburse
the Principal Underwriter monthly (subject to a limit of 0.25%
per annum of the Fund's average daily net assets attributable to
Class I Shares) for FTD's costs and expenses in connection with
any activity which is primarily intended to result in the sale of
Fund Shares. Under the Plans adopted with respect to Class II
Shares, the Fund may reimburse FTD monthly (subject to a limit of
$1.00% per annum of the Fund's average daily assets attributable
to Class II Shares of which up to 0.25% of such net assets may be
paid to dealers for personal service and/or maintenance of
Shareholder accounts) for FTD's costs and expenses in connection
with any activity which is primarily intended to result in the
sale of the Fund's Shares. Payments to FTD could be for various
types of activities, including (1) payments to broker-dealers who
provide certain services of value to the Fund's Shareholders
(sometimes referred to as a "trail fee"); (2) reimbursement of
expenses relating to selling and servicing efforts or of
organizing and conducting sales seminars; (3) payments to
employees or agents of the Principal Underwriter who engage in or
support distribution of Shares; (4) payments of the costs of
preparing, printing and distributing Prospectuses and reports to
prospective investors and of printing and advertising expenses;
(5) payment of dealer commissions and wholesaler compensation in
connection with sales of Fund Shares exceeding $1 million (on
which the Fund imposes no initial sales charge) and interest or
carrying charges in connection therewith; and (6) such other
similar services as the Fund's Board of Trustees determines to be
reasonably calculated to result in the sale of Shares. Under the
Plans, the costs and expenses not reimbursed in any one given
month (including costs and expenses not reimbursed because they
exceed the percentage limit applicable to either class of Shares)
may be reimbursed in subsequent months or years.
During the fiscal year ended August 31, 1994, FTD incurred
costs and expenses of $245,069 in connection with distribution of
Class I Shares of the Fund. During the same period, the Fund
made reimbursements pursuant to the Plan in the amount of
$244,400. As indicated above, unreimbursed expenses, which
amount to $669 for Class I Shares of the Fund, may be reimbursed
by the Fund during the fiscal year ending August 31, 1995 or in
subsequent years. In the event that the Plan is terminated, the
Fund will not be liable to FTD for any unreimbursed expenses that
had been carried forward from previous months or years. During
the fiscal year ended August 31, 1994, FTD spent, pursuant to the
Plan, the following amounts on: compensation to dealers,
$189,177; sales promotion, $1,949; printing, $42,525;
advertising, $66; and wholesale costs and expenses, $11,352.
The Underwriting Agreement provides that the Principal
Underwriter will use its best efforts to maintain a broad
distribution of the Fund's Shares among bona fide investors and
may sign selling agreements with responsible dealers, as well as
sell to individual investors. The Shares are sold only at the
Offering Price in effect at the time of sale, and the Fund
receives not less than the full net asset value of the Shares
sold. The discount between the Offering Price and the net asset
value may be retained by the Principal Underwriter or it may
reallow all or any part of such discount to dealers. During the
fiscal years ended August 31, 1994, 1993, and 1992, FTD (and,
prior to June 1, 1993, Templeton Funds Distributor, Inc.)
retained of such discount $422,672, $141,190, and $51,868, or
approximately 15.52%, 16%, and 11.42%, respectively. The
Principal Underwriter in all cases buys Shares from the Fund
acting as principal for its own account. Dealers generally act
as principal for their own account in buying Shares from the
Principal Underwriter. No agency relationship exists between any
dealer and the Fund or the Principal Underwriter.
The Underwriting Agreement provides that the Fund shall pay
the costs and expenses incident to registering and qualifying its
Shares for sale under the Securities Act of 1933 and under the
applicable Blue Sky laws of the jurisdictions in which the
Principal Underwriter desires to distribute such Shares, and for
preparing, printing and distributing reports to Shareholders.
The Principal Underwriter pays the cost of printing additional
copies of Prospectuses and reports to Shareholders used for
selling purposes. (The Fund pays costs of preparation, set-up
and initial supply of the Fund's Prospectus for existing
Shareholders.)
The Underwriting Agreement is subject to renewal from year
to year in accordance with the provisions of the 1940 Act and
terminates automatically in the event of its assignment. The
Underwriting Agreement may be terminated without penalty by
either party upon 60 days' written notice to the other, provided
termination by the Fund shall be approved by the Board of
Trustees or a majority (as defined in the 1940 Act) of the
Shareholders. The Principal Underwriter is relieved of liability
for any act or omission in the course of its performance of the
Underwriting Agreement, in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its
obligations.
FTD is the principal underwriter for the other Templeton
Funds.
DESCRIPTION OF SHARES
The Shares have non-cumulative voting rights so that the
holders of a plurality of the Shares voting for the election of
Trustees at a meeting at which 50% of the outstanding Shares are
present can elect all the Trustees and, in such event, the
holders of the remaining Shares voting for the election of
Trustees will not be able to elect any person or persons to the
Board of Trustees.
The Declaration of Trust provides that the holders of not
less than two-thirds of the outstanding Shares of the Fund may
remove a person serving as Trustee either by declaration in
writing or at a meeting called for such purpose. The Trustees
are required to call a meeting for the purpose of considering the
removal of a person serving as Trustee if requested in writing to
do so by the holders of not less than 10% of the outstanding
Shares of the Fund. In addition, the Fund is required to assist
Shareholder communication in connection with the calling of a
Shareholder meeting to consider the removal of a Trustee.
Under Massachusetts law, Shareholders could, under certain
circumstances, be held personally liable for the obligations of
the Fund. However, the Declaration of Trust disclaims liability
of the Shareholders, Trustees or officers of the Fund for acts or
obligations of the Fund, which are binding only on the assets and
property of the Fund. The Declaration of Trust provides for
indemnification out of Fund property for all loss and expenses of
any Shareholder held personally liable for the obligations of the
Fund. The risk of a Shareholder incurring financial loss on
account of Shareholder liability is limited to circumstances in
which the Fund itself would be unable to meet its obligations
and, thus, should be considered remote.
PERFORMANCE INFORMATION
The Fund may, from time to time, include its total return in
advertisements or reports to Shareholders or prospective
investors. Quotations of average annual total return for the
Fund will be expressed in terms of the average annual compounded
rate of return for periods in excess of one year or the total
return for periods less than one year of a hypothetical
investment in the Fund over a period of one, five and ten years
(or, if less, up to the life of the Fund) calculated pursuant to
the following formula: P(1 + T)n = ERV (where P = a hypothetical
initial payment of $1,000, T = the average annual total return
for periods of one year or more or the total return for periods
of less than one year, n = the number of years, and ERV = the
ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the period). All total return figures reflect
the deduction of the maximum initial sales charge and deduction
of a proportional share of Fund expenses on an annual basis, and
assume that all dividends and distributions are reinvested when
paid. The average annualized total return for the one-year
period ended August 31, 1994 and for the period from commencement
of operations on September 12, 1989 to August 31, 1994 was 3.33%
and 8.73%, respectively.
Performance information for the Fund may be compared, in
reports and promotional literature, to: (i) the Standard & Poor's
500 Stock Index, Dow Jones Industrial Average, or other unmanaged
indices so that investors may compare the Fund's results with
those of a group of unmanaged securities widely regarded by
investors as representative of the securities market in general;
(ii) other groups of mutual funds tracked by Lipper Analytical
Services, Inc., a widely used independent research firm which
ranks mutual funds by overall performance, investment objectives
and assets, or tracked by other services, companies,
publications, or persons who rank mutual funds on overall
performance or other criteria; and (iii) the Consumer Price Index
(measure for inflation) to assess the real rate of return from an
investment in the Fund. Unmanaged indices may assume the
reinvestment of dividends but generally do not reflect deductions
for administrative and management costs and expenses.
Performance information for the Fund reflects only the
performance of a hypothetical investment in the Fund during the
particular time period on which the calculations are based.
Performance information should be considered in light of the
Fund's investment objectives and policies, characteristics and
quality of the portfolio and the market conditions during the
given time period, and should not be considered as a
representation of what may be achieved in the future.
From time to time, the Fund and the Investment Manager may
also refer to the following information:
1. The Investment Manager's and its affiliates' market
share of international equities managed in mutual funds
prepared or published by Strategic Insight or a similar
statistical organization.
2. The performance of U.S. equity and debt markets
relative to foreign markets prepared or published by
Morgan Stanley Capital International or a similar
financial organization.
3. The capitalization of U.S. and foreign stock markets as
prepared or published by the International Finance
Corp., Morgan Stanley Capital International or a
similar financial organization.
4. The geographic distribution of the Fund's portfolio.
5. The gross national product and populations, including
age characteristics, of various countries as published
by various statistical organizations.
6. To assist investors in understanding the different
returns and risk characteristics of various
investments, the Fund may show historical returns of
various investments and published indices (e.g.,
Ibbotson Associates, Inc. Charts and Morgan Stanley
EAFE - Index).
7. The major industries located in various jurisdictions
as published by the Morgan Stanley Index.
8. Rankings by DALBAR Surveys, Inc. with respect to mutual
fund shareholder services.
9. Allegorical stories illustrating the importance of
persistent long-term investing.
10. The Fund's portfolio turnover rate and its ranking
relative to industry standards as published by Lipper
Analytical Services, Inc. or Morningstar, Inc.
11. A description of the Templeton organization's
investment management philosophy and approach,
including its worldwide search for undervalued or
"bargain" securities and its diversification by
industry, nation and type of stocks or other
securities.
12. Quotations from the Templeton organization's founder,
Sir John Templeton,* advocating the virtues of
diversification and long-term investing, including the
following:
o "Never follow the crowd. Superior
performance is possible only if you invest
differently from the crowd."
o "Diversify by company, by industry and by
country."
o "Always maintain a long-term perspective."
o "Invest for maximum total real return."
o "Invest - don't trade or speculate."
o "Remain flexible and open-minded about types
of investment."
o "Buy low."
o "When buying stocks, search for bargains
among quality stocks."
o "Buy value, not market trends or the economic
outlook."
o "Diversify. In stocks and bonds, as in much
else, there is safety in numbers."
o "Do your homework or hire wise experts to
help you."
o "Aggressively monitor your investments."
o "Don't panic."
o "Learn from your mistakes."
_______________
* Sir John Templeton, who currently serves as Chairman of the
Fund's Board, is not involved in investment decisions, which
are made by the Fund's investment manager.
o "Outperforming the market is a difficult
task."
o "An investor who has all the answers doesn't
even understand all the questions."
o "There's no free lunch."
o "And now the last principle: Do not be
fearful or negative too often."
In addition, the Fund and the Investment Manager may also
refer to the number of shareholders in the Fund or the aggregate
number of shareholders in the Franklin Templeton Group or the
dollar amount of fund and private account assets under management
in advertising materials.
FINANCIAL STATEMENTS
The financial statements contained in the Annual Report to
Shareholders of Templeton Real Estate Securities Fund dated
August 31, 1994 are incorporated herein by reference.
<PAGE> PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements: Incorporated by Reference
from Registrant's 1994 Annual Report
Independent Auditor's Report
Investment Portfolio as of August 31, 1994
Statement of Assets and Liabilities as of
August 31, 1994
Statement of Operations for the year ended
August 31, 1994
Statement of Changes in Net Assets for the years
ended August 31, 1994 and 1993
Notes to Financial Statements
(b) Exhibits
(1) (A) Declaration of Trust*
(B) Second Amendment to the Declaration of
Trust*
(C) Third Amendment to the Declaration of
Trust
(D) Establishment and Designation
of Classes
(2) By-Laws*
(3) Not Applicable
(4) Specimen Security*
(5) Form of Amended and Restated Investment
Management Agreement
(6) (A) Distribution Agreement*
(B) Dealer Agreement*
<PAGE>
______________________
Previously filed with Registration Statement No. 33-30018
and incorporated by reference herein.
(7) Not Applicable
(8) Custody Agreement*
(9) (A) Business Management Agreement*
(B) Form of Transfer Agent Agreement*
(C) Form of Sub-Transfer Agent Services
Agreement*
(D) Form of Sub-Accounting Services
Agreement*
(10) Opinion and consent of counsel (filed with
Rule 24f-2 Notice)
(11) Consent of independent public accountants
(12) Not Applicable
(13) Subscription Agreement*
(14) Not Applicable
(15) (A) Distribution Plan -- Class I
(15) (B) Distribution Plan -- Class II
(16) Schedule showing computation of performance
quotations provided in response to Item 22*
(17) Assistant Secretary's Certificate pursuant to
Rule 483(b)*
Item 25. Persons Controlled by or Under Common Control with
Registrant
None
Item 26. Number of Holders of Securities
Number of
Date Title of Class Recordholders
January 31, 1995 Shares of 12,677
Beneficial Interest
Item 27. Indemnification.
Reference is made to Article IV of the Registrant's
Declaration of Trust, which is filed herewith.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
trustees, officers and controlling persons of the
Registrant by the Registrant pursuant to the
Declaration of Trust or otherwise, the Registrant is
aware that in the opinion of the Securities and
Exchange Commission, such indemnification is against
public policy as expressed in the Act and, therefore,
is unenforceable. In the event that a claim for
indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or
paid by trustees, officers or controlling persons of
the Registrant in connection with the successful
defense of any act, suit or proceeding) is asserted by
such trustees, officers or controlling persons in
connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against
public policy as expressed in the Act and will be
governed by the final adjudication of such issues.
Item 28. Business and Other Connections of Investment Adviser
and its Officers and Directors
See "Management of the Fund." Information regarding
the directors and officers of the Investment Manager is
included in its Form ADV filed with the Commission and
is incorporated herein by reference thereto.
Item 29. Principal Underwriters
(a) Franklin Templeton Distributors, Inc. also acts as
principal underwriter of shares of Templeton
Growth Fund, Inc., Templeton Funds, Inc.,
Templeton Smaller Companies Growth Fund, Inc.,
Templeton Income Trust, Templeton Real Estate
Securities Fund, Templeton Capital Accumulator
Fund, Inc., Templeton Developing Markets Trust,
Templeton American Trust, Inc., Templeton
Institutional Funds, Inc., Templeton Global
Opportunities Trust, Templeton Variable Products
Series Fund, Templeton Global Investment Trust,
Templeton Variable Annuity Fund, AGE High Income
Fund, Inc., Franklin Balance Sheet Investment
Fund, Franklin California Tax Free Income Fund,
Inc., Franklin California Tax Free Trust, Franklin
Custodian Funds, Inc., Franklin Equity Fund,
Franklin Federal Money Fund, Franklin Federal Tax-
Free Income Fund, Franklin Gold Fund, Franklin
International Trust, Franklin Investors Securities
Trust, Franklin Managed Trust, Franklin Money
Fund, Franklin Municipal Securities Trust,
Franklin New York Tax-Free Income Fund, Franklin
New York Tax-Free Trust, Franklin Premier Return
Fund, Franklin Real Estate Securities Fund,
Franklin Strategic Series, Franklin Tax-Advantaged
High Yield Securities Fund, Franklin Tax-
Advantaged International Bond Fund, Franklin Tax-
Advantaged U.S. Government Securities Fund,
Franklin Tax Exempt Money Fund, Franklin Tax-Free
Trust, Franklin/Templeton Japan Fund, and
Institutional Fiduciary Trust.
(b) The directors and officers of FTD, located at 700
Central Avenue, St. Petersburg, Florida
33733-9926, are as follows:
Positions and Offices
Positions and Offices
Name with Underwriter
with Registrant
Charles B. Johnson Chairman of the Board
Vice President
and Director
Gregory E. Johnson President None
Rupert H. Johnson, Jr. Executive Vice President
Trustee
and Director
Harmon E. Burns Executive Vice President None
and Director
Edward V. McVey Senior Vice President
None
Kenneth V. Domingues Senior Vice President
None
Martin L. Flanagan Senior Vice President
Vice President
and Treasurer
William J. Lippman Senior Vice President
None
Richard C. Stoker Senior Vice President
None
Charles E. Johnson Senior Vice President
None
Deborah R. Gatzek Senior Vice President and
None
Assistant Secretary
Peter Black Vice President None
James K. Blinn Vice President None
Bernie Buckley Vice President None
Joel Burns Vice President None
Debra Carter Vice President None
Richard O. Conboy Vice President None
Joe Cronin Vice President None
James F. Duryea Vice President None
James A. Escobedo Vice President None
Loretta Fry Vice President None
Robert N. Geppner Vice President None
John Gould Vice President None
Sheppard G. Griswold Vice President
None
Mike Hackett Vice President None
Brad N. Hanson Vice President None
Carolyn L. Hennion Vice President None
Andrew Jennings Vice President None
Peter Jones Vice President None
Philip J. Kearns Vice President None
John Leach Vice President None
Ken Leder Vice President None
Jack Lemein Vice President None
John R. McGee Vice President None
Thomas M. Mistele Vice President
Secretary
Harry G. Mumford Vice President None
Mike Nardone Vice President None
Thomas H. O'Connor Vice President None
Vivian J. Palmieri Vice President None
Roger Pearson Vice President None
Richard S. Petrell Vice President None
John Phillips Vice President None
Darrell Plocher Vice President
None
Dennis Shannon Vice President None
Robert E. Silvani Vice President None
Kent P. Strazza Vice President
None
Susan K. Tallarico Vice President None
Leslie M. Kratter Secretary None
(c) Not Applicable (Information on unaffiliated
underwriters).
Item 30. Location of Accounts and Records
The accounts, books, and other documents required to be
maintained by Registrant pursuant to Section 31(a) of
the Investment Company Act of 1940 and rules
promulgated thereunder are in the possession of
Templeton Global Investors, Inc., 500 East Broward
Blvd., Fort Lauderdale, Florida 33394.
Item 31. Management Services
Not Applicable.
Item 32. Undertakings.
(a) Not Applicable.
(b) Not Applicable.
(c) Registrant undertakes to furnish to each person to
whom its Prospectus is provided a copy of its
Annual Report, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933 and the Investment Company Act of 1940, the Registrant
certifies that it meets all the requirements for effectiveness of
the Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-Effective
Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City
of Washington in the District of Columbia on the 1st day of
March, 1995.
TEMPLETON REAL ESTATE SECURITIES FUND
By:_____________________________
Mark G. Holowesko*
President
*By: /s/ Jeffrey L. Steele
Jeffrey L. Steele
as attorney-in-fact**
Pursuant to the requirements of the Securities Act of
1933, this Amendment to the Registration Statement has been
signed below by the following persons in the capacities and on
the date indicated:
Signature Title Date
__________________ President (Chief) March 1, 1995
Mark G. Holowesko* Executive Officer)
__________________ Trustee March 1, 1995
John M. Templeton
__________________ Trustee March 1, 1995
F. Bruce Clarke*
__________________ Trustee March 1, 1995
Betty P. Krahmer*
Signature Title Date
____________________ Director March 1, 1995
Hasso-G von Diergardt*
____________________ Trustee March 1, 1995
Fred R. Millsaps*
____________________ Trustee March 1, 1995
John G. Bennett, Jr.*
____________________ Trustee March 1, 1995
Rupert H. Johnson, Jr.*
____________________ Trustee March 1, 1995
Andrew H. Hines, Jr.*
____________________ Trustee March 1, 1995
Harris J. Ashton*
____________________ Trustee March 1, 1995
S. Joseph Fortunato*
____________________ Trustee March 1, 1995
Gordon S. Macklin*
____________________ Trustee March 1, 1995
Nicholas F. Brady*
____________________ Treasurer (Chief March 1, 1995
James R. Baio* Financial and
Accounting Officer)
*By: /s/ Jeffrey L. Steele
Jeffrey L. Steele
as attorney-in-fact**
** Powers of Attorney are contained in Post-Effective Amendment No.
4 to this Registration Statement filed on August 19, 1992, Post-
Effective Amendment No. 6 to this Registration Statement filed on
November 2, 1993, Post-Effective Amendment No. 7 to this
Registration Statement filed on December 23, 1993, and Post-
Effective Amendment No. 9 to this Registration Statement filed on
December 30, 1994.
EXHIBIT LIST
Exhibit Number Name of Exhibit
(1)(C) Third Amendment to the
Declaration of Trust
(1)(D) Establishment and Designation of
Classes
(5) Form of Amended and Restated
Investment Management Agreement
(11) Consent of Independent Public
Accountants
(15)(A) Distribution Plan -- Class I
Shares
(15)(B) Distribution Plan -- Class II
Shares
McGLADREY & PULLEN, LLP
Certified Public Accountants and Consultants
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated September
27, 1994, on the financial statements of Templeton Real Estate
Securities Fund referred to therein, which appears in the 1994
Annual Report to Shareholders and which is incorporated herein by
reference, in Post-Effective Amendment No. 9 to the Registration
Statement on Form N-1A, File No. 33-30018 as filed with the
Securities and Exchange Commission.
We also consent to the reference to our firm in the
Statement of Additional Information under the caption
"Independent Accountants" and in the Prospectus under the caption
"Financial Highlights."
McGladrey & Pullen, LLP
New York, New York
February 27, 1995
DISTRIBUTION PLAN
WHEREAS, Templeton Real Estate Securities Fund (the
"Trust") is registered as an open-end diversified management
investment company under the Investment Company Act of 1940 (the
"1940 Act"); and
WHEREAS, the Trust and Franklin Templeton Distributors,
Inc. (the "Selling Company"), a wholly owned subsidiary of
Franklin Resources, Inc. and a broker-dealer registered under the
Securities Exchange Act of 1934, have entered into a Distribution
Agreement pursuant to which the Selling Company will act as
principal underwriter of the Class I Shares of the Trust for sale
to the public; and
WHEREAS, shares of beneficial interest of the Trust are
divided into classes of shares, one of which is designated Class
I; and
WHEREAS, the Board of Trustees of the Trust has
determined to adopt this Distribution Plan (the "Plan"), in
accordance with the requirements of the 1940 Act and has
determined that there is a reasonable likelihood that the Plan
will benefit the Trust and the holders of Class I Shares.
NOW THEREFORE, the Trust hereby adopts, with respect to
its Class I Shares, the Plan on the following terms and
conditions:
1. The Trust will reimburse the Selling Company for
costs and expenses incurred in connection with the distribution
and marketing of the Class I Shares of the Trust. Such
distribution costs and expenses may include: (a) payments to
broker-dealers who provide certain services of value to the
Trust's Class I Shareholders (sometimes referred to as a "trail
fee"); (b) reimbursement of expenses relating to selling and
servicing efforts or of organizing and conducting sales seminars;
(c) payments to employees or agents of the Selling Company who
engage in or support distribution of the Class I Shares; (d)
payment of the costs of preparing, printing and distributing
prospectuses and reports to prospective investors and of printing
and advertising expenses; (e) payment of dealer commissions and
wholesaler compensation in connection with sales of the Trust's
Class I Shares exceeding $1 million (for which the Trust imposes
no sales charge) and interest or carrying charges in connection
therewith; and (f) such other similar services as the Trust's
Board of Trustees determines to be reasonably calculated to
result in the sale of Class I Shares.
The Selling Company will be reimbursed for such costs,
expenses or payments on a monthly basis, subject to a limit of
0.25% per annum of the average daily net assets of the Trust's
Class I Shares. Payments made out of or charged against the
assets of the Class I Shares of the Trust must be in
reimbursement for costs and expenses in connection with any
activity which is primarily intended to result in the sale of the
Trust's Class I Shares. The costs and expenses not reimbursed in
any one given month (including costs and expenses not reimbursed
because they exceeded the limit of 0.25% per annum of the average
daily net assets of the Trust's Class I Shares) may be reimbursed
in subsequent months or years.
2. The Plan shall not take effect with respect to the
Trust's Class I Shares until it has been approved by a vote of at
least a majority (as defined in the 1940 Act) of the outstanding
voting securities of the Class I Shares of the Trust. With
respect to the submission of the Plan for such a vote, it shall
have been effectively approved with respect to the Trust's Class
I Shares if a majority of the outstanding voting securities of
the Class I Shares of the Trust votes for approval of the Plan.
3. The Plan shall not take effect until it has been
approved, together with any related agreements and supplements,
by votes of a majority of both (a) the Board of Trustees of the
Trust, and (b) those Trustees of the Trust who are not
"interested persons" (as defined in the 1940 Act) and have no
direct or indirect financial interest in the operation of the
Plan or any agreements related to it (the "Plan Trustees"), cast
in person at a meeting (or meetings) called for the purpose of
voting on the Plan and such related agreements.
4. The Plan shall continue in effect so long as such
continuance is specifically approved at least annually in the
manner provided for approval of the Plan in paragraph 3.
5. Any person authorized to direct the disposition of
monies paid or payable by the Class I Shares of the Trust
pursuant to the Plan or any related agreement shall provide to
the Trust's Board of Trustees, and the Board shall review, at
least quarterly, a written report of the amounts so expended and
the purposes for which such expenditures were made.
6. Any agreement related to the Plan shall be in
writing and shall provide: (a) that such agreement may be
terminated at any time as to the Trust's Class I Shares, without
payment of any penalty, by vote of a majority of the Plan
Trustees or by vote of a majority of the outstanding voting
securities of the Class I Shares of the Trust, on not more than
sixty days' written notice to any other party to the agreement;
and (b) that such agreement shall terminate automatically in the
event of its assignment.
7. The Plan may be terminated at any time, without
payment of any penalty, by vote of a majority of the Plan
Trustees, or by vote of a majority of the outstanding Class I
Shares of the Trust.
8. The Plan may be amended at any time by the Trust's
Board of Trustees, provided that (a) any amendment to increase
materially the costs which the Class I Shares of the Trust may
bear for distribution pursuant to the Plan shall be effective
only upon approval by a vote of a majority of the Class I Shares
of the Trust, and (b) any material amendments of the terms of the
Plan shall become effective only upon approval as provided in
paragraph 3 hereof.
9. While the Plan is in effect, the selection and
nomination of Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Trust shall be committed to the
discretion of the Trustees who are not interested persons.
10. The Trust shall preserve copies of the Plan, any
related agreement and any report made pursuant to paragraph 5
hereof, for a period of not less than six years from the date of
the Plan, such agreement or report, as the case may be, the first
two years of which shall be in an easily accessible place.
11. It is understood and expressly stipulated that
neither the holders of Class I Shares of the Trust nor any
Trustee, officer, agent or employee of the Trust shall be
personally liable hereunder, nor shall any resort be had to other
private property for the satisfaction of any claim or obligation
hereunder, but the Trust only shall be liable.
IN WITNESS WHEREOF, the Trust has executed this
Distribution Plan on this ___ day of _____, 1995.
TEMPLETON REAL ESTATE SECURITIES FUND
By: _______________________________
John R. Kay
Vice President
DISTRIBUTION PLAN
WHEREAS, Templeton Real Estate Securities Fund (the
"Trust") is registered as an open-end diversified management
investment company under the Investment Company Act of 1940 (the
"1940 Act"); and
WHEREAS, the Trust and Franklin Templeton Distributors,
Inc. (the "Selling Company"), a wholly owned subsidiary of
Franklin Resources, Inc. and a broker-dealer registered under the
Securities Exchange Act of 1934, have entered into a Distribution
Agreement pursuant to which the Selling Company will act as
principal underwriter of the Class II Shares of the Trust for
sale to the public; and
WHEREAS, shares of beneficial interest of the Trust are
divided into classes of shares, one of which is designated Class
II; and
WHEREAS, the Board of Trustees of the Trust has
determined to adopt this Distribution Plan (the "Plan"), in
accordance with the requirements of the 1940 Act and has
determined that there is a reasonable likelihood that the Plan
will benefit the Trust and the holders of Class II Shares.
NOW THEREFORE, the Trust hereby adopts, with respect to
its Class II Shares, the Plan on the following terms and
conditions:
1. The Trust will reimburse the Selling Company for
costs and expenses incurred in connection with the distribution
and marketing of the Class II Shares of the Trust. Such
distribution costs and expenses may include: (a) payments to
broker-dealers who provide certain services of value to the
Trust's Class II Shareholders (sometimes referred to as a "trail
fee"); (b) reimbursement of expenses relating to selling and
servicing efforts or of organizing and conducting sales seminars;
(c) payments to employees or agents of the Selling Company who
engage in or support distribution of the Class II Shares; (d)
payment of the costs of preparing, printing and distributing
prospectuses and reports to prospective investors and of printing
and advertising expenses; (e) payment of dealer commissions and
wholesaler compensation in connection with sales of the Trust's
Class II Shares exceeding $1 million (for which the Trust imposes
no sales charge) and interest or carrying charges in connection
therewith; and (f) such other similar services as the Trust's
Board of Trustees determines to be reasonably calculated to
result in the sale of Class II Shares.
The Selling Company will be reimbursed for such costs,
expenses or payments on a monthly basis, subject to an annual
limit of 1.00% per annum of the average daily net assets of the
Trust's Class II Shares (of which up to 0.25% of such net assets
may be paid to dealers for personal service and/or the
maintenance of Class II Shareholder accounts (the "Service Fee"))
and subject to any applicable restriction imposed by rules of the
National Association of Securities Dealers, Inc. Payments made
out of or charged against the assets of the Class II Shares of
the Trust must be in reimbursement for costs and expenses in
connection with any activity which is primarily intended to
result in the sale of the Trust's Class II Shares or account
maintenance and personal service to Shareholders. The costs and
expenses not reimbursed in any one given month (including costs
and expenses not reimbursed because they exceeded the limit of
1.00% per annum of the average daily net assets of the Trust's
Class II Shares) may be reimbursed in subsequent months or years.
2. The Plan shall not take effect with respect to the
Trust's Class II Shares until it has been approved by a vote of
at least a majority (as defined in the 1940 Act) of the
outstanding voting securities of the Class II Shares of the
Trust. With respect to the submission of the Plan for such a
vote, it shall have been effectively approved with respect to the
Trust's Class II Shares if a majority of the outstanding voting
securities of the Class II Shares of the Trust votes for approval
of the Plan.
3. The Plan shall not take effect until it has been
approved, together with any related agreements and supplements,
by votes of a majority of both (a) the Board of Trustees of the
Trust, and (b) those Trustees of the Trust who are not
"interested persons" (as defined in the 1940 Act) and have no
direct or indirect financial interest in the operation of the
Plan or any agreements related to it (the "Plan Trustees"), cast
in person at a meeting (or meetings) called for the purpose of
voting on the Plan and such related agreements.
4. The Plan shall continue in effect so long as such
continuance is specifically approved at least annually in the
manner provided for approval of the Plan in paragraph 3.
5. Any person authorized to direct the disposition of
monies paid or payable by the Class II Shares of the Trust
pursuant to the Plan or any related agreement shall provide to
the Trust's Board of Trustees, and the Board shall review, at
least quarterly, a written report of the amounts so expended and
the purposes for which such expenditures were made.
6. Any agreement related to the Plan shall be in
writing and shall provide: (a) that such agreement may be
terminated at any time as to the Trust's Class II Shares, without
payment of any penalty, by vote of a majority of the Plan
Directors or by vote of a majority of the outstanding voting
securities of the Class II Shares of the Trust, on not more than
sixty days' written notice to any other party to the agreement;
and (b) that such agreement shall terminate automatically in the
event of its assignment.
7. The Plan may be terminated at any time, without
payment of any penalty, by vote of a majority of the Plan
Trustees, or by vote of a majority of the outstanding Class II
Shares of the Trust.
8. The Plan may be amended at any time by the Trust's
Board of Trustees, provided that (a) any amendment to increase
materially the costs which the Class II Shares of the Trust may
bear for distribution pursuant to the Plan shall be effective
only upon approval by a vote of a majority of the Class II Shares
of the Trust, and (b) any material amendments of the terms of the
Plan shall become effective only upon approval as provided in
paragraph 3 hereof.
9. While the Plan is in effect, the selection and
nomination of Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Trust shall be committed to the
discretion of the Trustees who are not interested persons.
10. The Trust shall preserve copies of the Plan, any
related agreement and any report made pursuant to paragraph 5
hereof, for a period of not less than six years from the date of
the Plan, such agreement or report, as the case may be, the first
two years of which shall be in an easily accessible place.
11. It is understood and expressly stipulated that
neither the holders of Class II Shares of the Trust nor any
Trustee, officer, agent or employee of the Trust shall be
personally liable hereunder, nor shall any resort be had to other
private property for the satisfaction of any claim or obligation
hereunder, but the Trust only shall be liable.
IN WITNESS WHEREOF, the Trust has executed this
Distribution Plan on this ___ day of ______, 1995.
TEMPLETON REAL ESTATE SECURITIES FUND
By: _______________________________
John R. Kay
Vice President
THIRD AMENDMENT TO
DECLARATION OF TRUST
OF
TEMPLETON REAL ESTATE SECURITIES FUND
This Third Amendment to the Declaration of Trust (the
"Declaration") of Templeton Real Estate Securities Fund (the
"Trust") is made this 24th day of February, 1995 by the parties
signatory hereto, as Trustees of the Trust (the "Trustees").
WITNESSETH
WHEREAS, the Declaration was made on July 17, 1989 and
amended on September 11, 1989 and March 3, 1990 and the Trustees
now desire to further amend the Declaration; and
WHEREAS, Article V, Section 5.12 of the Declaration provides
that the Trustees may amend the Declaration, without Shareholder
action, so as to add to, delete, replace or otherwise modify any
provisions relating to the Shares contained in the Declaration,
provided that before adopting any such amendment without
Shareholder approval the Trustees shall determine that it is
consistent with the fair and equitable treatment of all
Shareholders or that Shareholder approval is not otherwise
required by the Investment Company Act of 1940 (the "1940 Act")
or other applicable law; and
WHEREAS, the Trustees have determined that the following
amendment to the Declaration is consistent with the fair and
equitable treatment of all Shareholders and that Shareholder
approval is not otherwise required by the 1940 Act or other
applicable law;
NOW, THEREFORE, the Trustees hereby declare that Article V,
Section 5.12 be redesignated as Article V, Section 5.13 and that
Article V, Sections 5.1 and 5.11 be deleted and replaced with the
following:
Section 5.1. Beneficial Interest. The interest of the
beneficiaries hereunder shall be divided into transferable Shares
which may be divided into one or more separate and distinct
series, or classes thereof, as the Trustees shall from time to
time create and establish. The number of shares of beneficial
interest authorized hereunder is unlimited and each Share shall
have a par value of $0.01. All Shares issued hereunder
including, without limitation, Shares issued in connection with a
dividend in Shares or a split of Shares, shall be fully paid and
non-assessable.
Section 5.11. Series Designation. The Trustees, in their
discretion, may authorize the division of Shares into two or more
series, and the different series shall be established and
designated, and the variations in the relative rights and
preferences as between the different series shall be fixed and
determined, by the Trustees; provided, that all Shares shall be
identical except that there may be variations so fixed and
determined between different series as to investment objective,
purchase price, allocation of expenses, right of redemption,
special and relative rights as to dividends and on liquidation,
conversion rights, and conditions under which the several series
shall have separate voting rights. All references to Shares in
this Declaration shall be deemed to be Shares of any or all
series as the context may require.
If the Trustees shall divide the Shares of the Trust into
two or more series, the following provisions shall be applicable:
(a) All provisions herein relating to the Trust shall apply
equally to each series of the Trust except as the context
requires otherwise.
(b) The number of authorized Shares and the number of
Shares of each series that may be issued shall be unlimited. The
Trustees may classify or reclassify any unissued Shares or any
Shares previously issued and reacquired of any series into one or
more series that may be established and designated from time to
time. The Trustees may hold as treasury shares (of the same or
some other series), reissue for such consideration and on such
terms as they may determine, or cancel any Shares of any series
reacquired by the Trust at their discretion from time to time.
(c) All consideration received by the Trust for the issue
or sale of Shares of a particular series, together with all
assets in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment
of such proceeds in whatever form the same may be, shall
irrevocably belong to that series for all purposes, subject only
to the rights of creditors of such series and except as may
otherwise be required by applicable tax laws, and shall be so
recorded upon the books of account of the Trust. In the event
that there are any assets, income, earnings, profits, and
proceeds thereof, funds, or payments which are not readily
identifiable as belonging to any particular series, the Trustees
shall allocate them among any one or more of the series
established and designated from time to time in such manner and
on such basis as they, in their sole discretion, deem fair and
equitable. Each such allocation by the Trustees shall be
conclusive and binding upon the Shareholders of all series for
all purposes.
(d) The assets belonging to each particular series shall be
charged with the liabilities of the Trust in respect of that
series and all expenses, costs, charges and reserves attributable
to that series, and any general liabilities, expenses, costs,
charges or reserves of the Trust which are not readily
identifiable as belonging to any particular series shall be
allocated and charged by the Trustees to and among any one or
more of the series established and designated from time to time
in such manner and on such basis as the Trustees in their sole
discretion deem fair and equitable and no series shall be liable
to any person except for its allocated share. Each allocation of
liabilities, expenses, costs, charges and reserves by the
Trustees shall be conclusive and binding upon the Shareholders of
all series for all purposes. The Trustees shall have full
discretion, to the extent not inconsistent with the 1940 Act, to
determine which items are capital; and each such determination
and allocation shall be conclusive and binding upon the
Shareholders. The assets of a particular series of the Trust
shall, under no circumstances, be charged with liabilities
attributable to any other series of the Trust. All persons
extending credit to, or contracting with or having any claim
against a particular series of the Trust shall look only to the
assets of that particular series for payment of such credit,
contract or claim. No Shareholder or former Shareholder of any
series shall have any claim on or right to any assets allocated
or belonging to any other series.
(e) Each Share of a series of the Trust shall represent a
beneficial interest in the net assets of such series. Each
holder of Shares of a series shall be entitled to receive his pro
rata share of distributions of income and capital gains made with
respect to such series. Upon redemption of his Shares or
indemnification for liabilities incurred by reason of his being
or having been a Shareholder of a series, such Shareholder shall
be paid solely out of the funds and property of such series of
the Trust. Upon liquidation or termination of a series of the
Trust, Shareholders of such series shall be entitled to receive a
pro rata share of the net assets of such series. A Shareholder
of a particular series of the Trust shall not be entitled to
participate in a derivative or class action on behalf of any
other series or the Shareholders of any other series of the
Trust.
(f) The establishment and designation of any series of
Shares shall be effective upon the execution by a majority of the
Trustees of an instrument setting forth such establishment and
designation and the relative rights and preferences of such
series, or as otherwise provided in such instrument. The
Trustees may by an instrument executed by a majority of their
number abolish any series and the establishment and designation
thereof. Except as otherwise provided in this Article V, the
Trustees shall have the power to determine the designations,
preferences, privileges, limitations and rights, of each class
and series of Shares. Each instrument referred to in this
paragraph shall have the status of an amendment to this
Declaration.
Section 5.12. Class Designation. The Trustees, in their
discretion, may authorize the division of the Shares of the
Trust, or, if any series be established, the Shares of any
series, into two or more classes, and the different classes shall
be established and designated, and the variations in the relative
rights and preferences as between the different classes shall be
fixed and determined, by the Trustees; provided, that all Shares
of the Trust or of any series shall be identical to all other
Shares of the Trust or the same series, as the case may be,
except that there may be variations between different classes as
to allocation of expenses, right of redemption, special and
relative rights as to dividends and on liquidation, conversion
rights, and conditions under which the several classes shall have
separate voting rights. All references to Shares in this
Declaration shall be deemed to be Shares of any or all classes as
the context may require.
If the Trustees shall divide the Shares of the Trust or any
series into two or more classes, the following provisions shall
be applicable:
(a) All provisions herein relating to the Trust, or any
series of the Trust, shall apply equally to each class of Shares
of the Trust or of any series of the Trust, except as the context
requires otherwise.
(b) The number of Shares of each class that may be issued
shall be unlimited. The Trustees may classify or reclassify any
unissued Shares of the Trust or any series or any Shares
previously issued and reacquired of any class of the Trust or of
any series into one or more classes that may be established and
designated from time to time. The Trustees may hold as treasury
Shares (of the same or some other class), reissue for such
consideration and on such terms as they may determine, or cancel
any Shares of any class reacquired by the Trust at their
discretion from time to time.
(c) Liabilities, expenses, costs, charges and reserves
related to the distribution of, and other identified expenses
that should properly be allocated to, the Shares of a particular
class may be charged to and borne solely by such class and the
bearing of expenses solely by a class of Shares may be
appropriately reflected (in a manner determined by the Trustees)
and cause differences in the net asset value attributable to, and
the dividend, redemption and liquidation rights of, the Shares of
different classes. Each allocation of liabilities, expenses,
costs, charges and reserves by the Trustees shall be conclusive
and binding upon the Shareholders of all classes for all
purposes.
(d) The establishment and designation of any class of
Shares shall be effective upon the execution of a majority of the
then Trustees of an instrument setting forth such establishment
and designation and the relative rights and preferences of such
class, or as otherwise provided in such instrument. The Trustees
may, by an instrument executed by a majority of their number,
abolish any class and the establishment and designation thereof.
Each instrument referred to in this paragraph shall have the
status of an amendment to this Declaration.
IN WITNESS WHEREOF, the undersigned have executed this
instrument this 24th day of February, 1995.
______________________________
John M. Templeton
______________________________
F. Bruce Clarke
______________________________
Hasso-G von Diergardt-Naglo
______________________________
Betty P. Krahmer
______________________________
John G. Bennett, Jr.
______________________________
Harris J. Ashton
______________________________
S. Joseph Fortunato
______________________________
Fred R. Millsaps
______________________________
Andrew H. Hines, Jr.
______________________________
Rupert H. Johnson, Jr.
______________________________
Gordon S. Macklin
______________________________
Nicholas F. Brady
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this Amendment to
the Declaration of Trust of Templeton Real Estate Securities Fund
is made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
John M. Templeton
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this Amendment to
the Declaration of Trust of Templeton Real Estate Securities Fund
is made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
F. Bruce Clarke
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this Amendment to
the Declaration of Trust of Templeton Real Estate Securities Fund
is made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Hasso-G von Diergardt-Naglo
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this Amendment to
the Declaration of Trust of Templeton Real Estate Securities Fund
is made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Betty P. Krahmer
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this Amendment to
the Declaration of Trust of Templeton Real Estate Securities Fund
is made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
John G. Bennett, Jr.
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this Amendment to
the Declaration of Trust of Templeton Real Estate Securities Fund
is made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Harris J. Ashton
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this Amendment to
the Declaration of Trust of Templeton Real Estate Securities Fund
is made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
S. Joseph Fortunato
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this Amendment to
the Declaration of Trust of Templeton Real Estate Securities Fund
is made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Fred R. Millsaps
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this Amendment to
the Declaration of Trust of Templeton Real Estate Securities Fund
is made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Andrew H. Hines, Jr.
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this Amendment to
the Declaration of Trust of Templeton Real Estate Securities Fund
is made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Rupert H. Johnson, Jr.
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this Amendment to
the Declaration of Trust of Templeton Real Estate Securities Fund
is made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Gordon S. Macklin
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this Amendment to
the Declaration of Trust of Templeton Real Estate Securities Fund
is made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Nicholas F. Brady
Establishment and Designation
Of Classes of Shares of Beneficial Interest
Par Value $0.01 Per Share
The undersigned, being a majority of the Trustees of
Templeton Real Estate Securities Fund, a Massachusetts business
trust (the "Trust"), acting pursuant to Section 5.12 of the
Declaration of Trust dated July 17, 1989, as previously amended
(the "Declaration of Trust") of the Trust, hereby divide the
shares of beneficial interest of the Trust into two separate
classes, each class to have the following special and relative
rights:
1. The classes shall be designated "Templeton Real
Estate Securities Fund Class I" and "Templeton Real Estate
Securities Fund Class II."
2. The Trust shall be authorized to invest in cash,
securities, instruments and other property as from time to time
described in the Trust's then currently effective registration
statement under the Securities Act of 1933. Each share of
beneficial interest of the Trust ("Share") shall be redeemable,
shall be entitled to one vote (or fraction thereof in respect of
a fractional Share) on matters on which Shares of the Trust shall
be entitled to vote (subject to paragraph 3 below), shall
represent a pro rata beneficial interest in the assets of the
Trust (subject to paragraph 4 below) and shall be entitled to
receive its pro rata share of net assets of the Trust upon
liquidation of the Trust, all as provided in the Declaration of
Trust.
3. Shareholders of the Trust shall vote together as a
single class on any matter, except to the extent required by the
Investment Company Act of 1940, as amended (the "1940 Act"), or
when the Trustees have determined that the matter affects only
the interests of Shareholders of a particular class of Shares, in
which case only the Shareholders of such class shall be entitled
to vote thereon. Any matter shall be deemed to have been
effectively acted upon with respect to any class as provided in
Rule 18f-2 under the 1940 Act, or any successor rule, and in the
Declaration of Trust.
4. Liabilities, expenses, costs, charges and reserves
related to the distribution of, and other identified expenses
that should properly be allocated to, the Shares of a particular
class may be charged to and borne solely by such class and the
bearing of expenses solely by a class of Shares may be
appropriately reflected (in a manner determined by the Trustees),
and cause differences in, the net asset value attributable to,
and the dividend, redemption and liquidation rights of, the
Shares of different classes. Each allocation of liabilities,
expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all classes for
all purposes.
5. Shares of each class of the Trust may vary between
themselves as to rights of redemption and conversion rights, as
may be approved by the Trustees and set forth in the Trust's
then-current prospectus.
6. The Trustees shall have the right at any time and
from time to time to reallocate assets and expenses or to change
the designation of any series or any class thereof hitherto or
hereafter created, or to otherwise change the special and
relative rights of any series or any class thereof, provided that
such change shall not adversely affect to rights of the
Shareholders of such series or class.
IN WITNESS WHEREOF, the undersigned have executed this
instrument this 24th day of February, 1995.
______________________________ ______________________________
John M. Templeton S. Joseph Fortunato
______________________________ ______________________________
F. Bruce Clarke Fred R. Millsaps
______________________________ ______________________________
Hasso-G von Diergardt-Naglo Andrew H. Hines, Jr.
______________________________ ______________________________
Betty P. Krahmer Rupert H. Johnson, Jr.
______________________________ ______________________________
John G. Bennett, Jr. Gordon S. Macklin
______________________________ ______________________________
Harris J. Ashton Nicholas F. Brady
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this instrument is
made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
John M. Templeton
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this instrument is
made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
F. Bruce Clarke
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this instrument is
made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Hasso-G von Diergardt-Naglo
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this instrument is
made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Betty P. Krahmer
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this instrument is
made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
John G. Bennett, Jr.
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this instrument is
made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Harris J. Ashton
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this instrument is
made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
S. Joseph Fortunato
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this instrument is
made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Fred R. Millsaps
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this instrument is
made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Andrew H. Hines, Jr.
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this instrument is
made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Rupert H. Johnson, Jr.
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this instrument is
made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Gordon S. Macklin
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned
Trustee hereby acknowledges and certifies that this instrument is
made in accordance with the provisions of the Declaration, and
shall be effective upon its filing with the Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 24th day of February, 1995.
___________________________________
Nicholas F. Brady
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
TEMPLETON REAL ESTATE SECURITIES FUND AUGUST 31, 1994 ANNUAL REPORT AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-END> AUG-31-1994
<INVESTMENTS-AT-COST> 121322261
<INVESTMENTS-AT-VALUE> 130677033
<RECEIVABLES> 1422100
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 5824
<TOTAL-ASSETS> 132104957
<PAYABLE-FOR-SECURITIES> 180500
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 380733
<TOTAL-LIABILITIES> 561233
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 123504082<F1>
<SHARES-COMMON-STOCK> 9630037
<SHARES-COMMON-PRIOR> 4883475
<ACCUMULATED-NII-CURRENT> 1450912<F2>
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2766042)<F3>
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9354772
<NET-ASSETS> 131543724
<DIVIDEND-INCOME> 2354659
<INTEREST-INCOME> 1122622
<OTHER-INCOME> 0
<EXPENSES-NET> 1548838
<NET-INVESTMENT-INCOME> 1928443
<REALIZED-GAINS-CURRENT> 2178205
<APPREC-INCREASE-CURRENT> 2206703
<NET-CHANGE-FROM-OPS> 6313351
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1220841)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5960485
<NUMBER-OF-SHARES-REDEEMED> (1289281)
<SHARES-REINVESTED> 75358
<NET-CHANGE-IN-ASSETS> 69723300
<ACCUMULATED-NII-PRIOR> 771680
<ACCUMULATED-GAINS-PRIOR> (2509738)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 733198
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1548838
<AVERAGE-NET-ASSETS> 97759925
<PER-SHARE-NAV-BEGIN> 12.66
<PER-SHARE-NII> 0.22
<PER-SHARE-GAIN-APPREC> 1.00
<PER-SHARE-DIVIDEND> (0.22)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.66
<EXPENSE-RATIO> 2<F4>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>As a result of differing book and tax treatment for foreign currency
transactions and available capital loss carryforwards, amounts have
been reclassified as of August 31, 1994, to reflect a decrease in
undistributed net investment income of $28,370; a decrease in
accumulated net realized gain(loss) of $2,434,509 and an increase in
net capital paid in on shares of beneficial interest of $2,462,879.
<F2>See <F1>
<F3>See <F1>
<F4>The expense ratio per the Templeton Real Estate Securities Fund Annual
Report August 31, 1994 is 1.58%.
</FN>
</TABLE>
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 30th day of October, 1992, and
amended and restated as of ________________, between TEMPLETON
REAL ESTATE SECURITIES FUND (hereinafter referred to as the
"Fund"), and TEMPLETON INVESTMENT COUNSEL, INC. (hereinafter
referred to as the "Manager").
In consideration of the mutual agreements herein made,
the Fund and the Manager understand and agree as follows:
(1) The Manager agrees, during the life of this
Agreement, to manage the investment and reinvestment of the
Fund's assets consistent with the provisions of the Fund's
Declaration of Trust and the investment policies adopted and
declared by the Fund's Board of Trustees. In pursuance of the
foregoing, the Investment Manager shall make all determinations
with respect to the investment of the Fund's assets and the
purchase and sale of its investment securities, and shall take
all such steps as may be necessary to implement those
determinations.
(2) The Manager is not required to furnish any
personnel, overhead items or facilities for the Fund.
(3) The Manager shall be responsible for selecting
members of securities exchanges, brokers and dealers (such
members, brokers and dealers being hereinafter referred to as
"brokers") for the execution of the Fund's portfolio transactions
consistent with the Fund's brokerage policies and, when
applicable, the negotiation of commissions in connection
therewith.
All decisions and placements shall be made in accor-
dance with the following principles:
A. Purchase and sale orders will usually be placed
with brokers able to achieve "best execution" of
such orders. "Best execution" shall mean prompt
and reliable execution at the most favorable
securities price. The determination of what may
constitute best execution and price in the execu-
tion of a securities transaction by a broker
involves a number of considerations, including,
without limitation, the overall direct net econo-
mic result to the Fund (involving both price paid
or received and any commissions and other costs
paid), the efficiency with which the transaction
is effected, the ability to effect the transaction
at all where a large block is involved,
availability of the broker to stand ready to
execute possibly difficult transactions in the
future, and the financial strength and stability
of the broker. Such considerations are judgmental
and are weighed by the Manager in determining the
overall reasonableness of brokerage commissions.
B. In selecting brokers for portfolio transactions,
the Manager shall take into account its past
experience as to brokers qualified to achieve
"best execution," including brokers who specialize
in any foreign securities held by the Fund.
C. The Manager is authorized to allocate brokerage
business to brokers who have provided brokerage
and research services, as such services are
defined in Section 28(e)(3) of the Securities
Exchange Act of 1934 (the "1934 Act"), for the
Fund and/or other accounts, if any, for which the
Manager exercises investment discretion (as
defined in Section 3(a)(35) of the 1934 Act) and,
as to transactions in which fixed minimum
commission rates are not applicable, to cause the
Fund to pay a commission for effecting a
securities transaction in excess of the amount
another broker would have charged for effecting
that transaction, if the Manager determines in
good faith that such amount of commission is
reasonable in relation to the value of the broker-
age and research services provided by such broker,
viewed in terms of either that particular transac-
tion or the Manager's overall responsibilities
with respect to the Fund and the other accounts,
if any, as to which it exercises investment
discretion. In reaching such determination, the
Manager will not be required to place or attempt
to place a specific dollar value on the research
or execution services of a broker or on the
portion of any commission reflecting either of
said services. In demonstrating that such deter-
minations were made in good faith, the Manager
shall be prepared to show that all commissions
were allocated and paid for purposes contemplated
by the Fund's brokerage policy; that the research
services provide lawful and appropriate assistance
to the Manager in the performance of its
investment decision-making responsibilities; and
that the commissions paid were within a reasonable
range. Whether commissions were within a
reasonable range shall be based on any available
information as to the level of commission known to
be charged by other brokers on comparable transac-
tions, but there shall be taken into account the
Fund's policies that (i) obtaining a low
commission is deemed secondary to obtaining a
favorable securities price, since it is recognized
that usually it is more beneficial to the Fund to
obtain a favorable price than to pay the lowest
commission; and (ii) the quality, comprehensive-
ness and frequency of research studies that are
provided for the Manager are useful to the Manager
in performing its advisory activities under this
Agreement. Research services provided by brokers
to the Manager are considered to be in addition
to, and not in lieu of, services required to be
performed by the Manager under this Agreement.
D. Purchases and sales of portfolio securities within
the United States other than on a securities
exchange shall be executed with primary market
makers acting as principal, except where, in the
judgment of the Manager, better prices and
execution may be obtained on a commission basis or
from other sources.
E. Sales of the Fund's shares (which shall be deemed
to include also shares of other registered
investment companies which have either the same
adviser or an investment adviser affiliated with
the Manager) by a broker are one factor among
others to be taken into account in deciding to
allocate portfolio transactions (including agency
transactions, principal transactions, purchases in
underwritings or tenders in response to tender
offers) for the account of the Fund to that
broker; provided that the broker shall furnish
"best execution," as defined in subparagraph A
above, and that such allocation shall be within
the scope of the Fund's policies as stated above;
provided further, that in every allocation made to
a broker in which the sale of Fund shares is taken
into account, there shall be no increase in the
amount of the commissions or other compensation
paid to such broker beyond a reasonable commission
or other compensation determined, as set forth in
subparagraph C above, on the basis of best
execution alone or best execution plus research
services, without taking account of or placing any
value upon such sale of the Fund's shares.
(4) The Fund shall pay to the Manager a monthly fee in
dollars at an annual rate of 0.75% of the Fund's average daily
net assets, payable at the end of each calendar month.
(5) In rendering the services required under this
Agreement, the Manager may, subject to the approval of the Fund,
its shareholders and Trustees, cause such services or any portion
thereof to be provided by a registered investment adviser
pursuant to a sub-advisory agreement.
(6) This Agreement shall become effective on
October 30, 1992 and shall continue in effect until December 31,
1993. If not sooner terminated, this Agreement shall continue in
effect for successive periods of 12 months each thereafter,
provided that each such continuance shall be specifically
approved annually by the vote of a majority of the Fund's
Trustees who are not parties to this Agreement or "interested
persons" (as defined in the Investment Company Act of 1940 (the
"1940 Act")) of any such party, cast in person at a meeting
called for the purpose of voting on such approval and either the
vote of (a) a majority of the outstanding voting securities of
the Fund, as defined in the 1940 Act, or (b) a majority of the
Fund's Board of Trustees as a whole.
(7) Notwithstanding the foregoing, this Agreement may
be terminated by either party at any time, without the payment of
any penalty, on sixty (60) days' written notice to the other
party, provided that termination by the Fund is approved by vote
of a majority of the Fund's Board of Trustees in office at the
time or by vote of a majority of the outstanding voting
securities of the Fund.
(8) This Agreement will terminate automatically and
immediately in the event of its "assignment" (as defined in the
1940 Act).
(9) In the event this Agreement is terminated and the
Manager no longer acts as Manager to the Fund, the Manager
reserves the right to withdraw from the Fund the use of the name
"Templeton" or any name misleadingly implying a continuing
relationship between the Fund and the Manager or any of its
affiliates.
(10) The Manager may rely on information reasonably
believed by it to be accurate and reliable. Except as may
otherwise be provided by the 1940 Act, neither the Manager nor
its officers, directors, employees or agents shall be subject to
any liability for any error of judgment, mistake of law, or any
loss arising out of any investment or other act or omission in
the performance by the Manager of its duties under this Agreement
or for any loss or damage resulting from the imposition by any
government of exchange control restrictions which might affect
the liquidity of the Fund's assets, or from acts or omissions of
custodians or securities depositories, or from any war or politi-
cal act of any foreign government to which such assets might be
exposed, except for any liability, loss or damage resulting from
willful misfeasance, bad faith or gross negligence on the
Manager's part or by reason of reckless disregard of the
Manager's duties under this Agreement.
(11) It is understood that the services of the Manager
are not deemed to be exclusive, and nothing in this Agreement
shall prevent the Manager, or any affiliate thereof, from provid-
ing similar services to other investment companies and other
clients, including clients which may invest in the same types of
securities as the Fund, or, in providing such services, from
using information furnished by others. When the Manager
determines to buy or sell the same security for the Fund that the
Manager or one or more of its affiliates has selected for clients
of the Manager or its affiliates, the orders for all such
securities transactions shall be placed for execution by methods
determined by the Manager, with approval by the Fund's Board of
Trustees, to be impartial and fair.
(12) This Agreement shall be construed in accordance
with the laws of the Commonwealth of Massachusetts, provided that
nothing herein shall be construed as being inconsistent with
applicable Federal or state securities laws or any rules,
regulations or orders thereunder.
(13) If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby
and, to this extent, the provisions of this Agreement shall be
deemed to be severable.
(14) It is understood and expressly stipulated that
neither the holders of shares of the Fund nor any Trustee,
officer, agent or employee of the Fund shall be personally liable
hereunder, nor shall any resort be had to other private property
for the satisfaction of any claim or obligation hereunder, but
the Fund only shall be liable.
(15) Nothing herein shall be construed as constituting
the Manager an agent of the Fund.
TEMPLETON REAL ESTATE SECURITIES FUND
By: ______________________________
John R. Kay
Vice President
TEMPLETON INVESTMENT COUNSEL, INC.
By: _______________________________
