TEMPLETON GLOBAL OPPORTUNITIES TRUST
THIS STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1995,
AS AMENDED SEPTEMBER 29, 1995, IS NOT A PROSPECTUS. IT SHOULD
BE READ IN CONJUNCTION WITH THE PROSPECTUS OF
TEMPLETON GLOBAL OPPORTUNITIES TRUST DATED
MAY 1, 1995, AS AMENDED FROM TIME TO TIME, 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/DIAL BEN
TABLE OF CONTENTS
General Information and History......................1
Investment Objective and Policies....................1
-Investment Policies................................1
-Repurchase Agreements..............................1
-Debt Securities....................................2
-Futures Contracts..................................3
-Options on Securities or Indices...................4
-Foreign Currency Hedging Transactions..............6
-Investment Restrictions............................8
-Risk Factors......................................10
-Trading Policies..................................14
-Personal Securities Transactions..................15
Management of the Fund..............................15
Trustee Compensation................................21
Principal Shareholders..............................22
Investment Management and Other
Services......................................... 23
-Investment Management Agreement...................23
-Management Fees...................................24
-Templeton Investment Counsel, Inc.................24
-Sub-Advisory Agreement............................24
-Business Manager..................................25
-Custodian and Transfer Agent......................27
-Legal Counsel.....................................27
-Independent Accountants...........................27
-Reports to Shareholders...........................28
Brokerage Allocation................................28
Purchase, Redemption and
Pricing of Shares.................................31
-Ownership and Authority Disputes..................32
-Tax-Deferred Retirement Plans.....................32
-Letter of Intent..................................33
-Special Net Asset Value Purchases.................35
Tax Status..........................................36
-Distributions.....................................39
-Options and Hedging Transactions..................39
-Currency Fluctuations--"Section
988" Gains or Losses..............................40
-Sale of Shares....................................41
-Foreign Taxes.....................................42
-Backup Withholding................................43
-Foreign Shareholders..............................43
-Other Taxation....................................43
Principal Underwriter...............................43
Description of Shares...............................45
Performance Information.............................46
Financial Statements................................49
GENERAL INFORMATION AND HISTORY
Templeton Global Opportunities Trust (the "Fund") was organized as a
Massachusetts business trust on October 2, 1989, and is registered under the
Investment Company Act of 1940 (the "1940 Act") as an open-end diversified
management investment company.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT POLICIES. The Fund's investment objective and
policies are described in the Prospectus under the heading "General
Description -- Investment Objective and Policies."
REPURCHASE AGREEMENTS. Repurchase agreements are contracts
under which the buyer of a security simultaneously commits to
resell the security to the seller at an agreed upon price and date.
Under a repurchase agreement, the seller is required to maintain
the value of the securities subject to the repurchase agreement at
not less than their repurchase price. Templeton Investment
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Counsel, Inc. (the "Investment Manager") will monitor the value of such
securities daily to determine that the value equals or exceeds the repurchase
price. Repurchase agreements may involve risks in the event of default or
insolvency of the seller, including possible delays or restrictions upon 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.
DEBT SECURITIES. The Fund may invest in debt securities which are rated
at least Caa by Moody's or CCC by S&P or deemed to be of comparable quality by
the Investment Manager. As an operating policy, the Fund will invest no more
than 5% of its assets in debt securities rated lower than Baa by Moody's or BBB
by S&P. The market value of debt securities generally varies in response to
changes in interest rates and the financial condition of each issuer. During
periods of declining interest rates, the value of debt securities generally
increases. Conversely, during periods of rising interest rates, the value of
such securities generally declines. These changes in market value will be
reflected in the Fund's net asset value.
Bonds rated Caa by Moody's are of poor standing. Such securities may be
in default or there may be present elements of danger with respect to principal
or interest. Bonds rated CCC by S&P are regarded, on balance, as speculative.
Such securities will have some quality and protective characteristics, but these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Although they may offer higher yields than do higher rated securities,
low rated and unrated debt securities generally involve greater volatility of
price and risk of principal and income, including the possibility of default by,
or bankruptcy of, the issuers of the securities. In addition, the markets in
which low rated and unrated debt securities are traded are more limited than
those in which higher rated securities are traded. The existence of limited
markets for particular securities may diminish the Fund's ability to sell the
securities at fair value either to meet redemption requests or to respond to a
specific economic event such as a deterioration in the creditworthiness of the
issuer. Reduced secondary market liquidity for certain low rated or unrated debt
securities may also make it more difficult for the Fund to obtain accurate
market quotations for the purposes of valuing the Fund's portfolio. Market
quotations are generally available on many low rated or unrated securities only
from a limited number of dealers and may not necessarily represent firm bids of
such dealers or
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prices for actual sales.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated debt
securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated debt securities may be more complex
than for issuers of higher rated securities, and the ability of the Fund to
achieve its investment objective may, to the extent of investment in low rated
debt securities, be more dependent upon such creditworthiness analysis than
would be the case if the Fund were investing in higher rated securities.
Low rated debt securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities. The prices of low rated debt securities have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic downturns or individual corporate developments. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in low rated debt securities prices because the
advent of a recession could lessen the ability of a highly leveraged company to
make principal and interest payments on its debt securities. If the issuer of
low rated debt securities defaults, the Fund may incur additional expenses to
seek recovery.
The Fund may accrue and report interest on high yield bonds structured
as zero coupon bonds or pay-in-kind securities as income even though it receives
no cash interest until the security's maturity or payment date. In order to
qualify for beneficial tax treatment, the Fund must distribute substantially all
of its income to shareholders (see "Tax Status"). Thus, the Fund may have to
dispose of its portfolio securities under disadvantageous circumstances to
generate cash or leverage itself by borrowing cash, so that it may satisfy the
distribution requirement.
Recent legislation, which requires federally insured savings and loan
associations to divest their investments in low rated debt securities, may have
a material adverse effect on the Fund's net asset value and investment
practices.
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.
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The Fund may also buy and sell index futures contracts with respect to
any stock 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 OR 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)
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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 that it writes by
owning securities whose price changes, in the opinion of the Investment Manager,
are expected to be similar to those of the index, or in such other manner as may
be in accordance with the rules of the exchange on which the option is traded
and applicable laws and regulations. Nevertheless, where 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 that it
writes by segregating assets equal to the option's exercise price, or in such
other manner as may be in accordance with the rules of the exchange on which the
option is traded and applicable laws and regulations.
The Fund will receive a premium from writing a put or call option,
which increases 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
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 indices or
securities 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.
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The Fund may also purchase put options to hedge its investments against
a decline in value. By purchasing a put option, the Fund will seek to offset a
decline in the value of the portfolio securities being hedged through
appreciation of the put option. If the value of the Fund's investments does not
decline as anticipated, or if the value of the option does not increase, 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 on a
securities index to attempt to reduce the risk of missing a broad market
advance, or an advance in an industry or market segment, at a time when the Fund
holds uninvested cash or short-term debt securities awaiting investment. When
purchasing call options, the Fund will bear the risk of losing all or a portion
of the premium paid if the value of the underlying security 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
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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 forward foreign currency 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. 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 in 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
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successful use of foreign currency futures will usually depend on the Investment
Manager's ability to forecast currency exchange rate movements correctly. Should
exchange rates move in an unexpected manner, 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 the investment policies are
fundamental policies except as otherwise indicated. No changes in the Fund's
investment policies or investment restrictions (except those which are not
fundamental policies) can be made without approval of the Shareholders. For this
purpose, the provisions in the 1940 Act require the affirmative vote of the
lesser of either (a) 67% or more of the Shares present at a Shareholders'
meeting at which more than 50% of the outstanding Shares are present or
represented by proxy or (b) more than 50% of the outstanding Shares of the Fund.
In accordance with these restrictions, the Fund will not:
1. Invest in real estate or mortgages on real estate
(although the Fund may invest in marketable securities
secured by real estate or interests therein or issued by
companies or investment trusts which invest in real
estate or interest therein); invest in interests (other
than debentures or equity stock interests) in oil, gas or
other mineral exploration or development programs;
purchase or sell commodity contracts except stock index
futures contracts; invest in other open-end investment
companies or, as an operating policy approved by the
Board of Trustees, invest in closed-end investment
companies.
2. Purchase or retain securities of any company in which Trustees
or Officers of the Fund or of its Investment Manager,
individually owning more than 1/2 of 1% of the securities of
such company, in the aggregate own more than 5% of the
securities of such company.
3. Invest more than 5% of its total assets in the securities
of any one issuer (exclusive of U.S. Government
securities).
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 except as
set forth in investment restriction 7 below; or purchase
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on margin or sell short (but the Fund may make margin payments
in connection with options on securities or securities
indices, foreign currencies, futures contracts and related
options, and forward contracts and related options).
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. Borrow money, except that the Fund may borrow money from
banks in an amount not exceeding 10% 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, forward contracts and related options are not
deemed to be a pledge of assets.
8. Invest more than 5% of the value of the Fund's total assets in
securities of issuers which have been in continuous operation
less than three years.
9. Invest more than 5% of the Fund's total assets in warrants,
whether or not listed on the New York or American Stock
Exchange, including no more than 2% of its total assets which
may be invested in warrants that are not listed on those
exchanges. Warrants acquired by the Fund in units or attached
to securities are not included in this restriction.
10. Invest more than 15% of the Fund's total assets in
securities of foreign issuers 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, securities that are not readily
marketable, repurchase agreements having more than seven
days to maturity, and over-the-counter options purchased
by the Fund. Assets used as cover for over-the-counter
options written by the Fund are considered not readily
marketable.
11. Invest more than 25% of the Fund's total assets in a
single industry.
12. Participate on a joint or a joint and several basis in
any trading account in securities. (See "Investment
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Objective and Policies--Trading Policies" as to transactions
in the same securities for the Fund and other Templeton Funds
and clients.)
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. Assets are calculated as described in the Prospectus under
the heading "How to Buy Shares of the Fund." If the Fund receives from an issuer
of securities held by the Fund subscription rights to purchase securities of
that issuer, and if the Fund exercises such subscription rights at a time when
the Fund's portfolio holdings of securities of that issuer would otherwise
exceed the limits set forth in investment restrictions 3 or 11 above, it will
not constitute a violation if, prior to receipt of securities upon exercise of
such rights, and after announcement of such rights, the Fund has sold at least
as many securities of the same class and value as it would receive on exercise
of such rights.
RISK FACTORS. The Fund has an unlimited right to purchase securities in
any developed foreign country, and may invest up to 25% of its total assets in
securities in developing countries. 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. The Fund, therefore, may encounter difficulty in obtaining market
quotations for purposes of valuing its portfolio and calculating its net asset
value. Foreign markets have substantially less volume than the New York Stock
Exchange ("NYSE") 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
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the markets for such securities and the currently low or nonexistent volume of
trading, which result in a lack of liquidity and in greater price volatility;
(iii) certain national policies which may restrict the Fund's investment
opportunities, including restrictions on investment in issuers or industries
deemed sensitive to national interests; (iv) foreign taxation; (v) the absence
of developed structures governing private or foreign investment or allowing for
judicial redress for injury to private property; (vi) the absence, until
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; and (vii) the possibility that recent favorable
economic developments in Eastern Europe may be slowed or reversed by
unanticipated political or social events in such countries.
In addition, many countries in which the Fund may invest have
experienced substantial, and in some periods extremely high, rates of inflation
for many years. Inflation and rapid fluctuations in inflation rates have had and
may continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some developing countries may
differ favorably or unfavorably from the United States economy in such respects
as growth of gross domestic product, rate of inflation, currency depreciation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
Investments in Eastern European countries may involve risks of
nationalization, expropriation and confiscatory taxation. The communist
governments of a number of Eastern European countries expropriated large amounts
of private property in the past, in many cases without adequate compensation,
and there can be no assurance that such expropriation will not occur in the
future. In the event of such expropriation, the Fund could lose a substantial
portion of any investments it has made in the affected countries. Further, no
accounting standards exist in Eastern European countries. Finally, even though
certain Eastern European currencies may be convertible into U.S. dollars, the
conversion rates may be artificial to the actual market values and may be
adverse to Fund Shareholders.
Investing in Russian companies involves a high degree of risk and
special considerations not typically associated with investing in the United
States securities markets, and should be considered highly speculative. Such
risks include: (a) delays in settling portfolio transactions and risk of loss
arising out of Russia's system of share registration and custody; (b) the risk
that it may be impossible or more difficult than in other countries to obtain
and/or enforce a judgment; (c) pervasiveness of corruption and crime in the
Russian economic system; (d) currency exchange rate volatility and the lack of
available currency hedging instruments; (e) higher rates of inflation (including
the risk of social unrest associated with periods of hyper-inflation); (f)
controls on
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foreign investment and local practices disfavoring foreign investors and
limitations on repatriation of invested capital, profits and dividends, and on
the Fund's ability to exchange local currencies for U.S. dollars; (g) the risk
that the government of Russia or other executive or legislative bodies may
decide not to continue to support the economic reform programs implemented since
the dissolution of the Soviet Union and could follow radically different
political and/or economic policies to the detriment of investors, including
non-market-oriented policies such as the support of certain industries at the
expense of other sectors or investors, or a return to the centrally planned
economy that existed prior to the dissolution of the Soviet Union; (h) the
financial condition of Russian companies, including large amounts of
inter-company debt which may create a payments crisis on a national scale; (i)
dependency on exports and the corresponding importance of international trade;
(j) the risk that the Russian tax system will not be reformed to prevent
inconsistent, retroactive and/or exorbitant taxation; and (k) possible
difficulty in identifying a purchaser of securities held by the Fund due to the
underdeveloped nature of the securities markets.
There is little historical data on Russian securities markets because
they are relatively new and a substantial proportion of securities transactions
in Russia are privately negotiated outside of stock exchanges. Because of the
recent formation of the securities markets as well as the underdeveloped state
of the banking and telecommunications systems, settlement, clearing and
registration of securities transactions are subject to significant risks.
Ownership of shares (except where shares are held through depositories that meet
the requirements of the 1940 Act) is defined according to entries in the
company's share register and normally evidenced by extracts from the register or
by formal share certificates. However, there is no central registration system
for shareholders and these services are carried out by the companies themselves
or by registrars located throughout Russia. These registrars are not necessarily
subject to effective state supervision and it is possible for the Fund to lose
its registration through fraud, negligence or even mere oversight. While the
Fund will endeavor to ensure that its interest continues to be appropriately
recorded either itself or through a custodian or other agent inspecting the
share register and by obtaining extracts of share registers through regular
confirmations, these extracts have no legal enforceability and it is possible
that subsequent illegal amendment or other fraudulent act may deprive the Fund
of its ownership rights or improperly dilute its interests. In addition, while
applicable Russian regulations impose liability on registrars for losses
resulting from their errors, it may be difficult for the Fund to enforce any
rights it may have against the registrar or issuer of the securities in the
event of loss of share registration. Furthermore, although a
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Russian public enterprise with more than 1,000 shareholders is required by law
to contract out the maintenance of its shareholder register to an independent
entity that meets certain criteria, in practice this regulation has not always
been strictly enforced. Because of this lack of independence, management of a
company may be able to exert considerable influence over who can purchase and
sell the company's shares by illegally instructing the registrar to refuse to
record transactions in the share register. This practice may prevent the Fund
from investing in the securities of certain Russian companies deemed suitable by
the Investment Manager. Further, this also could cause a delay in the sale of
Russian company securities by the Fund if a potential purchaser is deemed
unsuitable, which may expose the Fund to potential loss on the investment.
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, withhold portions of interest and dividends at the source,
or impose other taxes, with respect to the Fund's investments in securities of
issuers of that country. Although the management places the Fund's investments
only in foreign nations which it considers as having relatively stable and
friendly governments, there is the possibility of cessation of trading on
national exchanges, expropriation, nationalization, confiscatory or other
taxation, 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 that
could affect investments in securities of issuers in foreign nations.
The Fund may be affected either unfavorably or favorably by
fluctuations in the relative rates of exchange between the currencies of
different nations, by exchange control regulations and by indigenous economic
and political developments. Some countries in which the Fund may invest may also
have fixed or managed currencies that are not free-floating against the U.S.
dollar. Further, certain currencies may not be internationally traded. Certain
of these currencies have experienced a steady devaluation relative to the U.S.
dollar. Any devaluations in the currencies in which the Fund's portfolio
securities are denominated may have a detrimental impact on the Fund. Through
the Fund's flexible policy, management endeavors to avoid unfavorable
consequences and to take advantage of favorable developments in particular
nations where from time to time it places the Fund's investments.
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<PAGE>
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. The Trustees 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 Trustees'
appraisal of the risks will always be correct or that such exchange control
restrictions or political acts of foreign governments might not occur.
The Fund's ability to reduce or eliminate its futures and related
options positions will depend upon the liquidity of the secondary markets for
such futures and options. The Fund intends to purchase or sell futures and
related options only on exchanges or boards of trade where there appears to be
an active secondary market, but there is no assurance that a liquid secondary
market will exist for any particular contract or at any particular time. Use of
stock index futures and related options for hedging may involve risks because of
imperfect correlations between movements in the prices of the futures or related
options and movements in the prices of the securities being hedged. Successful
use of futures and related options by the Fund for hedging purposes also depends
upon the Investment Manager's ability to predict correctly movements in the
direction of the market, as to which no assurance can be given.
TRADING POLICIES. The Investment Manager and its affiliated companies
serve as investment manager to other investment companies and private clients.
Accordingly, the respective portfolios of certain of these funds and clients may
contain many or some of the same securities. When certain funds or clients are
engaged simultaneously in the purchase or sale of the same security, the trades
may be aggregated for execution and then allocated 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
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<PAGE>
quantity which may be bought or sold for each party. If the transaction is large
enough, brokerage commissions 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 THE PAST FIVE YEARS
HARRIS J. ASHTON
Metro Center
1 Station Place
Stamford, Connecticut
Trustee
Chairman of the Board,
president and chief executive
officer of General Host
Corporation (nursery and craft
centers); and a director of RBC
Holdings (U.S.A.) Inc. (a bank
holding company) and Bar-S
Foods. Age 63.
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<PAGE>
NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH FUND DURING THE PAST FIVE YEARS
NICHOLAS F. BRADY*
The Bullitt House
102 East Dover Street
Easton, Maryland
Trustee
Chairman of Templeton Emerging Markets Investment Trust PLC; chairman of
Templeton Latin America Investment Trust PLC; chairman of Darby Overseas
Investments, Ltd. (an investment firm) (1994- present); director of the Amerada
Hess Corporation, Capital Cities/ABC, Inc., Christiana Companies, and the H.J.
Heinz Company; Secretary of the United States Department of the Treasury
(1988-January, 1993); and chairman of the board of Dillon, Read & Co. Inc.
(investment banking) prior thereto. Age 65.
FRANK J. CROTHERS
P.O. Box N-3238
Nassau, Bahamas
Trustee President and chief executive officer of Atlantic Equipment & Power
Ltd; vice chairman of Caribbean Utilities Co., Ltd.; president of Provo Power
Corporation; and a director of various other business and nonprofit
organizations. Age 51.
S. JOSEPH FORTUNATO
12 Brannick Drive
Madison, New Jersey
Trustee Member of the law firm of Pitney, Hardin, Kipp & Szuch; and a director
of General Host Corporation. Age 63.
JOHN Wm. GALBRAITH
360 Central Avenue
Suite 1300
St. Petersburg, Florida
Trustee
President of Galbraith
Properties, Inc. (personal
investment company); director
of Gulfwest Banks, Inc. (bank
holding company) (1995-present)
and Mercantile Bank (1991-
present); vice chairman of
Templeton, Galbraith &
Hansberger Ltd. (1986-1992);
and chairman of Templeton Funds
Management, Inc. (1974-1991).
Age 74.
- 16 -
<PAGE>
NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH FUND DURING THE PAST FIVE YEARS
ANDREW H. HINES, JR.
150 2nd Avenue N.
St. Petersburg, Florida
Trustee Consultant for the Triangle Consulting Group; chairman of the board
and chief executive officer of Florida 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); and a director of Checkers Drive-In Restaurants, Inc. Age 72.
CHARLES B. JOHNSON*
777 Mariners Island Blvd.
San Mateo, California
Chairman of the Board
and Vice President
President, chief executive officer, and director of Franklin Resources, Inc.;
chairman of the board and director of Franklin Advisers, Inc. and Franklin
Templeton Distributors, Inc.; director of Franklin Administrative Services,
Inc., General Host Corporation, and Templeton Global Investors, Inc.; and
officer and director, trustee or managing general partner, as the case may be,
of most other subsidiaries of Franklin and of 55 of the investment companies in
the Franklin Templeton Group. Age 62.
- 17 -
<PAGE>
NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH FUND DURING THE PAST FIVE YEARS
RUPERT H. JOHNSON, JR.*
777 Mariners Island Blvd.
San Mateo, California
Trustee Executive vice president and director of Franklin Resources, Inc.;
president and director of Franklin Advisers, Inc.; executive vice president and
director of Franklin Templeton Distributors, Inc.; director of 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 42 of the investment companies in the Franklin Templeton
Group. Age 55.
BETTY P. KRAHMER
2201 Kentmere Parkway
Wilmington, Delaware
Trustee
Director or trustee of various civic associations; formerly, economic analyst,
U.S.
Government. Age 66.
GORDON S. MACKLIN
8212 Burning Tree Road
Bethesda, Maryland
Trustee
Chairman of White River Corporation (information services); director of Fund
America Enterprises Holdings, Inc., Lockheed Martin Corporation, MCI
Communications Corporation, Fusion Systems Corporation, Infovest Corporation,
and Medimmune, Inc.; and formerly held the following positions: chairman of
Hambrecht and Quist Group; director of H&Q Healthcare Investors; and president
of the National Association of Securities Dealers, Inc. Age 67.
- 18 -
<PAGE>
NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH FUND DURING THE PAST FIVE YEARS
FRED R. MILLSAPS
2665 N.E. 37th Drive
Fort Lauderdale, Florida
Trustee
Manager of personal investments (1978-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 The Federal Reserve Bank
of Atlanta (1958- 1965); and a director of various other business and nonprofit
organizations. Age 66.
CONSTANTINE DEAN TSERETOPOULOS
Lyford Cay Hospital
P.O. Box N-7776
Nassau, Bahamas
Trustee
Physician, Lyford Cay Hospital (July 1987-present); cardiology fellow,
University of Maryland (July 1985-July 1987); internal medicine intern, Greater
Baltimore Medical Center (July 1982-July 1985). Age 41.
MARTIN L. FLANAGAN
777 Mariners Island Blvd.
San Mateo, California
President
Senior vice president,
treasurer and chief financial officer of Franklin Resources, Inc.; director and
executive vice president of Templeton Investment Counsel, Inc.; director,
president, and chief executive officer of Templeton Global Investors, Inc.;
director or trustee and president or vice president of various Templeton Funds;
accountant with Arthur Andersen & Company (1982-1983); and a member of the
International Society of Financial Analysts and the American Institute of
Certified Public Accountants.
Age 35.
- 19 -
<PAGE>
NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH FUND DURING THE PAST FIVE YEARS
HOWARD J. LEONARD
500 East Broward Blvd.
Fort Lauderdale, Florida
Vice President Vice president, Portfolio Management/Research, of Templeton
Investment Counsel, Inc. (1989-present); formerly, director, investment research
for First Pennsylvania Bank (1986-1989) and security analyst for Provident
National Bank (1981-1985). Age 36.
JOHN R. KAY
500 East Broward Blvd.
Fort Lauderdale, Florida
Vice President
Vice president of the Templeton
Funds; vice president and
treasurer of Templeton Global
Investors, Inc. and Templeton
Worldwide, Inc.; assistant vice
president of Franklin Templeton
Distributors, Inc.; formerly,
vice president and controller
of the Keystone Group, Inc. Age
55.
MARK G. HOLOWESKO
Lyford Cay
Nassau, Bahamas
Vice President President and director of Templeton, Galbraith & Hansberger
Ltd.; director of global equity research for Templeton Worldwide, Inc.;
president or vice president of the Templeton Funds; formerly, investment
administrator with Roy West Trust Corporation (Bahamas) Limited (1984-1985).
Age 35.
JAMES R. BAIO
500 East Broward Blvd.
Fort Lauderdale, Florida
Treasurer
Certified public accountant; treasurer of the Templeton Funds; senior vice
president of Templeton Worldwide, Inc., Templeton Global Investors, Inc., and
Templeton Funds Trust Company; formerly, senior tax manager with Ernst & Young
(certified public accountants) (1977-1989). Age 41.
- 20 -
<PAGE>
THOMAS M. MISTELE
700 Central Avenue
St. Petersburg, Florida
Secretary Senior vice president of Templeton Global Investors, Inc.; vice
president of Franklin Templeton Distributors, Inc.; secretary of the Templeton
Funds; formerly, attorney, Dechert Price & Rhoads (1985-1988) and Freehill,
Hollingdale & Page (1988); and judicial clerk, U.S. District Court (Eastern
District of Virginia) (1984- 1985). Age 42.
JACK L. COLLINS
700 Central Avenue
St. Petersburg, Florida
Assistant Treasurer Assistant treasurer of the Templeton Funds; assistant vice
president of Franklin Templeton Investor Services, Inc.; formerly, partner with
Grant Thornton, independent public accountants. Age 66.
JEFFREY L. STEELE
1500 K Street, N.W.
Washington, D.C.
Assistant Secretary
Partner, Dechert Price &
Rhoads. Age 50.
- ----------------------
* These 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.
There are no family relationships between any of the Trustees,
except that Messrs. Charles B. Johnson and Rupert H. Johnson, Jr.
are brothers.
TRUSTEE COMPENSATION
All of the Trust's Officers and Trustees also hold positions with other
investment companies in the Franklin Templeton Group.
- 21 -
<PAGE>
No compensation is paid by the Trust to any officer or Trustee who is an
officer, trustee or employee of the Investment Manager or its affiliates. Each
Templeton Fund pays its independent directors and 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 each fund. Accordingly, the
Trust currently pays the independent Trustees and Mr. Brady an annual retainer
of $2,500 and a fee of $200 per meeting attended of the Board and its
Committees. The independent Trustees and Mr. Brady are reimbursed for any
expenses incurred in attending meetings, paid pro rata by each Franklin
Templeton Fund in which they serve. No pension or retirement benefits are
accrued as part of Trust expenses.
The following table shows the total compensation paid to the
Trustees by the Trust and by all investment companies in the
Franklin Templeton Group:
<TABLE>
<CAPTION>
Number of Total Compensation
Aggregate Franklin Templeton from all Funds in
Name of CompensationFund Boards on which Franklin Templeton
TRUSTEE FROM THE TRUST* TRUSTEE SERVES GROUP*
<S> <C> <C> <C>
Harris J. Ashton $2,325 54 $319,925
Nicholas F. Brady 2,325 23 86,125
Frank J. Crothers 2,025 4 12,850
S. Joseph Fortunato 2,325 56 336,065
John Wm. Galbraith 0 22 0
Andrew H. Hines, Jr. 2,325 23 106,125
Betty P. Krahmer 0 23 75,275
Gordon S. Macklin 2,325 51 303,685
Fred R. Millsaps 2,325 23 106,125
Constantine Dean Tseretopoulos 2,825 4 12,850
</TABLE>
_______________
* For the fiscal year ended December 31, 1994.
PRINCIPAL SHAREHOLDERS
As of March 31, 1995, there were 39,903,003 Shares of the Fund
outstanding, of which 299,816 Shares (0.751%) were owned beneficially, directly
or indirectly, by all the Trustees and officers of the Fund as a group. As of
that date, to the knowledge of management, no person owned beneficially 5% or
more of the outstanding Shares.
INVESTMENT MANAGEMENT AND OTHER SERVICES
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<PAGE>
- 23 -
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT. The Investment Manager of
- 24 -
<PAGE>
the Fund is Templeton Investment Counsel, Inc., a Florida corporation with
offices in Fort Lauderdale, Florida. The Investment Management Agreement, dated
October 30, 1992, was approved by Shareholders of the Fund on October 30, 1992,
was last approved by the Board of Trustees at a meeting held on February 24,
1995, and will continue through April 30, 1996. The Investment Management
Agreement will continue from year to year thereafter, subject to approval
annually by the Board of Trustees or by vote of the holders 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 Investment Management 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 Investment Management 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 certain of its affiliates have
selected for one or more of the Investment Manager's other clients or for
clients of its affiliates, the orders for all such securities trades may be
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 Objective 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 Investment Management Agreement provides that the
- 25 -
<PAGE>
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 0.80% of its average daily net assets
during the year. Each class of Shares of the Fund pays a portion of the fee,
determined by the proportion of the Fund that it represents. During the fiscal
years ended December 31, 1994, 1993, and 1992, the Investment Manager (and,
prior to October 30, 1992, Templeton, Galbraith & Hansberger Ltd., the Fund's
previous investment manager) received from the Fund fees of $3,794,011,
$2,483,650, and $1,825,898, 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 advisory fee, but generally excluding distribution expenses, 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, 2.0% of the next
$70,000,000 of net assets and 1.5% of the remainder.
TEMPLETON INVESTMENT COUNSEL, INC. The Investment Manager is
an indirect wholly owned subsidiary of Franklin Resources, Inc.
("Franklin"), a publicly traded company whose shares are listed on
the NYSE. Charles B. Johnson (a Trustee and officer of the Fund),
Rupert H. Johnson, Jr., and R. Martin Wiskemann are principal
shareholders of Franklin and own, respectively, approximately 20%,
16% and 9.2% of its outstanding shares. Messrs. Charles B. Johnson
and Rupert H. Johnson, Jr. are brothers.
SUB-ADVISORY AGREEMENT. Under a Sub-Advisory Agreement
between the Investment Manager and Dean Witter InterCapital Inc.
("Dean Witter InterCapital"), Dean Witter InterCapital provides the
Investment Manager with investment advisory assistance and
- 26 -
<PAGE>
portfolio management advice with respect to the Fund's portfolio. Dean Witter
InterCapital provides the Investment Manager on an ongoing basis with analyses
regarding economic and market conditions, asset allocation, foreign currency
matters and the advisability of entering into foreign exchange contracts. For
its services, the Investment Manager pays to Dean Witter InterCapital a fee in
U.S. dollars at an annual rate of 0.25% of the Fund's average daily net assets.
During the fiscal years ended December 31, 1994, 1993, and 1992, Dean Witter
InterCapital (and, prior to January, 1993, the InterCapital Division of Dean
Witter Reynolds Inc., the Fund's previous sub-adviser) received under the
Sub-Advisory Agreement fees of $1,185,628, $776,141, and $570,539, respectively.
The Sub-Advisory Agreement provides that it will terminate
automatically in the event of its assignment and that it may be terminated by
the Fund on 60 days' written notice to the Investment Manager and to Dean Witter
InterCapital, without penalty, provided that such termination by the Fund is
approved by the vote of a majority of the Fund's Board of Trustees or by vote of
a majority of the Fund's outstanding Shares. The Agreement also provides that it
may be terminated by either the Investment Manager or Dean Witter InterCapital
upon not less than 60 days' written notice to the other party. The Sub-Advisory
Agreement, dated October 30, 1992, was approved by the Fund's Shareholders on
October 30, 1992, was last approved by the Board of Trustees at a meeting held
on February 24, 1995, and will run through April 30, 1996. The Agreement will
continue from year to year thereafter, 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. Dean Witter InterCapital is relieved of liability to
the Fund for any act or omission in the course of its performance under the
Sub-Advisory Agreement, in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations under the Agreement.
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
- 27 -
<PAGE>
on behalf of the Fund;
o supervising preparation of annual and semi-annual reports to
Shareholders, notices of dividends, capital gains
distributions and tax credits, and attending to correspondence
and other special communications with individual Shareholders;
o daily pricing of the Fund's investment portfolio and
supervising publication of daily quotations of the bid and
asked prices of the Fund's Shares, earnings reports and other
financial data;
o providing trading desk facilities for the Fund;
o monitoring relationships with organizations serving the
Fund, including custodians, transfer agents and printers;
o supervising compliance by the Fund with recordkeeping
requirements under the 1940 Act and regulations thereunder,
with state regulatory requirements, maintaining books and
records for the Fund (other than those maintained by the
Custodian and Transfer Agent), 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 the Fund's 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 are
higher than those paid by most other investment companies. During the fiscal
years ended December 31, 1994, 1993, and 1992, the Business Manager (and, prior
to April 1, 1993, Templeton Funds Management, Inc., the Fund's previous business
manager) received business management fees of $670,170, $449,118, and $338,120,
respectively.
The Business Manager is relieved of liability to the Fund for
- 28 -
<PAGE>
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 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 a 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 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. These fees are adjusted
each year to reflect changes in the Department of Labor Consumer Price Index.
LEGAL COUNSEL. Dechert Price & Rhoads, 1500 K Street, N.W.,
Washington, D.C. 20005, is legal counsel for the Fund.
INDEPENDENT ACCOUNTANTS. McGladrey & Pullen, LLP, 555 Fifth Avenue, New
York, New York 10017, serve as independent accountants for the Fund. Their audit
services comprise examination of the Fund's financial statements and review of
the Fund's filings with the Securities and Exchange Commission ("SEC") and the
Internal Revenue Service ("IRS").
- 29 -
<PAGE>
REPORTS TO SHAREHOLDERS. The Fund's fiscal year ends on December 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. Shareholders who would like to
receive an interim quarterly report may phone the Fund Information Department at
1-800/DIAL BEN.
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
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"1934 Act"), for the Fund and/or other accounts, if any, for
which the Investment Manager exercises investment discretion
(as defined in Section 3(a)(35) of the 1934 Act) and, as to
transactions as to which fixed minimum commission rates are
not applicable, to cause the Fund to pay a commission for
effecting a securities transaction in excess of the amount
another broker would have charged for effecting that
transaction, if the Investment Manager in making the selection
in question determines in good faith that such amount of
commission is reasonable in relation to the value of the
brokerage and research services provided by such broker,
viewed in terms of either that particular transaction or the
Investment Manager's overall responsibilities with respect to
the Fund and the other accounts, if any, as to which it
exercises investment discretion. In reaching such
determination, the Investment Manager 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 Contract 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
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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 also shares of other companies registered under
the 1940 Act which have either the same investment
manager or an investment manager affiliated with the
Investment Manager) made by a broker are one factor,
among others, to be taken into account in deciding to
allocate portfolio transactions (including agency
transactions, principal transactions, purchases in
underwritings or tenders in response to tender offers)
for the account of the Fund to that broker; provided that
the broker shall furnish "best execution," as defined in
paragraph 1 above, and that such allocation shall be
within the scope of the Fund's other policies as stated
above; and provided further, that in every allocation
made to a broker in which the sale of 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 has
any material direct or indirect interest in any broker employed by or on behalf
of the Fund. Dean Witter Reynolds, Inc. ("Dean Witter"), an affiliate of the
Fund's Sub-Adviser, may act as broker on behalf of the Fund and receive
commissions on such transactions. 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 December 31, 1994, 1993,
and 1992, and the amount of such commissions on transactions allocated to Dean
Witter
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on the basis of best execution, investment information and trading desk
services, were as follows: total commissions (not including any spreads or
concessions on principal transactions) were $1,482,497, $711,144, and $247,000,
respectively; allocated to Dean Witter $0, $0, and $0, respectively. All
portfolio transactions are allocated to broker-dealers only when their prices
and execution, in the good faith judgment of the Investment Manager, are equal
or superior to the best available within the scope of the Fund's policies. The
Fund will not purchase or sell any securities on the over-the-counter market
from or to Dean Witter acting as principal for its own account. 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."
Net asset value per Share is determined as of the scheduled closing of
the NYSE (generally 4:00 p.m., New York time), 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 NYSE 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 exchanges and
over-the-counter markets is normally completed well before the close of business
in New York on each day on which the NYSE 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 NYSE 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 NYSE is closed other
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than for customary weekend and holiday closings, (2) trading on the NYSE 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 SEC may by order permit for the protection of the
holders of the Fund's Shares.
The Fund will not effect redemptions of its Shares in assets other than
cash, except in accordance with applicable provisions of the 1940 Act.
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: (1) 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 (2) 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 IRS 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 Franklin Templeton Trust Company ("FTTC") receives the
participant's
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<PAGE>
election on IRS Form W-4P (available on request from FTTC) 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 IRA. 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 IRAs
are available through FTTC. Disclosure statements summarizing certain aspects of
IRAs are furnished to all persons investing in such accounts, in accordance with
IRS 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
(the "Code"), are available through the Principal Underwriter. Custodial
services are provided by FTTC.
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 IRS. A "Section 401(k) plan" is also available.
FTTC 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 Group of Funds and
the Templeton Family of Funds, except Templeton Capital Accumulator Fund, Inc.,
Templeton Variable Annuity Fund, Templeton Variable Products Series Fund,
Franklin Valuemark Funds and Franklin Government Securities Trust (the "Franklin
Templeton Funds") within 13 months (whether in one lump sum or in installments,
the first of which may not be less than 5%
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<PAGE>
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, including Class II 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
(Both Classes)" 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 Funds 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.
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<PAGE>
SPECIAL NET ASSET VALUE PURCHASES. As discussed in the Prospectus under
"How to Buy Shares of the Fund - Description of Special Net Asset Value
Purchases," certain categories of investors may purchase Class I Shares of the
Fund at net asset value (without a front-end or contingent deferred sales
charge). Franklin Templeton Distributors, Inc. ("FTD") or one of its affiliates
may make payments, out of its own resources, to securities dealers who initiate
and are responsible for such purchases, as indicated below. FTD may make these
payments in the form of contingent advance payments, which may require
reimbursement from the securities dealers with respect to certain redemptions
made within 12 months of the calendar month following purchase, as well as other
conditions, all of which may be imposed by an agreement between FTD, or its
affiliates, and the securities dealer.
The following amounts will be paid by FTD or one of its affiliates, out
of its own resources, to securities dealers who initiate and are responsible for
(i) purchases of most equity and fixed-income Franklin Templeton Funds made at
net asset value by certain designated retirement plans (excluding IRA and IRA
rollovers): 1.00% on sales of $1 million but less than $2 millon, 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; and (ii) purchases of most
fixed-income Franklin Templeton Funds made at net asset value by non-designated
retirement plans: 0.75% on sales of $1 million but less than $2 million, plus
0.60% on sales of $2 million but less than $3 million, plus 0.50% on sales of $3
million but less than $50 million, plus 0.25% on sales of $50 million but less
than $100 million, plus 0.15% on sales of $100 million or more. These payment
breakpoints are reset every 12 months for purposes of additional purchases. With
respect to purchases made at net asset value by certain trust companies and
trust departments of banks and certain retirement plans of organizations with
collective retirement plan assets of $10 million or more, FTD, or one of its
affiliates, out of its own resources, may pay up to 1% of the amount invested.
Under agreements with certain banks in Taiwan, Republic of China, the
Fund's Shares are available to such banks' discretionary trust funds at net
asset value. The banks may charge service fees to their customers who
participate in the discretionary trusts. Pursuant to agreements, a portion of
such service fees may be paid to FTD, or an affiliate of FTD to help defray
expenses of maintaining a service office in Taiwan, including expenses related
to local literature fulfillment and communication facilities.
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<PAGE>
TAX STATUS
The Fund intends to qualify annually and to elect to be treated as a
regulated investment company under the Code.
To qualify as a regulated investment company, the Fund must, among
other things, (a) derive in each taxable year at least 90% of its gross income
from dividends, interest, payments with respect to securities loans and gains
from the sale or other disposition of stock, securities or foreign currencies,
or other income (including gains from options, futures contracts, and forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies; (b) derive less than 30% of its gross income from the
sale or other disposition of certain assets (namely, (i) stock or securities,
(ii) options, futures, and forward contracts (other than those on foreign
currencies), and (iii) foreign currencies (including options, futures, and
forward contracts on such currencies) not directly related to the Fund's
principal business of investing in stocks or securities (or options and futures
with respect to stocks and securities)) held less than three months (the "30%
Limitation"); (c) diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
of any one issuer limited for the purposes of this calculation to an amount not
greater than 5% of the value of the Fund's total assets and not greater than 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of its total assets is invested in the securities of any one issuer
(other than U.S. Government securities or the securities of other regulated
investment companies) or of any two or more issuers that the Fund controls and
that are determined to be engaged in the same business or similar or related
business; and (d) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses, but does not
include net long-term capital gains in excess of net short-term capital losses)
each taxable year.
As a regulated investment company, the Fund generally will not be
subject to U.S. Federal income tax on its investment company taxable income
(which includes, among other items, dividends, and the excess of net short-term
capital gains over net long-term capital losses) and net capital gains (net
long-term capital gains in excess of net short-term capital losses), if any,
that it distributes to Shareholders. The Fund intends to distribute to its
Shareholders, at least annually, substantially all of its investment company
taxable income and net capital gains. Amounts not distributed on a timely basis
in accordance with a calendar
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year distribution requirement are subject to a nondeductible 4% excise tax. To
prevent imposition of the tax, the Fund must distribute during 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 twelve-month period ending on October 31 of the
calendar year, and (3) any ordinary income and capital gains for previous years
that was not distributed during those years. A distribution will be treated as
having been received on December 31 of the current calendar year if it is
declared by the Fund in October, November or December with a record date in such
a month and paid by the Fund during January of the following calendar year. Such
distributions will be taxable to Shareholders in the calendar year in which the
distributions are declared, rather than the calendar year in which the
distributions are received. To prevent application of the excise tax, the Fund
intends to make its distributions in accordance with the calendar year
distribution requirement.
Some of the debt securities that may be acquired by a Fund may be
treated as debt securities that are originally issued at a discount. Original
issue discount can generally be defined as the difference between the price at
which a security was issued and its stated redemption price at maturity.
Although no cash income is actually received by the Fund in a given year,
original issue discount on a taxable debt security earned in that given year
generally is treated for Federal income tax purposes as interest and, therefore,
such income would be subject to the distribution requirements of the Code.
Some of the debt securities may be purchased by the Fund at a discount
which exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for Federal income tax purposes.
The gain realized on the disposition of any taxable debt security having market
discount will be treated as ordinary income to the extent it does not exceed the
accrued market discount on such debt security. Generally, market discount
accrues on a daily basis for each day the debt security is held by the Fund at a
constant rate over the time remaining to the debt security's maturity or, at the
election of the Fund, at a constant yield to maturity which takes into account
the semiannual compounding of interest.
Exchange control regulations that may restrict repatriation of
investment income, capital, or the proceeds of securities sales by foreign
investors may limit the Fund's ability to make sufficient distributions to
satisfy the 90% and calendar year distribution requirements. See "Risk Factors"
section of the SAI.
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<PAGE>
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies (PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to tax
on a portion of the excess distribution, whether or not the corresponding income
is distributed by the Fund to Shareholders. In general, under the PFIC rules, an
excess distribution is treated as having been realized ratably over the period
during which the Fund held the PFIC shares. The Fund itself will be subject to
tax on the portion, if any, of an excess distribution that is so allocated to
prior Fund taxable years and an interest factor will be added to the tax, as if
the tax had been payable in such prior taxable years. Certain distributions from
a PFIC as well as gain from the sale of PFIC shares are treated as excess
distributions. Excess distributions are characterized as ordinary income even
though, absent application of the PFIC rules, certain excess distributions might
have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under an election that currently may be available in
some circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year. If this
election were made, the special rules, discussed above, relating to the taxation
of excess distributions, would not apply. In addition, another election may be
available that would involve marking to market the Fund's PFIC shares at the end
of each taxable year (and on certain other dates prescribed in the Code), with
the result that unrealized gains are treated as though they were realized. If
this election were made, tax at the Fund level under the PFIC rules would
generally be eliminated, but the Fund could, in limited circumstances, incur
nondeductible interest charges. The Fund's intention to qualify annually as a
regulated investment company may limit its elections with respect to PFIC
shares.
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 shares, as well as subject the Fund
itself to tax on certain income from PFIC shares, 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 shares.
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<PAGE>
DISTRIBUTIONS. Dividends paid out of the Fund's investment company
taxable income will be taxable to a Shareholder as ordinary income. Because a
portion of the Fund's income may consist of dividends paid by U.S. corporations,
a portion of the dividends paid by the Fund may be eligible for the corporate
dividends-received deduction. However, the alternative minimum tax applicable to
corporations may reduce the benefit of the dividends-received deduction.
Distributions of net capital gains, if any, designated by the Fund as capital
gain dividends are taxable as long-term capital gains, regardless of how long
the Shareholder has held the Fund's Shares, and are not eligible for the
dividends-received deduction. Generally, dividends and distributions are taxable
to Shareholders, whether received in cash or reinvested in Shares of the Fund.
Any distributions that are not from the Fund's investment company taxable income
or net capital gain may be characterized as a return of capital to Shareholders
or, in some cases, capital gain. Shareholders receiving distributions in the
form of newly-issued Shares generally will have a cost basis in each Share
received equal to the net asset value of a Share of the Fund on the distribution
date. Shareholders will be notified annually as to the U.S. federal tax status
of distributions, and Shareholders receiving distributions in the form of
newly-issued Shares will receive a report as to the net asset value of the
Shares received.
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 may 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 implication 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.
If the Fund retains net capital gains for reinvestment, the Fund may
elect to treat such amounts as having been distributed to Shareholders. As a
result, the Shareholders would be subject to tax on undistributed net capital
gains, would be able to claim their proportionate share of the Federal income
taxes paid by the Fund on such gains as a credit against their own Federal
income tax liabilities, and would be entitled to an increase in their basis in
their Fund Shares.
OPTIONS AND HEDGING TRANSACTIONS. 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
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<PAGE>
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, in some cases, for purposes of the 4% excise tax,
on October 31 of each year) are "marked-to-market" with the result that
unrealized gains or losses are treated as though they were realized.
Generally, the hedging transactions undertaken by the Fund may result
in "straddles" for 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 applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to Shareholders and which will be taxed to Shareholders as ordinary
income or long-term capital gain, may be increased or decreased as compared to a
fund that did not engage in such hedging transactions.
Requirements relating to 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.
CURRENCY FLUCTUATIONS--"SECTION 988" GAINS OR LOSSES. Under the Code,
gains or losses attributable to fluctuations in exchange rates which occur
between the time the Fund accrues income or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Fund actually collects such
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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 financial 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 or losses, referred to under the Code as "section 988" gains or loses, may
increase, decrease or eliminate the amount of the Fund's investment company
taxable income to be distributed to its Shareholders as ordinary income. If
section 988 losses exceed other net investment income during a taxable year, the
Fund generally would not be able to make ordinary dividend distributions, or
distributions made before the losses were realized would be recharacterized as
return of capital to Shareholders for Federal income tax purposes, rather than
as an ordinary dividend, reducing each Shareholder's basis in his Fund Shares,
or as a capital gain.
SALE OF SHARES. Upon the sale, exchange or other taxable disposition of
Shares of the Fund, a Shareholder may realize a capital gain or loss which will
be long-term or short-term, generally depending upon the Shareholder's holding
period for the Shares. Any loss realized on a sale or exchange will be
disallowed to the extent the Shares disposed of are replaced (including
replacement through the reinvestment of dividends and capital gain distributions
in a Fund) within a period of 61 days beginning 30 days before and ending 30
days after 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 a disposition of Fund Shares held by the Shareholder for six
months or less will be treated as a long-term capital loss to the extent of any
distributions of capital gain dividends received by the Shareholder with respect
to such Shares.
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 if (1) the Shareholder
incurs a sales charge in acquiring stock of a regulated investment company, (2)
Shares of the Fund are exchanged within 90 days after the date they were
purchased, and (3) the new Shares are acquired without a sales charge or at a
reduced sales charge under a "reinvestment right" received upon the initial
purchase of Shares of stock. 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 amount of sales charge incurred in acquiring
the 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 the sales
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charge initially. Instead, the portion of the sales charge affected by this rule
will be treated as an amount paid for the new Shares.
FOREIGN TAXES. 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 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 or her 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. Because of changes made by the
Tax Reform Act of 1986, 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 taxes it pays will reduce investment company taxable income and the
distributions by the Fund will be treated as United States source income.
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BACKUP WITHHOLDING. The Fund may be required to withhold U.S. Federal
income tax at the rate of 31% ("backup withholding") of all taxable
distributions payable to Shareholders who fail to provide the Fund with their
correct taxpayer identification number or to make required certifications, where
the Fund or Shareholder has been notified by the IRS that they are subject to
backup withholding, or when required to do so, the Shareholder fails to certify
that he is not subject to backup withholding. Corporate Shareholders and certain
other Shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the Shareholder's U.S. Federal income tax liability.
FOREIGN SHAREHOLDERS. The tax consequences to a foreign Shareholder of
an investment in the Fund may differ from those described herein. Foreign
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Fund.
OTHER TAXATION. The foregoing discussion relates only to U.S.
Federal income tax law as applicable to U.S. persons (I.E., U.S.
citizens and residents and U.S. domestic corporations,
partnerships, trusts and estates). Distributions by the Fund also
may be subject to state, local and foreign taxes, and their
treatment under state and local income tax laws may differ from
U.S. Federal income tax treatment. Shareholders should consult
their tax advisors with respect to particular questions of U.S.
Federal, state and local taxation. Shareholders who are not U.S.
persons should consult their tax advisors regarding U.S. and
foreign tax consequences of ownership of Shares of the Fund,
including the likelihood that distributions to them would be
subject to withholding of U.S. Federal income tax at a rate of 30%
(or at a lower rate under a tax treaty).
PRINCIPAL UNDERWRITER
Franklin Templeton Distributors, Inc. ("FTD" or the "Principal
Underwriter"), 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 a
Distribution Plan with respect to each class of Shares (the "Plans"). Under the
Plan adopted with respect to Class I Shares, the Fund may reimburse FTD or
others quarterly (subject to a limit of 0.25% per annum of the Fund's average
daily net assets attributable to Class I Shares) for costs and expenses incurred
by FTD or others in connection with any activity which is primarily intended to
result in the sale of Fund Shares. Under the Plan
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adopted with respect to Class II Shares, the Fund will pay FTD or others
quarterly (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 costs and expenses incurred by FTD or others in connection with
any activity which is primarily intended to result in the sale of the Funds'
Shares. The Plans are reimbursement type plans which do not provide for the
payment of interest or carrying charges as distribution expenses. Payments to
FTD or others could be for various types of activities, including (1) printing
and advertising expenses, (2) payments to employees or agents of FTD who engage
in or support distribution of Shares, (3) the costs of preparing, printing and
distributing prospectuses and reports to prospective investors, (4) expenses of
organizing and conducting sales seminars, (5) expenses relating to selling and
servicing efforts, (6) payments to broker-dealers who provide certain services
of value to the Fund's Shareholders (sometimes referred to as a "trail fee"),
and (7) 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 Plan
adopted with respect to Class I Shares, the costs and expenses not reimbursed in
any one given quarter (including costs and expenses not reimbursed because they
exceed 0.25% of the Fund's average daily net assets attributable to Class I
Shares) may be reimbursed in subsequent quarters or years.
During the fiscal year ended December 31, 1994, FTD incurred costs and
expenses of $1,486,846 in connection with distribution of the Class I Shares of
the Fund. During the same period, the Fund made reimbursements pursuant to the
Class I Plan in the amount of $1,187,627. As indicated above, unreimbursed
expenses, which amounted to $1,098,915 for Class I Shares of the Fund, may be
reimbursed by the Fund during the fiscal year ending December 31, 1995 or in
subsequent years. In the event that a 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 December 31, 1994, FTD
spent, pursuant to the Plan, the following amounts on: compensation to dealers,
$1,147,133; wholesaler costs and expenses, $19,346; sales promotion, $128,417;
printing, $181,782; and advertising, $10,165.
The Distribution Agreement provides that the Principal Underwriter will
use its best efforts to maintain a broad and continuous 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
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any part of such discount to dealers. During the fiscal years ended December 31,
1994, 1993, and 1992, FTD (and, prior to June 1, 1993, Templeton Funds
Distributor, Inc.) retained of such discount $771,208, $414,599, $453,968, or
approximately 16.13%, 15%, and 23.0%, respectively, of the gross sales
commissions.
The Distribution 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 prospectuses and reports to
Shareholders. The Principal Underwriter pays the cost of printing additional
copies of prospectuses and reports to Shareholders used for selling purposes,
although the Principal Underwriter may recoup these costs from payments it
receives under the Distribution Plan. (The Fund pays costs of preparation,
set-up and initial supply of its prospectus for existing Shareholders.)
The Distribution 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 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
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
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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 Shareholder meetings to consider 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 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.
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 year (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 a proportional share of Fund expenses on
an annual basis, and assume that all dividends and distributions are reinvested
when paid. The Fund's average annual total return for the one-year period ended
December 31, 1994 and for the period from February 28, 1990 (commencement of
operations) through December 31, 1994 were (9.61)% and 10.42%, 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
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mutual funds on overall performance or other criteria; and (iii) the Consumer
Price Index (measure of 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 deduction for administrative and
management costs and expenses.
Performance information for the Fund reflects only the performance of a
hypothetical investment in the Fund during the particular time period on which
the calculations are based. Performance information should be considered in
light of the Fund's investment objective and policies, characteristics and
quality of the portfolio and the market conditions during the given time period,
and should not be considered as a representation of what may be achieved in the
future.
From time to time, the Fund and 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
Corporation, 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, literacy rates, foreign investment
improvements due to a liberalization of securities laws and a
reduction of foreign exchange controls, and improving
communication technology, of various countries as published by
various statistical organizations.
(6) To assist investors in understanding the different returns and
risk characteristics of various investments, the Fund may show
historical returns of various investments and published
indices (E.G., Ibbotson Associates, Inc. Charts and Morgan
Stanley EAFE - Index).
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<PAGE>
(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."
- --------
* Sir John Templeton sold the Templeton organization to Franklin
Resources, Inc. in October, 1992 and resigned from the Fund's
Board on April 16, 1995. He is no longer involved with the
investment management process.
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o "Buy value, not market trends or the economic
outlook."
o "Diversify. In stocks and bonds, as in much else,
there is safety in numbers."
o "Do your homework or hire wise experts to help
you."
o "Aggressively monitor your investments."
o "Don't panic."
o "Learn from your mistakes."
o "Outperforming the market is a difficult task."
o "An investor who has all the answers doesn't even
understand all the questions."
o "There's no free lunch."
o "And now the last principle: Do not be fearful or
negative too often."
In addition, the Fund and the Investment Manager may also refer to the
number of Shareholders in the Fund or the aggregate number of shareholders of
the Franklin Templeton Funds or the dollar amount of fund and private account
assets under management in advertising materials.
FINANCIAL STATEMENTS
The financial statements contained in the Fund's Annual Report to
Shareholders dated December 31, 1994 are incorporated herein by reference.
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