Registration No. 33-25779
As filed with the Securities and Exchange Commission on February 14, 1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 10 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 12 X
(Check appropriate box or boxes)
TEMPLETON INSTITUTIONAL FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
700 CENTRAL AVENUE, P.O. BOX 33030, ST. PETERSBURG, FLORIDA 33733-8030
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (813) 823-8712
John K. Carter
700 Central Avenue
P.O. Box 33030
ST. PETERSBURG, FLORIDA 33733-8030
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b) of Rule 485
on pursuant to paragraph (b) of Rule 485
-----------------------
60 days after filing pursuant to paragraph (a)(1) of Rule 485
on pursuant to paragraph (a)(1) of Rule 485
75 days after filing pursuant to paragraph (a)(2) of Rule 485
X on May 1, 1997 pursuant to paragraph (a)(2) of Rule 485
this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
- ----------------------------------------------------------------------------
The Registrant has registered an indefinite number of shares of beneficial
interest under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940, and filed its Rule 24f-2 Notice for the fiscal
year ended December 31, 1995 on February 28, 1996.
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
CROSS-REFERENCE SHEET
FORM N-1A
PART A
<TABLE>
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
<S> <C> <C>
1 Cover page Cover Page
2 Synopsis Expense Summary
3 Condensed Financial "Financial Highlights";
Information "How Do the Funds
Measure Performance?"
4 General Description "How Is the Company Organized?";
of Registrant "How Do the Funds Invest Their Assets?";
"What Are the Funds' Potential Risks?"
5 Management of the Fund "Who Manages the Funds?"
5A Management's Discussion Contained in Registrant's Annual
of Fund Performance Report to Shareholders
6 Capital Stock and Other "How Is the Company Organized?"; "Services
Securities to Help You Manage Your Account"; "What
Distributions Might I Received From the
Funds?"; "How Taxation Affects You and the
Funds?"
7 Purchase of Securities "How Do I Buy Shares?"; "May I Exchange
Being Offered Shares for Shares of Another Fund?";
"Transaction Procedures and Special
Requirements"; "Services to Help You Manage
Your Account"; "Who Manages the Funds?" "Useful
Terms and Definitions"
8 Redemption or Repurchase "May I Exchange Shares for Shares of Another
Fund?"; "How Do I Sell Shares?"; "Transaction
Procedures and Special Requirements"; "Services
to Help You Manage Your Account"
9 Pending Legal Procedures Not Applicable
</TABLE>
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
CROSS-REFERENCE SHEET
FORM N-1A
PART B
<TABLE>
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
<S> <C> <C>
10 Cover Page Cover Page
11 Table of Contents Table of Contents
12 General Information and Not Applicable
History
13 Investment Objectives and "How Do the Funds Invest Their Assets?";
Policies "Investment Restrictions"; "What Are the
Funds' Potential Risks?"
14 Management of the "Officers and Directors"; "Investment
Registrant Management and Other Services"
15 Control Persons and "Officers and Directors"; "Investment
Principal Holders of Management and Other Services"; "Miscellaneous
Securities Information?"
16 Investment Advisory and "Investment Management and Other Services";
Other Services "The Funds' Underwriter"
17 Brokerage Allocation and "How Do the Funds Buy Securities
Other Practices For Their Portfolio?"
18 Capital Stock and Other "Miscellaneous Information"; See Prospectus
Securities "How Is The Company Organized?"
19 Purchase, Redemption and "How Do I Buy, Sell and Exchange Shares?";
Pricing of Securities "How Are Fund Shares Valued?";
Being Offered "Financial Statements"
20 Tax Status "Additional Information on Distributions
and Taxes"
21 Underwriters "The Funds' Underwriter"
22 Calculation of Performance "How Do the Funds Measure Performance?"
Data
23 Financial Statements Financial Statements
</TABLE>
<PAGE>
PART A
PROSPECTUS
<PAGE>
PROSPECTUS
TEMPLETON INSTITUTIONAL FUNDS, INC.
--------------------------------------------
Growth Series
Foreign Equity Series
Emerging Markets Series
Emerging Fixed Income Markets Series
--------------------------------------------
May 1, 1997
[logo] Franklin Templeton
This prospectus describes the four funds listed above (the "Funds") which are
series of Templeton Institutional Funds, Inc. (the "Company"). This prospectus
contains information you should know before investing in the Funds. Please keep
it for future reference.
INVESTMENTS IN EMERGING MARKETS INVOLVES CERTAIN CONSIDERATIONS WHICH ARE NOT
NORMALLY INVOLVED IN INVESTMENT IN SECURITIES OF U.S. COMPANIES, AND AN
INVESTMENT IN THE FUNDS MAY BE CONSIDERED SPECULATIVE. THE FUNDS MAY BORROW
MONEY FOR INVESTMENT PURPOSES, WHICH MAY INVOLVE GREATER RISK AND ADDITIONAL
COSTS TO THE FUNDS. IN ADDITION, THE FUNDS MAY INVEST UP TO 10% OF THEIR ASSETS
IN RESTRICTED SECURITIES, WHICH MAY INVOLVE GREATER RISK AND INCREASED FUND
EXPENSES. SEE "WHAT ARE THE FUNDS' POTENTIAL RISKS?"
The Company's SAI, dated May 1, 1997, as may be amended from time to time,
includes more information about the Funds' procedures and policies. It has been
filed with the SEC and is incorporated by reference into this prospectus. For a
free copy or a larger print version of this prospectus, call 1-800/DIAL BEN or
write the Funds at the address shown.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE
U.S. GOVERNMENT. SHARES OF THE FUNDS INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This prospectus is not an offering of the securities herein described in any
state in which the offering is not authorized. No sales representative, dealer
or other person is authorized to give any information or make any
representations other than those contained in this prospectus. Further
information may be obtained from Distributors.
When reading this prospectus, you will see certain terms in capital letters.
This means the term is explained in our glossary section.
<PAGE>
<TABLE>
<CAPTION>
TEMPLETON TABLE OF CONTENTS PAGE
INSTITUTIONAL
FUNDS, INC.
<S> <C> <C>
ABOUT THE FUNDS
Expense Summary.......................................
Financial Highlights..................................
May 1, 1997 How do the Funds Invest Their Assets?.................
What are the Funds' Potential Risks?..................
Who Manages the Funds?................................
How do the Funds Measure Performance?.................
How is the Company Organized?.........................
How Taxation Affects You and the Funds................
ABOUT YOUR ACCOUNT
How Do I Buy Shares?..................................
May I Exchange Shares for Shares of Another Fund?.....
How Do I Sell Shares?.................................
What Distributions Might I Receive from the Funds?....
Transaction Procedures and Special Requirements.......
Services to Help You Manage Your Account..............
GLOSSARY
Useful Terms and Definitions..........................
</TABLE>
700 Central Avenue
St. Petersburg, Florida 33701-3628
1-800/ DIAL BEN
<PAGE>
ABOUT THE FUNDS
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in the
Funds. For Growth Series, Foreign Equity Series and Emerging Markets Series, the
table is based on historical expenses, after fee reductions and expense
limitations, for the fiscal year ended December 31, 1996. For Emerging Fixed
Income Markets Series the table is based on estimated expenses for the current
fiscal year. Your actual expenses may vary. The information in the table does
not reflect an administrative service fee of $5.00 per exchange for market
timing or allocation service accounts.
Annual Fund Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
- --------------------------------------------------- ------------ ----------- -------------- -------------
GROWTH FOREIGN EMERGING EMERGING
SERIES EQUITY MARKETS FIXED
SERIES SERIES INCOME
MARKETS
SERIES
- --------------------------------------------------- ------------ ----------- -------------- -------------
<S> <C> <C> <C> <C>
Management Fees 0.70%
Other Expenses (after fee reduction)* 0.55%
Total Fund Operating Expenses (after fee 1.25%
reduction) *
- --------------------------------------------------- ------------ ----------- -------------- -------------
</TABLE>
EXAMPLE: Assume the annual return for each Fund is 5% and operating expenses
are as described above. For each $1,000 investment, you would pay the following
projected expenses if you sold your shares after the number of years shown.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Growth Series $-- $-- $-- $--
Foreign Equity Series $-- $-- $-- $--
Emerging Markets Series $-- $-- $-- $--
Emerging Fixed Income Markets Series $-- $-- $-- $--
</TABLE>
This is just an example. It does not represent past or future expenses or
returns. Actual expenses and returns may be more or less than those shown. The
Funds pays their operating expenses. The effects of these expenses are reflected
in the Net Asset Value or dividends of each Fund and are not directly charged to
your account.
* The Investment Manager and Business Manager have agreed in advance to reduce
their respective fees in order to limit the total expenses of each Fund to an
annual rate of 1% (1.6% for Emerging Markets Series) of the Fund's average net
assets through December 31, 1997. If these fee reductions are insufficient to so
limit the Funds' expenses, the Business Manager has agreed to make certain
payments to reduce the Funds' expenses. After December 31, 1997, these
agreements may end at any time upon notice to the Board.
<PAGE>
FINANCIAL HIGHLIGHTS
These tables summarize the financial history for Growth Series, Foreign Equity
Series and Emerging Markets Series. The information has been audited by
McGladrey & Pullen, LLP, the Funds' independent auditors. Their audit reports
covering the most recent year appear in the Funds' Annual Reports to
Shareholders for the fiscal year ended December 31, 1996. The Annual Reports to
Shareholders also include more information about the Funds' performance. For a
free copy, please call Fund information.
GROWTH SERIES
<TABLE>
<CAPTION>
Period from May 3,
YEAR ENDED DECEMBER 31 1993 (commencement
of operations) to
1996 1995 1994 DECEMBER 31, 1993
-----------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period $10.94 $11.80 $10.00
Income from investment operations:
Net investment income .27 .20 .06
Net realized and unrealized gain (loss) 1.62 (.36) 1.94
Total from investment operations 1.89 (.16) 2.00
Distributions:
Dividends from net investment income (.27) (.20) (.05)
Dividends from net realized gains (.70) (.50) (.15)
Total Distributions (.97) (.70) (.20)
Change in net asset value .92 (.86) 1.80
Net asset value, end of period $11.86 $10.94 $11.80
TOTAL RETURN1 17.59% (1.32)% 20.04%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $226,963 $194,059 $184,013
Ratio of expenses to average net assets .88% .95% 1.00%2
Ratio of net investment income to average net assets 2.28% 1.69% 1.19%2
Portfolio turnover rate 30.20% 17.23% 17.32%
Average commission rate paid (per share)
</TABLE>
1Not annualized for periods less than one year.
2Annualized.
<PAGE>
FOREIGN EQUITY SERIES
<TABLE>
<CAPTION>
Period from
October 18, 1990
YEAR ENDED DECEMBER 31 (commencement of
operations) to
1996 1995 1994 19931 19921 1991 DECEMBER 31, 1990
-----------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE (for
a share outstanding throughout the
period)
Net asset value, beginning of period $12.86 $13.32 $10.05 $10.63 $10.16 $10.00
Income from investment operations:
Net investment income .31 .20 .23 .27 .31 .12
Net realized and unrealized gain(loss) 1.35 (.16) 3.19 (.41) 1.30 .04
Total from investment operations 1.66 .04 3.42 (.14) 1.61 .16
Distributions:
Dividends from net investment income (.31) (.19) (.09) (.24) (.44)
Dividends from net realized gains (.17) (.31) (.06) (.20) (.70)
Total distributions (.48) (.50) (.15) (.44) (1.14)
Change in net asset value 1.18 (.46) 3.27 (.58) .47 .16
Net asset value, end of period $14.04 $12.86 $13.32 $10.05 $10.63 $10.16
TOTAL RETURN2 13.00% 0.24% 34.03% (1.33)% 16.13% 1.60%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $1,817,883 $1,093,227 $407,970 $566 $1,181 $1,015
Ratio of expenses to average net assets 0.88% 0.95% 1.03% 8.82% 9.15% 9.24%3
Ratio of expenses, net of reimbursement
to average net assets 0.88% 0.95% 1.00% 1.00% 1.00% 1.00%3
Ratio of net investment income to
average net assets 2.70% 2.03% 1.73% 2.38% 2.47% 5.77%3
Portfolio turnover rate 20.87% 7.90% 42.79% 8.45% 76.16% 0.00%
Average commission rate paid (per share)
</TABLE>
1 Based on average weighted shares outstanding.
2Not annualized for periods less than one year.
3Annualized.
<PAGE>
EMERGING MARKETS SERIES
<TABLE>
<CAPTION>
Period from May 3,
YEAR ENDED DECEMBER 31 1993 (commencement
of operations) to
1996 1995 1994 DECEMBER 31, 1993
-----------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.21 $13.22 $10.00
Income from investment operations:
Net investment income .19 .17 .04
Net realized and unrealized gain (loss) (.34) (1.65) 3.25
Total from investment operations (.15) (1.48) 3.29
Distributions:
Dividends from net investment income (.17) (.17) (.04)
Dividends from net realized gains (.14) (.36) (.03)
Total Distributions (.31) (.53) (.07)
Change in net asset value (.46) (2.01) 3.22
Net asset value, end of period $10.75 $11.21 $13.22
TOTAL RETURN1 (1.23)% (11.39)% 32.93%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $798.515 $582,878 $422,433
Ratio of expenses to average net assets 1.52% 1.66% 1.60%2
Ratio of expenses, net of reimbursement, to average
net assets 1.52% 1.60% 1.60%2
Ratio of net investment income to average net assets 2.00% 1.59% 0.91%2
Portfolio turnover rate 13.47% 12.51% 9.42%
Average commission rate paid (per share)
</TABLE>
1Not annualized for periods less than one year.
2Annualized.
<PAGE>
HOW DO THE FUNDS INVEST THEIR ASSETS?
THE FUNDS' INVESTMENT OBJECTIVES
Growth Series, Foreign Equity Series and Emerging Markets Series each seeks
long-term growth of capital. Emerging Fixed Income Markets Series seeks high
total return, consisting of current income and capital appreciation. The
investment objective of each Fund is a fundamental policy and may not be changed
without shareholder approval. Of course, there is no assurance that a Fund's
objective will be achieved.
Certain types of investments and investment techniques are described in greater
detail under "Investment Techniques" in this Prospectus and in the SAI.
PRIMARY INVESTMENT POLICIES OF THE FUNDS
Described below are the primary investment policies of each Fund. Each of the
Funds may, however, also invest in various types of securities and use various
investment strategies described under the headings "Types of Securities in Which
the Funds May Invest" and "Other Investment Policies of the Funds." With the
exception of investment objectives and the investment restrictions specifically
identified as fundamental, all investment policies and practices described in
this Prospectus and in the SAI are not fundamental, meaning that the Board of
Directors may change them without your approval.
GROWTH SERIES. Growth Series seeks to achieve long-term capital growth through a
flexible policy of investing in stocks and debt obligations of companies and
governments of any nation, including developing nations. Although Growth Series
generally invests in common stock, it may also invest in preferred stocks and
certain debt securities that offer the potential for capital growth. In
selecting securities for Growth Series, the Investment Manager attempts to
identify those companies in various countries and industries where economic and
political factors, including currency movements, are likely to produce
above-average opportunities for capital appreciation.
Growth Series may invest up to 5% of its assets in warrants, and up to 10% of
its assets in illiquid securities. Growth Series will not invest more than 5% of
its total assets in any of the following: (i) debt securities rated lower than
BBB by S&P or Baa by Moody's, (ii) structured investments, and (iii) securities
of Russian issuers. Growth Series may borrow up to one-third of the value of its
total assets to increase its holdings of portfolio securities, and may lend
portfolio securities with an aggregate market value of up to one-third of its
total assets. Growth Series may purchase and sell put and call options on
securities or indices, provided that (i) the value of the underlying securities
on which options may be written at any one time will not exceed 25% of the
Fund's total assets, and (ii) the Fund will not purchase put or call options if
the aggregate premium paid for such options would exceed 5% of its total assets.
For hedging purposes only, Growth Series may buy and sell financial futures
contracts, stock index futures contracts, foreign currency futures contracts and
options on any of these futures contracts, provided that (i) the Fund will not
commit more than 5% of its total assets to initial margin deposits on futures
contracts and related options, and (ii) the value of the underlying securities
on which futures contracts will be written at any one time will not exceed 25%
of the total assets of the Fund.
FOREIGN EQUITY SERIES. Foreign Equity Series seeks to achieve long-term capital
growth through a flexible policy of investing in equity securities and debt
obligations of companies and governments outside the U.S. Foreign Equity Series
will invest at least 65% of its total assets in equity securities, as defined
below. Foreign Equity Series may also invest up to 35% of its total assets in
debt securities when, in the judgment of the Investment Manager, the capital
appreciation available through such investment outweighs the potential for
capital growth through investment in stocks. In selecting securities for Foreign
Equity Series, the Investment Manager attempts to identify those companies in
various countries and industries where economic and political factors, including
currency movements, are likely to produce above-average opportunities for
capital appreciation.
Foreign Equity Series may invest up to 5% of its assets in warrants, and up to
10% of its assets in illiquid securities. Foreign Equity Series will not invest
more than 5% of its total assets in any of the following: (i) debt securities
rated lower than BBB by S&P or Baa by Moody's, (ii) structured investments, and
(iii) securities of Russian Issuers. Foreign Equity Series may borrow up to
one-third of the value of its total assets to increase its holdings of portfolio
securities, and may lend portfolio securities with an aggregate market value of
up to one-third of its total assets. Foreign Equity Series may purchase and sell
put and call options on securities or indices, provided that (i) the value of
the underlying securities on which options may be written at any one time will
not exceed 25% of the Fund's total assets, and (ii) the Fund will not purchase
put or call options if the aggregate premium paid for such options would exceed
5% of its total assets. For hedging purposes only, Foreign Equity Series may buy
and sell financial futures contracts, stock index futures contracts, foreign
currency futures contracts and options on any of these futures contracts,
provided that (i) the Fund will not commit more than 5% of its total assets to
initial margin deposits on futures contracts and related options, and (ii) the
value of the underlying securities on which futures contracts will be written at
any one time will not exceed 25% of the total assets of the Fund.
EMERGING MARKETS SERIES. Emerging Markets Series seeks to achieve long-term
capital growth by investing primarily in equity securities of issuers in
countries having emerging markets. Under normal conditions at least 65% of
Emerging Markets Series' total assets will be invested in equity securities of
emerging market companies. The Investment Manager may, from time to time, use
various methods of selecting securities for Emerging Markets Series' portfolio,
and may also employ and rely on independent or affiliated sources of information
and ideas in connection with management of the portfolio. Emerging Markets
Series may invest up to 35% of its total assets in debt securities that offer
the potential for capital growth.
Emerging Markets Series seeks to benefit from economic and other developments in
emerging markets. The investment objective of Emerging Markets Series reflects
the belief that investment opportunities may result from an evolving long-term
international trend favoring more market-oriented economies, a trend that may
especially benefit certain countries having emerging markets. This trend may be
facilitated by local or international political, economic or financial
developments that could benefit the capital markets of emerging market
countries. Certain emerging market countries, (such as Malaysia, Mexico and
Thailand) which may be in the process of developing more market-oriented
economies, may experience relatively high rates of economic growth. Other
countries (such as Portugal and Spain), although having relatively mature
emerging markets, may also be in a position to benefit from local or
international developments encouraging greater market orientation and
diminishing governmental intervention in economic affairs.
Emerging Markets Series may invest up to 5% of its assets in warrants, and up to
10% of its assets in illiquid securities. Emerging Markets Series will not
invest more than 5% of its total assets in any of the following: (i) debt
securities rated lower than BBB by S&P or Baa by Moody's, (ii) structured
investments, and (iii) securities of Russian Issuers. Emerging Markets Series
may borrow up to one-third of the value of its total assets to increase its
holdings of portfolio securities, and may lend portfolio securities with an
aggregate market value of up to one-third of its total assets. Emerging Markets
Series may purchase and sell put and call options on securities or indices,
provided that (i) the value of the underlying securities on which options may be
written at any one time will not exceed 25% of the Fund's total assets, and (ii)
the Fund will not purchase put or call options if the aggregate premium paid for
such options would exceed 5% of its total assets. For hedging purposes only,
Emerging Markets Series may buy and sell financial futures contracts, stock
index futures contracts, foreign currency futures contracts and options on any
of these futures contracts, provided that (i) the Fund will not commit more than
5% of its total assets to initial margin deposits on futures contracts and
related options, and (ii) the value of the underlying securities on which
futures contracts will be written at any one time will not exceed 25% of the
total assets of the Fund.
EMERGING FIXED INCOME MARKETS SERIES. Emerging Fixed Income Markets Series seeks
high total return, consisting of current income and capital appreciation, by
investing at least 65% of its total assets in a portfolio of debt obligations of
sovereign or sovereign-related entities of emerging market countries, as well as
debt obligations of emerging market companies. In selecting investments for
Emerging Fixed Income Markets Series, the Investment Manager will draw on its
experience in global investing in seeking to identify those markets and issuers
around the world which are anticipated to provide the opportunity for high
current income and capital appreciation.
Emerging Fixed Income Markets Series' investments in sovereign or
sovereign-related debt obligations may consist of (i) bonds, notes, bills,
debentures or other fixed income or floating rate securities issued or
guaranteed by governments, governmental agencies or instrumentalities, or
government owned, controlled or sponsored entities, including central banks,
located in emerging market countries (including loans and participations in and
assignments of portions of loans between governments and financial
institutions), (ii) debt securities issued by entities organized and operated
for the purpose of restructuring the investment characteristics of securities
issued by any of the entities described above, including indexed or
currency-linked securities, and (iii) debt securities issued by supra-national
organizations such as the Asian Development Bank, the Inter-American Development
Bank, and the Corporacion Andina de Fomento, among others. These securities may
be issued in either registered or bearer form. Many of these securities are
trading at substantial discounts to their par value and it is expected that
initially a significant portion of Emerging Fixed Income Markets Series' assets
will be invested in securities purchased at a discount to par value. These
securities may include Brady Bonds discussed below under "Types of Securities in
Which the Funds May Invest."
Emerging Fixed Income Markets Series' investments in debt obligations of private
sector companies in emerging market countries will take the form of bonds,
notes, bills, debentures, convertible securities, warrants, indexed or
currency-linked securities, bank debt obligations, short-term paper, loan
participations, loan assignments and interests issued by entities organized and
operated for the purpose of restructuring the investment characteristics of
instruments issued by emerging market country issuers. Emerging market country
debt securities held by Emerging Fixed Income Markets Series may or may not be
listed or traded on a securities exchange. Emerging Fixed Income Markets Series
will not be subject to any restrictions on the maturities of the emerging market
country debt securities it holds; those maturities may range from overnight to
more than 30 years.
Emerging Fixed Income Markets Series may invest up to 35% of its assets in
securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities.
Emerging Fixed Income Markets Series may invest up to 5% of its assets in
warrants, and up to 10% of its assets in illiquid securities. Emerging Fixed
Income Markets Series will not invest more than 5% of its total assets in
securities of Russian issuers. Emerging Fixed Income Markets Series may borrow
up to one-third of the value of its total assets to increase its holdings of
portfolio securities, and may lend portfolio securities with an aggregate market
value of up to one-third of its total assets. Emerging Fixed Income Markets
Series may purchase and sell put and call options on securities or indices,
provided that (i) the value of the underlying securities on which options may be
written at any one time will not exceed 25% of the Fund's total assets, and (ii)
the Fund will not purchase put or call options if the aggregate premium paid for
such options would exceed 5% of its total assets. For hedging purposes only
(including anticipatory hedges where the Investment Manager seeks to anticipate
an intended shift in maturity, duration or asset allocation), Emerging Fixed
Income Markets Series may buy and sell financial futures contracts, stock index
futures contracts, foreign currency futures contracts and options on any of
these futures contracts, provided that (i) the Fund will not commit more than 5%
of its total assets to initial margin deposits on futures contracts and related
options, and (ii) the value of the underlying securities on which futures
contracts will be written at any one time will not exceed 25% of the total
assets of the Fund.
TYPES OF SECURITIES IN WHICH THE FUNDS MAY INVEST
Each Fund is authorized to invest in certain of the types of securities
described below
EQUITY SECURITIES. As used in this Prospectus, "equity securities" refers to
common stock, preferred stock, securities convertible into common or preferred
stock, warrants or rights to subscribe to or purchase such securities, and
sponsored or unsponsored American Depositary Receipts, European Depositary
Receipts and Global Depositary Receipts (see "Depositary Receipts" below).
EMERGING MARKET SECURITIES. As used in this Prospectus, an "emerging market"
country is any country that is generally considered to be developing or emerging
by the International Bank for Reconstruction and Development (more commonly
referred to as the World Bank) and the International Finance Corporation, as
well as countries that are classified by the United Nations or otherwise
regarded by their authorities as developing. Currently, the countries not in
this category are Ireland, Spain, New Zealand, Australia, the United Kingdom,
Italy, the Netherlands, Belgium, Austria, France, Canada, Germany, Denmark, the
United States, Sweden, Finland, Norway, Japan, Iceland, Luxembourg and
Switzerland. In addition, as used in this Prospectus, emerging market companies
means (i) companies whose principal securities trading markets are in emerging
market countries, as defined above, (ii) companies that derive 50% or more of
their total revenue from either goods or services produced in emerging market
countries or sales made in emerging market countries or (iii) companies
organized under the laws of, and with principal offices in, emerging market
countries.
DEBT SECURITIES. Each of the Funds may invest a portion of its assets in debt
securities including bonds, notes, debentures, commercial paper, certificates of
deposit, time deposits and bankers' acceptances, and which may include
structured investments. The Funds are not limited as to the type of debt
securities in which they may invest. For example, bonds may include Eurobonds,
Global Bonds, Yankee Bonds, bonds sold under SEC Rule 144A or other types of
instruments structured or denominated as bonds.
Debt securities purchased by the Funds may be rated as low as C by S&P or
Moody's or, if unrated, of comparable quality as determined by each Fund's
Investment Manager. As an operating policy, which may be changed by the Board
without Shareholder approval, each Fund except Emerging Fixed Income markets
Series will limit its investment in debt securities rated below BBB by S&P or
Baa by Moody's (and unrated debt securities determined by a Fund's Investment
Manager to be of comparable quality) to 5% of its total assets. The Board may
consider a change in this operating policy if, in its judgment, economic
conditions change such that a higher level of investment in high risk, lower
quality debt securities would be consistent with the interests of the Funds and
their Shareholders. Commercial paper purchased by the Funds will meet the credit
quality criteria set forth under "How Do the Funds Invest Their Assets" in the
SAI. Certain debt securities can provide the potential for capital appreciation
based on various factors such as changes in interest rates, economic and market
conditions, improvement in an issuer's ability to repay principal and pay
interest, and ratings upgrades. Each of the Funds may invest in debt or
preferred securities which have equity features, such as conversion or exchange
rights, or which carry warrants to purchase common stock or other equity
interests. Such equity features enable the holder of the bond or preferred
security to benefit from increases in the market price of the underlying equity.
BRADY BONDS AND OTHER SOVEREIGN-RELATED DEBT. Emerging Fixed Income Markets
Series may invest a portion of its assets in certain debt obligations
customarily referred to as "Brady Bonds," which are created through the exchange
of existing commercial bank loans to sovereign entities for new obligations in
connection with debt restructuring under a plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt
restructurings have been implemented to date in Argentina, Brazil, Bulgaria,
Costa Rica, the Dominican Republic, Ecuador, Mexico, Nigeria, Panama, the
Philippines, Poland, Slovenia, Uruguay, and Venezuela (collectively, the "Brady
Countries"). In addition, some countries have reached an agreement in principle
to restructure their bank debt according to a Brady Plan, including Peru, Cote
d'Ivoire, and Croatia, and other countries are expected to negotiate similar
restructurings in the future. In some cases countries have restructured their
external bank debt into new loans or promissory notes. Restructurings of this
type have been consummated for Morocco and Algeria, while Russia is pending and
Vietnam is expected to occur in the near future.
Brady Bonds have been issued relatively recently, and, accordingly, do not have
a long payment history. They may be collateralized or uncollateralized and
issued in various currencies (although most are dollar-denominated) and they are
actively traded in the over-the-counter secondary market.
Dollar-denominated, collateralized Brady Bonds, which may be fixed rate par
bonds or floating rate discount bonds, are generally collateralized in full as
to principal by U.S. Treasury zero coupon bonds which have the same maturity as
the Brady Bonds. Interest payments on these Brady Bonds generally are
collateralized on a one-year or longer rolling-forward basis by cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of interest payments or, in the case of floating rate bonds,
initially is equal to at least one year's interest payments based on the
applicable interest rate at that time and is adjusted at regular intervals
thereafter. Certain Brady Bonds are entitled to "value recovery payments" in
certain circumstances, which in effect constitute supplemental interest
payments. Brady Bonds are often viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final maturity;
(ii) the collateralized interest payments; (iii) the uncollateralized interest
payments; and (iv) any uncollateralized repayment of principal at maturity
(these uncollateralized amounts constitute the "residual risk"). In light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.
In addition to Brady Bonds, Emerging Fixed Income Markets Series may invest in
sovereign or sovereign-related debt obligations, including obligations of
supra-national entities related to emerging markets. Such obligations may
include, but are not limited to, external debt such as Eurobonds, Global Bonds,
Yankee Bonds, securities traded under SEC Rule 144A, restructured external debt
that has not undergone a Brady-style debt exchange, and internal sovereign debt
such as Treasury Bills, Treasury Bonds, bonds of state and local governments and
other sovereign or sovereign-related debt obligations.
LOAN PARTICIPATIONS AND ASSIGNMENTS. Emerging Fixed Income Markets Series may
invest up to 35% of its total assets in fixed and floating rate loans ("Loans")
arranged through private negotiations between a sovereign, sovereign-related or
corporate entities and one or more financial institutions ("Lenders"). Emerging
Fixed Income Markets Series may invest in such Loans in the form of
participations ("Participations") in Loans and assignments ("Assignments") of
all or a portion of Loans from third parties. Participations typically will
result in Emerging Fixed Income Markets Series having a contractual relationship
only with the Lender, not with the borrower. Emerging Fixed Income Markets
Series will have the right to receive payments of principal, interest and any
fees to which it is entitled only from the Lender selling the Participation and
only upon receipt by the Lender of the payments from the borrower. In connection
with purchasing Participations, Emerging Fixed Income Markets Series generally
will have no right to enforce compliance by the borrower with the terms of the
loan agreement relating to the Loan, nor any rights of set-off against the
borrower, and Emerging Fixed Income Markets Series may not benefit directly from
any collateral supporting the Loan in which it has purchased the Participation.
As a result, Emerging Fixed Income Markets Series will assume the credit risk of
both the borrower and the Lender that is selling the Participation. In the event
of the insolvency of the Lender selling a Participation, Emerging Fixed Income
Markets Series may be treated as a general creditor of the Lender and may not
benefit from any set-off between the Lender and the borrower. Emerging Fixed
Income Markets Series will acquire Participations only if the Lender
interpositioned between Emerging Fixed Income Markets Series and the borrower is
determined by TGBM to be creditworthy. When Emerging Fixed Income Markets Series
purchases Assignments from Lenders, Emerging Fixed Income Markets Series will
acquire direct rights against the borrower on the Loan, except that under
certain circumstances such rights may be more limited than those held by the
assigning Lender.
Emerging Fixed Income Markets Series may have difficulty disposing of
Assignments and Participations. Because the market for such instruments is not
highly liquid, Emerging Fixed Income Markets Series anticipates that such
instruments could be sold only to a limited number of institutional investors.
The lack of a highly liquid secondary market will have an adverse impact on the
value of such instruments and on the ability of Emerging Fixed Income Markets
Series to dispose of particular Assignments or Participations in response to a
specific economic event, such as deterioration in the creditworthiness of the
borrower.
STRUCTURED INVESTMENTS. Included among the issuers of emerging market country
debt securities in which the Funds may invest are entities organized and
operated solely for the purpose of restructuring the investment characteristics
of various securities. These entities are typically organized by investment
banking firms which receive fees in connection with establishing each entity and
arranging for the placement of its securities. This type of restructuring
involves the deposit with or purchase by an entity, such as a corporation or
trust, of specified instruments (such as Brady Bonds) and the issuance by that
entity of one or more classes of securities ("structured investments") backed
by, or representing interests in, the underlying instruments. The cash flow on
the underlying instruments may be apportioned among the newly issued structured
investments to create securities with different investment characteristics such
as varying maturities, payment priorities or interest rate provisions; the
extent of the payments made with respect to structured investments is dependent
on the extent of the cash flow on the underlying instruments. Because structured
investments of the type in which the Funds anticipate investing typically
involve no credit enhancement, their credit risk will generally be equivalent to
that of the underlying instruments.
The Funds are permitted to invest in a class of structured investments that is
either subordinated or unsubordinated to the right of payment of another class.
Subordinated structured investments typically have higher yields and present
greater risks than unsubordinated structured investments. Although the purchase
of subordinated structured investments would have a similar economic effect to
that of borrowing against the underlying securities, the purchase will not be
deemed to be leverage for purposes of the limitations placed on the extent of
assets that may be used for borrowing activities. See "Other Investment Policies
of the Funds--Borrowing."
Certain issuers of structured investments may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, a Fund's investment in these
structured investments may be limited by the restrictions contained in the 1940
Act. Structured investments are typically sold in private placement
transactions, and there currently is no active trading market for structured
investments. Each of the Funds, except Emerging Fixed Income Markets Series,
will limit its investment in structured investments to 5% of its total assets.
FORWARD FOREIGN CURRENCY CONTRACTS AND OPTIONS ON FOREIGN SECURITIES. The Funds
will normally conduct foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forward contracts to purchase or sell foreign
currencies. The Funds will generally not enter into forward contracts with terms
of greater than one year. A forward contract is an obligation to purchase or
sell a specific currency for an agreed price at a future date which is
individually negotiated and privately traded by currency traders and their
customers.
The Funds will generally enter into forward contracts only under two
circumstances. First, when a Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, it may desire to "lock" in
the U.S. dollar price of the security in relation to another currency by
entering into a forward contract to buy the amount of foreign currency needed to
settle the transaction. Second, when a Fund's Investment Manager believes that
the currency of a particular foreign country may suffer or enjoy a substantial
movement against another currency, it may enter into a forward contract to sell
or buy the former foreign currency (or another currency which acts as a proxy
for that currency) approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency. This second
investment practice is generally referred to as "cross-hedging." A Fund's
forward transactions may call for the delivery of one foreign currency in
exchange for another foreign currency and may at times not involve currencies in
which its portfolio securities are then denominated. The Funds have no specific
limitation on the percentage of assets they may commit to forward contracts,
subject to their stated investment objectives and policies, except that a Fund
will not enter into a forward contract if the amount of assets set aside to
cover the contract would impede portfolio management or the Fund's ability to
meet redemption requests. Although forward contracts will be used primarily to
protect the Funds from adverse currency movements, they also involve the risk of
loss in the event that anticipated currency movements will not be accurately
predicted.
The Funds may purchase and write put and call options on foreign currencies for
the purpose of protecting against declines in the U.S. dollar value of foreign
currency denominated portfolio securities and against increases in the U.S.
dollar cost of such securities to be acquired. As in the case of other kinds of
options, however, the writing of an option on a foreign currency constitutes
only a partial hedge, up to the amount of the premium received, and a Fund could
be required to purchase or sell foreign currencies at disadvantageous exchange
rates, thereby incurring losses. The purchase of an option on a foreign currency
may constitute an effective hedge against fluctuations in exchange rates
although, in the event of rate movements adverse to a Fund's position, it may
forfeit the entire amount of the premium plus related transaction costs. Options
on foreign currencies to be written or purchased by the Funds are traded on U.S.
and foreign exchanges or over-the-counter.
WARRANTS. A warrant is typically a long-term option issued by a corporation that
gives the holder the privilege of buying a specified number of shares of the
underlying common stock at a specified exercise price at any time on or before
the expiration date. Stock index warrants entitle the holder to receive, upon
exercise, an amount in cash determined by reference to fluctuations in the level
of a specified stock index. If a Fund does not exercise or dispose of a warrant
before its expiration, it will expire worthless.
COMMON AND PREFERRED CONVERTIBLE SECURITIES. Convertible securities are, in
general, debt obligations or preferred stocks that may be converted within a
specified period of time into a certain amount of common stock of the same or a
different issuer. A convertible security provides a fixed-income stream and the
opportunity, through its conversion feature, to participate in the capital
appreciation resulting from a market price advance in its underlying common
stock. As with a straight fixed-income security, a convertible security tends to
increase in market value when interest rates decline and decrease in value when
interest rates rise. Like common stock, the value of a convertible security
tends to increase as the market value of the underlying stock rises, and it
tends to decrease as the market value of the underlying stock declines. Because
its value can be influenced by both interest rate and market movements, a
convertible security is not as sensitive to interest rates as a similar
fixed-income security, nor is it as sensitive to changes in share price as its
underlying stock.
DEPOSITARY RECEIPTS. The Funds, may purchase sponsored or unsponsored American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and Global
Depositary Receipts ("GDRs") (collectively, "depositary receipts"). ADRs are
depositary receipts typically issued by a U.S. bank or trust company which
evidence ownership of underlying securities issued by a foreign corporation.
EDRs and GDRs are typically issued by foreign banks or trust companies, although
they also may be issued by U.S. banks or trust companies, and evidence ownership
of underlying securities issued by either a foreign or a United States
corporation. Generally, depositary receipts in registered form are designed for
use in the U.S. securities market and depositary receipts in bearer form are
designed for use in securities markets outside the U.S. Depositary receipts may
not necessarily be denominated in the same currency as the underlying securities
into which they may be converted. Depositary receipts may be issued pursuant to
sponsored or unsponsored programs. In sponsored programs, an issuer has made
arrangements to have its securities traded in the form of depositary receipts.
In unsponsored programs, the issuer may not be directly involved in the creation
of the program. Although regulatory requirements with respect to sponsored and
unsponsored programs are generally similar, in some cases it may be easier to
obtain financial information from an issuer that has participated in the
creation of a sponsored program. Accordingly, there may be less information
available regarding issuers of securities underlying unsponsored programs and
there may not be a correlation between such information and the market value of
the depositary receipts. Depositary receipts also involve the risks of other
investments in foreign securities, as discussed below. For purposes of the
Funds' investment policies, the Funds' investments in depositary receipts will
be deemed to be investments in the underlying securities.
OTHER INVESTMENT POLICIES OF THE FUNDS
Each Fund is authorized to engage in certain investment techniques and
strategies. Although these strategies are regularly used by some investment
companies and other institutional investors in various markets, some of these
strategies cannot at the present time be used to a significant extent by the
Funds in some of the markets in which the Funds will invest and may not be
available for extensive use in the future.
TEMPORARY INVESTMENTS. For temporary defensive purposes, each Fund may invest up
to 100% of its total assets in the following money market securities,
denominated in U.S. dollars or in the currency of any foreign country, issued by
entities organized in the United States or any foreign country: short-term (less
than twelve months to maturity) and medium-term (not greater than five years to
maturity) obligations issued or guaranteed by the U.S. Government or the
governments of foreign countries, their agencies or instrumentalities; finance
company and corporate commercial paper, and other short-term corporate
obligations, in each case rated Prime-1 by Moody's or A or better by S&P or, if
unrated, of comparable quality as determined by each Fund's Investment Manager;
obligations (including certificates of deposit, time deposits and bankers'
acceptances) of banks having total assets in excess of $1 billion; and
repurchase agreements with banks and broker-dealers with respect to such
securities. In addition, for temporary defensive purposes, each Fund may invest
up to 25% of its total assets in obligations (including certificates of deposit,
time deposits and bankers' acceptances) of U.S. and foreign banks; provided that
a Fund will limit its investment in time deposits for which there is a penalty
for early withdrawal to 10% of its total assets.
CONCENTRATION. Each Fund reserves the right to invest more than 25% of its
assets in any one country, but will not invest more than 25% of its total
assets in any one industry (excluding the U.S. government).
REPURCHASE AGREEMENTS. When a Fund acquires a security from a U.S. bank or a
registered broker-dealer, it may simultaneously enter into a repurchase
agreement, wherein the seller agrees to repurchase the security at a specified
time and price. The repurchase price is in excess of the purchase price by an
amount which reflects an agreed-upon rate of return, which is not tied to the
coupon rate on the underlying security. Under the 1940 Act, repurchase
agreements are considered to be loans collateralized by the underlying security
and therefore will be fully collateralized. However, if the seller should
default on its obligation to repurchase the underlying security, a Fund may
experience delay or difficulty in exercising its rights to realize upon the
security and might incur a loss if the value of the security declines, as well
as incur disposition costs in liquidating the security.
BORROWING. Each Fund may borrow up to one-third of the value of its total assets
from banks to increase its holdings of portfolio securities. Under the 1940 Act,
a Fund is required to maintain continuous asset coverage of 300% with respect to
such borrowings and to sell (within three days) sufficient portfolio holdings to
restore such coverage if it should decline to less than 300% due to market
fluctuations or otherwise, even if such liquidations of a Fund's holdings may be
disadvantageous from an investment standpoint. Leveraging by means of borrowing
may exaggerate the effect of any increase or decrease in the value of portfolio
securities on a Fund's net asset value, and money borrowed will be subject to
interest and other costs (which may include commitment fees and/or the cost of
maintaining minimum average balances) which may or may not exceed the income
received or capital appreciation realized from the securities purchased with
borrowed funds.
LOANS OF PORTFOLIO SECURITIES. Each Fund may lend to broker-dealers portfolio
securities with an aggregate market value of up to one-third of its total assets
to generate income. Such loans must be secured by collateral (consisting of any
combination of cash, U.S. Government securities or irrevocable letters of
credit) in an amount at least equal (on a daily marked-to-market basis) to 102%
of the current market value of the securities loaned for Emerging Fixed Income
Markets Series, and the current market value of the securities loaned for each
of the other Funds. A Fund may terminate the loans at any time and obtain the
return of the securities loaned within five business days. A Fund will continue
to receive any interest or dividends paid on the loaned securities and will
continue to retain any voting rights with respect to the securities. Loans of
portfolio securities involve the risk of default by the counter-party to the
loan transaction, which could involve delay or difficulty in a Fund's exercise
of its right to realize upon the collateral for such loans, as well as
transaction costs.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each Fund may purchase securities
on a when-issued or delayed delivery basis. Securities purchased on a
when-issued or delayed delivery basis are purchased for delivery beyond the
normal settlement date at a stated price and yield. No income accrues to the
purchaser of a security on a when-issued or delayed delivery basis prior to
delivery. Such securities are recorded as an asset and are subject to changes in
value based upon changes in the general level of interest rates. Purchasing a
security on a when-issued or delayed delivery basis can involve a risk that the
market price at the time of delivery may be lower than the agreed-upon purchase
price, in such case there could be an unrealized loss at the time of delivery.
The Funds will only make commitments to purchase securities on a when-issued or
delayed delivery basis with the intention of actually acquiring the securities,
but may sell them before the settlement date if it is deemed advisable. Each
Fund will establish a segregated account in which it will maintain liquid assets
in an amount at least equal in value to the Fund's commitments to purchase
securities on a when-issued or delayed delivery basis. If the value of these
assets declines, the Fund will place additional liquid assets in the account on
a daily basis so that the value of the assets in the account is equal to the
amount of such commitments.
OPTIONS ON SECURITIES OR INDICES. In order to hedge against market shifts, each
Fund may purchase put and call options on securities or securities indices. In
addition, each Fund may seek to generate income to offset operating expenses
and/or may hedge a portion of its portfolio investments through writing (i.e.,
selling) covered put and call options. Options purchased or written by the Funds
will be traded on United States and foreign exchanges or in the over-the-counter
markets. An option on a security is a contract that permits 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 permits the purchaser of the
option, in return for the premium paid, the right to receive from the seller
cash equal to the difference between the closing price of the index and the
exercise price of the option. A Fund may write a call or put option only if the
option is "covered." This means that so long as a Fund is obligated as the
writer of a call option, it will own the underlying securities subject to the
call, or hold a call at the same exercise price, for the same exercise period,
and on the same securities as the written call. A put is covered if a Fund
maintains liquid assets with a value equal to the exercise price in a segregated
account, or holds a put on the same underlying securities at an equal or greater
exercise price. The value of the underlying securities on which options may be
written at any one time will not exceed 25% of the total assets of a Fund. A
Fund will not purchase put or call options if the aggregate premium paid for
such options would exceed 5% of its total assets at the time of purchase.
FUTURES CONTRACTS. For hedging purposes only (including anticipatory hedges
where the Investment Manager seeks to anticipate an intended shift in maturity,
duration or asset allocation), the Funds may buy and sell covered financial
futures contracts, stock index futures contracts, foreign currency futures
contracts and options on any of the foregoing. A financial futures contract is
an agreement between two parties to buy or sell a specified debt security at a
set price on a future date. An index futures contract is an agreement to take or
make delivery of an amount of cash based on the difference between the value of
the index at the beginning and at the end of the contract period. A futures
contract on a foreign currency is an agreement to buy or sell a specified amount
of a currency for a set price on a future date.When a Fund enters into a futures
contract, it must make an initial deposit, known as "initial margin," as a
partial guarantee of its performance under the contract. As the value of the
security, index or currency fluctuates, either party to the contract is required
to make additional margin payments, known as "variation margin," to cover any
additional obligation it may have under the contract. In addition, when a Fund
enters into a futures contract, it will segregate assets or "cover" its position
in accordance with the 1940 Act. See "How Do the Funds Invest Their
Assets--Futures Contracts" in the SAI.
A Fund may not commit more than 5% of its total assets to initial margin
deposits on futures contracts and related options. The value of the underlying
securities on which futures contracts will be written at any one time will not
exceed 25% of the total assets of a Fund.
SWAP AGREEMENTS. Emerging Fixed Income Markets Series may enter into interest
rate, index and currency exchange rate swap agreements for purposes of
attempting to obtain a particular desired return at a lower cost to the Fund
than if the Fund had invested directly in an instrument that yielded that
desired return. Swap agreements are two-party contracts entered into primarily
by institutional investors for periods ranging from a few weeks to more than one
year. In a standard "swap" transaction, two parties agree to exchange the
returns (or differentials in rates of return) earned or realized on particular
predetermined investments or instruments. The gross returns to be exchanged or
"swapped" between the parties are calculated with respect to a "notional
amount," i.e., the return on or increase in value of a particular dollar amount
invested at a particular interest rate, in a particular foreign currency, or in
a "basket" of securities representing a particular index. The "notional amount"
of the swap agreement is only a fictive basis on which to calculate the
obligations which the parties to a swap agreement have agreed to exchange.
Emerging Fixed Income Markets Series' obligations (or rights) under a swap
agreement will generally be equal only to the net amount to be paid or received
under the agreement based on the relative values of the positions held by each
party to the agreement (the "net amount"). Emerging Fixed Income Markets Series'
obligations under a swap agreement will be accrued daily (offset against any
amounts owing to the Fund) and any accrued but unpaid net amounts owed to a swap
counterparty will be covered by the maintenance of a segregated account
consisting of cash, U.S. Government securities, or high grade debt obligations,
to avoid any potential leveraging of the Fund's portfolio. Emerging Fixed Income
Markets Series will not enter into a swap agreement with any single party if the
net amount owed or to be received under existing contracts with that party would
exceed 5% of the Fund's assets.
Whether Emerging Fixed Income Markets Series' use of swap agreements will be
successful in furthering its investment objective will depend on the ability of
TGBM correctly to predict whether certain types of investments are likely to
produce greater returns than other investments. Because they are two-party
contracts and because they may have terms of greater than seven days, swap
agreements may be considered to be illiquid. Moreover, Emerging Fixed Income
Markets Series bears the risk of loss of the amount expected to be received
under a swap agreement in the event of the default or bankruptcy of a swap
agreement counterparty. TGBM will cause Emerging Fixed Income Markets Series to
enter into swap agreements only with counterparties that would be eligible for
consideration as repurchase agreement counterparties under the Funds' repurchase
agreement guidelines. Certain restrictions imposed on Emerging Fixed Income
Markets Series by the Code may limit its ability to use swap agreements. The
swap market is a relatively new market and is largely unregulated. It is
possible that developments in the swap market and the laws relating to swaps,
including potential government regulation, could adversely affect Emerging Fixed
Income Markets Series' ability to terminate existing swap agreements, to realize
amounts to be received under such agreements, or to enter into swap agreements,
or could have tax consequences. See "Additional Information on Distributions and
Taxes" in the SAI for more information regarding the tax considerations relating
to swap agreements.
CLOSED-END INVESTMENT COMPANIES. Some countries have authorized the formation of
closed-end investment companies to facilitate indirect foreign investment in
their capital markets. In accordance with the 1940 Act, each Fund may invest up
to 10% of its total assets in securities of closed-end investment companies
which invest principally in securities in which that Fund is authorized to
invest. This restriction on investment in securities of closed-end investment
companies may limit opportunities for a Fund to invest indirectly in certain
emerging markets. Shares of certain closed-end investment companies may at times
be acquired only at market prices representing premiums to their net asset
values. Investment by a Fund in shares of closed-end investment companies would
involve duplication of fees, in that Shareholders would bear both their
proportionate share of expenses of the Fund (including management and advisory
fees) and, indirectly, the expenses of such closed-end investment companies.
Emerging Fixed Income Markets Series may invest in open-end investment companies
as well, subject to the above restrictions, and subject to a maximum of 10% of
its total assets in closed and open-end funds combined.
PORTFOLIO TURNOVER. Growth Series, Foreign Equity Series and Emerging Markets
Series each invests for long-term growth of capital and does not intend to place
emphasis upon short-term trading profits. Accordingly, each of these Funds
expects to have a portfolio turnover rate of less than 50%. The Investment
Manager may engage in short-term trading in the portfolio of Emerging Fixed
Income Markets Series when such trading is considered consistent with the Fund's
investment objective. Also, a security may be sold and another of comparable
quality simultaneously purchased to take advantage of what the Investment
Manager believes to be a temporary disparity in the normal yield relationship
between the two securities. As a result of its investment policies, under
certain market conditions, the portfolio turnover rate of Emerging Fixed Income
Markets Series may be higher than that of other mutual funds, and is expected to
be between 300% and 420%. Because a higher turnover rate increases transaction
costs and may increase capital gains, the Investment Manager carefully weighs
the anticipated benefits of short-term investment against these consequences.
ILLIQUID INVESTMENTS. Each Fund's policy is not to invest more than 10% of its
net assets, at the time of purchase, in illiquid securities. Illiquid securities
are generally securities that cannot be sold within seven days in the normal
course of business at approximately the amount at which a Fund has valued them.
The Investment Manager, based on a continuing review of the trading markets, may
consider certain restricted securities which may otherwise be deemed to be
illiquid, that are offered and sold to "qualified institutional buyers," to be
liquid. The Board has adopted guidelines and delegated to the Investment Manager
the daily function of determining and monitoring the liquidity of restricted
securities. The Board, however, will oversee and be ultimately responsible for
the determinations. If the Fund invests in restricted securities that are deemed
liquid, the general level of illiquidity in a Fund may be increased if qualified
institutional buyers become uninterested in purchasing these securities or the
market for these securities contracts.
PERCENTAGE RESTRICTIONS. If a percentage restriction noted above is adhered to
at the time of investment, a later increase or decrease in the percentage
resulting from a change in value of portfolio securities or the amount of net
assets will not be considered a violation of any of the foregoing policies.
WHAT ARE THE FUNDS' POTENTIAL RISKS?
Shareholders should understand that all investments involve risk and there can
be no guarantee against loss resulting from an investment in the Funds, nor can
there be any assurance that a Fund's investment objective will be attained. As
with any investment in securities, the value of, and income from, an investment
in the Funds can decrease as well as increase, depending on a variety of factors
which may affect the values and income generated by the Funds' portfolio
securities, including general economic conditions and market factors.
Additionally, investment decisions made by the Investment Managers will not
always be profitable or prove to have been correct. In addition to the factors
which affect the value of individual securities, a Shareholder may anticipate
that the value of the Shares of the Funds will fluctuate with movements in the
broader equity and bond markets, as well. A decline in the stock market of any
country in which a Fund is invested in equity securities may also be reflected
in declines in the price of the Shares of the Fund. Changes in prevailing rates
of interest in any of the countries in which a Fund is invested in fixed income
securities will likely affect the value of such holdings and thus the value of
Fund Shares. Increased rates of interest which frequently accompany inflation
and/or a growing economy are likely to have a negative effect on the value of a
Fund's Shares. In addition, changes in currency valuations will affect the price
of the Shares of a Fund. History reflects both decreases and increases in stock
markets and interest rates in individual countries and throughout the world and
in currency valuations, and these may occur unpredictably in the future. The
Funds are not intended as a complete investment program.
The Funds have the right to purchase securities in any foreign country,
developed or underdeveloped. Investors should consider carefully the risks
associated with investing in foreign securities, which are in addition to the
usual risks inherent in domestic investments. These risks are often heightened
for investments in developing markets, including certain Eastern European
countries. See "What Are the Funds' Potential Risks?" in the SAI. There is the
possibility of expropriation, nationalization or confiscatory taxation, taxation
of income earned in foreign nations or other taxes imposed with respect to
investments in foreign nations, foreign exchange controls (which may include
suspension of the ability to transfer currency from a given country), foreign
investment controls on daily stock market movements, default in foreign
government securities, political or social instability, or diplomatic
developments which could affect investments in securities of issuers in foreign
nations. Some countries may withhold portions of interest and dividends at the
source. In addition, in many countries there is less publicly available
information about issuers than is available in reports about companies in the
United States. Foreign companies are not generally subject to uniform accounting
or financial reporting standards, and auditing practices and requirements may
not be comparable to those applicable to United States companies. The Funds may
encounter difficulties or be unable to vote proxies, exercise shareholder
rights, pursue legal remedies, and obtain judgments in foreign courts.
As a non-fundamental policy, each Fund will limit its investments in Russian
securities to 5% of its total assets. Russian securities involve additional
significant risks, including political and social uncertainty (for example,
regional conflicts and risk of war), currency exchange rate volatility,
pervasiveness of corruption and crime in the Russian economic system, delays in
settling portfolio transactions and risk of loss arising out of Russia's system
of share registration and custody. For more information on these risks and other
risks associated with Russian securities, please see "What Are the Funds'
Potential Risks?" in the SAI. Brokerage commissions, custodial services, and
other costs relating to investment in foreign countries are generally more
expensive than in the United States. Foreign securities markets have different
clearance and settlement procedures and in certain markets there have been times
when settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of a Fund are
uninvested and no return is earned thereon. The inability of a Fund to make
intended security purchases due to settlement problems could cause a Fund to
miss attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems could result either in losses to a Fund due
to subsequent declines in value of the portfolio security or, if the Fund has
entered into a contract to sell the security, could result in possible liability
to the purchaser. Russia's system of share registration and custody creates
certain risks of loss (including the risk of total loss) that are not normally
associated with investments in other securities markets. These risks and other
risks associated with the Russia securities market are discussed more fully in
the SAI under the caption "What Are the Funds' Potential Risks?" and investors
should read this section in detail. As a non-fundamental policy, the Fund will
limit its investments in Russian companies to 5% of its total assets.
In many foreign countries there is less government supervision and regulation of
business and industry practices, stock exchanges, brokers and listed companies
than in the United States. There is an increased risk, therefore, of uninsured
loss due to lost, stolen, or counterfeit stock certificates. In addition, the
foreign securities markets of many of the countries in which the Funds may
invest may also be smaller, less liquid, and subject to greater price volatility
than those in the United States. The Funds may invest in Eastern European
countries, which involves special risks that are described under "What Are the
Funds' Potential Risks?" in the SAI. Prior governmental approval of non-domestic
investments may be required under certain circumstances in some developing
countries, and the extent of foreign investment in domestic companies may be
subject to limitation in other developing countries. Foreign ownership
limitations also may be imposed by the charters of individual companies in
developing countries to prevent, among other concerns, violation of foreign
investment limitations. Repatriation of investment income, capital and proceeds
of sales by foreign investors may require governmental registration and/or
approval in some developing countries. The Funds could be adversely affected by
delays in or a refusal to grant any required governmental registration or
approval for such repatriation.
Further, the economies of developing countries generally are heavily dependent
upon international trade and, accordingly, have been and may continue to be
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. These economies also have been and may
continue to be adversely affected by economic conditions in the countries with
which they trade.
The Funds may effect currency exchange transactions on a spot (i.e., cash) basis
at the spot rate prevailing in the foreign exchange market. However, some price
spread on currency exchange (to cover service charges) will be incurred when a
Fund converts assets from one currency to another. Further, the Funds may be
affected either unfavorably or favorably by fluctuations in the relative rates
of exchange between the currencies of different nations. Cross-hedging
transactions by the Funds involve the risk of imperfect correlation between
changes in the values of the currencies to which such transactions relate and
changes in the value of the currency or other asset or liability that is the
subject of the hedge.
The Funds may purchase securities issued by companies with comparatively smaller
capitalization although the Funds do not emphasize smaller companies. Securities
of smaller capitalization companies involve additional risks. For example,
smaller capitalization issuers include relatively new or unseasoned companies
which are in their early stages of development, or small companies positioned in
new and emerging industries where the opportunity for rapid growth is expected
to be above average. Historically, smaller capitalization stocks have been more
volatile in price than larger capitalization stocks. Among the reasons for the
greater price volatility of these securities are the less certain growth
prospects of smaller firms, the lower degree of liquidity in the markets for
these stocks, and the greater sensitivity of small companies to changing
economic conditions. Besides exhibiting greater volatility, small company stocks
may, to a degree, fluctuate independently of larger company stocks. Small
company stocks may decline in price as large company stocks rise, or rise in
price as large company stocks decline. You should therefore expect the shares of
a fund that invests a substantial portion of its assets in small company stocks
to be more volatile than the shares of a fund that invests solely in larger
capitalization stocks.
Emerging Fixed Income Markets Series is a "non-diversified" Fund, which means
the Fund is not limited in the proportion of its assets that may be invested in
the securities of a single issuer. However, Emerging Fixed Income Markets Series
intends to conduct its operations so as to qualify as a "regulated investment
company" for purposes of the Code, which generally will relieve the Fund of any
liability for Federal income tax to the extent its earnings are distributed to
Shareholders. See "How Taxation Affects You and the Funds." To so qualify, among
other requirements, Emerging Fixed Income Markets Series will limit its
investments so that, at the close of each quarter of the taxable year, (i) not
more than 25% of the market value of the Fund's total assets will be invested in
the securities of a single issuer, and (ii) with respect to 50% of the market
value of its total assets, not more than 5% of the market value of its total
assets will be invested in the securities of a single issuer and the Fund will
not own more than 10% of the outstanding voting securities of a single issuer.
Emerging Fixed Income Markets Series' investments in U.S. Government securities
are not subject to these limitations. Because Emerging Fixed Income Markets
Series, as a non-diversified fund, may invest in a smaller number of individual
issuers than a diversified investment company, and may be more susceptible to
any single economic, political or regulatory occurrence, an investment in the
Fund may present greater risk to an investor than an investment in a diversified
fund.
The Funds are authorized to invest in medium quality or high-risk, lower quality
debt securities (see "Types of Securities in Which the Funds May Invest--Debt
Securities"). High-risk, lower quality debt securities, commonly known as junk
bonds, are regarded, on balance, as predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligation and may be in default. Unrated debt securities are not
necessarily of lower quality than rated securities but they may not be
attractive to as many buyers. Regardless of rating levels, all debt securities
considered for purchase (whether rated or unrated) will be carefully analyzed by
a Fund's Investment Manager to insure, to the extent possible, that the planned
investment is sound. The Funds may, from time to time, purchase defaulted debt
securities if, in the opinion of a Fund's Investment Manager, the issuer may
resume interest payments in the near future. A Fund will not invest more than
10% of its total assets in defaulted debt securities, which may be illiquid.
Leveraging by means of borrowing may exaggerate the effect of any increase or
decrease in the value of portfolio securities on a Fund's net asset value and
money borrowed will be subject to interest and other costs (which may include
commitment fees and/or the cost of maintaining minimum average balances) which
may or may not exceed the income received from the securities purchased with
borrowed funds.
Successful use of futures contracts and related options is subject to special
risk considerations. A liquid secondary market for any futures or options
contract may not be available when a futures or options position is sought to be
closed. In addition, there may be an imperfect correlation between movements in
the securities or foreign currency on which the futures or options contract is
based and movements in the securities or currency in a Fund's portfolio.
Successful use of futures or options contracts is further dependent on the
ability of a Fund's Investment Manager to correctly predict movements in the
securities or foreign currency markets and no assurance can be given that its
judgment will be correct. Successful use of options on securities or stock
indices is subject to similar risk considerations. In addition, by writing
covered call options, a Fund gives up the opportunity, while the option is in
effect, to profit from any price increase in the underlying security above the
option exercise price.
There are further risk factors, including possible losses through the holding of
securities in domestic and foreign custodian banks and depositories, described
elsewhere in this Prospectus and in the SAI.
WHO MANAGES THE FUNDS?
THE BOARD. The Board oversees the management of the Funds and elects their
officers. The officers are responsible for the Funds' day-to-day operations.
INVESTMENT MANAGERS. The Investment Manager of Growth Series and Foreign Equity
Series is Templeton Investment Counsel, Inc. ("TICI"). The Investment Manager of
Emerging Markets Series is Templeton Asset Management Ltd.--Hong Kong Branch
("Templeton (Hong Kong)"). The Investment Manager of Emerging Fixed Income
Markets Series is Templeton Global Bond Managers, a division of TICI. The
Investment Managers manage the Funds' assets and make their investment
decisions. TICI and Templeton (Hong Kong) are wholly owned by Resources, a
publicly owned company engaged in the financial services industry through its
subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr. are the principal
shareholders of Resources. Together, the Investment Managers and their
affiliates manage over $172 billion in assets. The Templeton organization has
been investing globally since 1940. The Investment Managers and their affiliates
have offices in Argentina, Australia, Bahamas, Canada, France, Germany, Hong
Kong, India, Italy, Luxembourg, Poland, Russia, Scotland, Singapore, South
Africa, U.S., and Vietnam. Please see "Investment Management and Other Services"
and "Miscellaneous Information" in the SAI for information on securities
transactions and a summary of the Funds' Code of Ethics.
PORTFOLIO MANAGEMENT. The lead portfolio manager for Growth Series and Foreign
Equity Series since its inception is Gary P. Motyl, executive vice president of
the Investment Manager. Mr. Motyl holds a BS degree in finance from Lehigh
University and an MBA in finance from Pace University. He has been a security
analyst and portfolio manager with the Investment Manager since 1981. Prior to
joining the Templeton organization, Mr. Motyl worked from 1974 to 1979 as a
security analyst with Standard & Poor's Corporation. He then worked as a
research analyst and portfolio manager from 1979 to 1981 with Landmark First
National Bank. In this capacity he had responsibility for equity research and
managed several pension and profit-sharing plans. Mark Beveridge and Gary R.
Clemons exercise secondary portfolio management responsibilities with
responsibilities with respect to Growth Series and Foreign Equity Series. Mr.
Beveridge is a vice president of the Investment Manager. He holds a BBA in
finance from the University of Miami. He is a Chartered Financial Analyst and a
Chartered Investment Counselor, and a member of the South Florida Society of
Financial Analysts and the International Society of Financial Analysts. Before
joining the Templeton organization in 1985 as a security analyst, Mr. Beveridge
was a principal with a financial accounting software firm based in Miami,
Florida. He is currently a portfolio manager and research analyst with
responsibility for the industrial component and appliances/household durables
industries. He also has market coverage of Argentina, Thailand and Denmark. Mr.
Clemons is vice president of the Investment Manager. He holds a BS degree in
geology from the University of Nevada-Reno and an MBA degree in finance from the
University of Wisconsin. He joined the Investment Manager in 1993. Prior to that
time he was a research analyst at Templeton Quantitative Advisors, Inc. in New
York, where he was also responsible for management of a small capitalization
fund. As a research analyst with Templeton, Mr. Clemons has responsibility for
the telecommunications industries and country coverage of Columbia, Peru, Sweden
and Norway.
The lead portfolio manager for Emerging Markets Series since its inception is
Dr. J. Mark Mobius, Managing Director Templeton Asset Management Ltd. He holds a
BA in Fine Arts from Boston University, an MA in Mass Communications from Boston
University, and a Ph.D. in Economics from the Massachusetts Institute of
Technology. Prior to joining the Templeton organization in 1987, Dr. Mobius was
president of the International Investment Trust Company Limited (investment
manager of Taiwan R.O.C. Fund) (1986-1987) and a director of Vickers da Costa,
Hong Kong (an international securities firm) (1983-1986). Dr. Mobius began
working in Vickers da Costa's Hong Kong office in 1980 and moved to Taiwan in
1983 to open the firm's office there and to direct operations in India,
Indonesia, Thailand, the Philippines, and Korea. Messrs. Allan Lam and Tom Wu
exercise secondary portfolio management responsibilities with respect to
Emerging Markets Series. Prior to joining the Templeton organization in 1987,
Mr. Lam worked as an auditor with two international accounting firms in Hong
Kong: Deloitte Haskins & Sells CPA and KPMG Peat Marwick CPA. He holds a BA in
Accounting from Rutgers University. Prior to joining the Templeton organization
n 1987, Mr. Wu worked as an investment analyst, specializing in Hong Kong
companies, with Vickers da Costa. He holds a BS in Economics from the University
of Hong Kong and an MBA in Finance from the University of Oregon.
The portfolio managers of the Emerging Fixed Income Markets Series since its
inception are Neil S. Devlin, Ronald A. Johnson and Umran Demirors. Mr. Devlin
is the chief investment officer and executive vice president of TGBM.He holds a
BA in economics and philosophy from Brandeis University and is a Chartered
Financial Analyst. Before joining the Templeton organization in 1987, he was a
portfolio manager and bond analyst with Constitutional Capital Management of
Boston. While there, he started and managed a mortgage-backed securities fund
for the Bank of New England's pension plan. Prior to that, Mr. Devlin was a
bond trader and research analyst for the Bank of New England. Mr. Devlin is
currently involved in all fixed income decisions, providing information and
analysis on markets throughout the world. Dr. Johnson is vice president of
TGBM. He holds a PhD and an MA in economics from Stanford University, and an
MBA in finance and a BA in economics from Adelphi University. Prior to joining
the Templeton organization in 1995, Dr. Johnson was chief strategist and head
of research for JPBT Advisers, Inc. in Miami. Before joining JPBT Advisers
Inc., he was chief economist and head of research at Vestrust Asset Management
Corporation in Miami. In addition, Dr. Johnson has held several positions at
the Federal Reserve Bank of New York, including chief of the Domestic Financial
Markets Division. Currently, Dr. Johnson co-directs the fixed income research
process and manages several emerging markets fixed income portfolios. Dr.
Demirors is vice president of TGBM. He holds a PhD and an MA in economics from
New York University, and a BA in economics from Bursa Academy of Economics and
Business Administration in Turkey. Prior to joining the Templeton organization
in 1996, Dr. Demirors was a principal and portfolio manager for Socimer
Advisory Inc. in New York. Before joining Socimer Advisory Inc., Dr. Demirors
was the head of research and strategy at VestcorPartners Group in Miami.
Currently, Dr. Demirors co-directs the fixed income process and manages several
emerging markets fixed income portfolios.
MANAGEMENT FEES. During the fiscal year ended December 31, 1996, management fees
as a percentage of each Fund's average net assets were as follows: Foreign
Equity Series, .__%; Growth Series, .__%; Emerging Markets Series, ____%. The
Investment Managers voluntarily agreed to reduce their fees in order to limit
total expenses of the Funds. This voluntary agreement did not result in any
management fee reductions for the Funds. After December 31, 1997, these
agreements may end at any time upon notice to the Board. Total expenses of the
Funds, including fees paid to the Investment Managers, were as follows: Foreign
Equity Series __%, Growth Series __%, Emerging Markets Series __%. Emerging
Fixed Income Markets Series had not commenced operations as of December 31,
1996. Emerging Fixed Income Markets Series pays TGBM a management fee equal on
an annual basis to ___% of its average daily net assets.
PORTFOLIO TRANSACTIONS. The Investment Managers try to obtain the best execution
on all transactions. If the Investment Managers believe more than one broker or
dealer can provide the best execution, consistent with internal policies it may
consider research and related services and the sale of shares of the Funds, as
well as shares of other funds in the Franklin Templeton Group of Funds, when
selecting a broker or dealer. Please see "How Do the Funds Buy Securities For
their Portfolios?" in the SAI for more information.
ADMINISTRATIVE SERVICES. FT Services (and, prior to October 1, 1996, Templeton
Global Investors, Inc.) provides certain administrative services and facilities
for the Funds. For its services, the Company pays the Business Manager a monthly
fee equivalent on an annual basis to 0.15% of combined average daily net assets
of the Funds during the year, reduced to 0.135% of such net assets of $200
million, further reduced to 0.10% of such net assets in excess of $700 million,
and further reduced to 0.075% of such net assets in excess of $1,200 million.
Please see "Investment Management and Other Services" in the SAI for more
information.
HOW DO THE FUNDS MEASURE PERFORMANCE?
From time to time, the Funds advertise their performance. The most commonly used
measure of performance is total return. Performance figures may not include
sales and creation charges associated with the purchase of the Funds.
Total return is the charge in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested.
The Funds' investment results will vary. Performance figures are always based on
past performance and do not guarantee future results. For a more detailed
description of how each Fund calculates its performance figures, please see "How
do the Funds Measure Performance?" in the SAI.
HOW IS THE COMPANY ORGANIZED?
Each of the Funds, with the exception of the Emerging Fixed Income Markets
Series, is a diversified series of the Company, which is an open-end management
investment company, commonly called a mutual fund. The Emerging Fixed Income
Markets Series is a non-diversified series of the Company. The Company was
organized as a Maryland corporation on July 6, 1990, and is registered with the
SEC under the 1940 Act. Each share of the Funds has one vote. All shares have
equal voting, participation and liquidation rights. Shares of the Funds are
considered Class I shares for redemption, exchange and other purposes. In the
future, the Funds may offer additional classes of shares.
The Funds have noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the Board.
The Funds do not intend to hold annual shareholder meetings. They may hold a
special meeting, however, for matters requiring shareholder approval under the
1940 Act. The Funds will call a special meeting of shareholders for the purpose
of considering the removal of a Board member if requested in writing to do so by
shareholders holding at least 10% of the outstanding shares. The 1940 Act
requires that we help you communicate with other shareholders in connection with
removing members of the Board.
HOW TAXATION AFFECTS YOU AND THE FUNDS
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For more information on tax matters
relating to the Funds and their shareholders, see "Additional Information on
Distributions and Taxes" in the SAI.
Each Fund intends to elect to be treated and to qualify each year as a regulated
investment company under Subchapter M of the Code. A regulated investment
company generally is not subject to federal income tax on income and gains
distributed in a timely manner to its shareholders. The Funds intend to
distribute to shareholders substantially all of their net investment income and
net realized capital gains, which generally will be taxable income or capital
gains in their hands. Distributions declared in October, November or December to
shareholders of record on a date in such month and paid during the following
January will be treated as having been received by shareholders on December 31
in the year such distributions were declared. The Funds will inform you each
year of the amount and nature of such income or gains. Sales or other
dispositions of Fund shares generally will give rise to taxable gain or loss.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
Shares of the Funds may be purchased at net asset value without a sales charge
through any broker that has a dealer agreement with Distributors, the Principal
Underwriter of the Shares of the Funds, or directly from Distributors, upon
receipt by Distributors of an Institutional Account Application Form and
payment. Distributors may establish minimum requirements with respect to amount
of purchase.
MINIMUM INVESTMENT
There is a minimum initial investment of $5 million ($25 for subsequent
investments) for all investors except the following:
(a) Employer stock, bonus, pension or profit-sharing plans
that meet the requirements for qualification under Section
401(k) of the Code, are subject to no minimum initial
investment if the number of employees is equal to or
greater than 200. Plans with less than 200 employees are
subject to a $1 million initial investment or an
investment of $1 million over the subsequent 13-month
period in the Funds or any other funds in the Franklin
Group of Funds or the Templeton Family of Funds (the
"Franklin Templeton Group");
(b) Trust companies or bank trust departments exercising
exclusive discretionary investment authority over funds
which are held in a fiduciary, agency, advisory, custodial
or similar capacity and over which the trust companies,
bank trust departments or other plan fiduciaries or
participants, in the case of certain retirement plans,
have full or shared investment discretion are subject to a
$1 million initial investment or an investment of $1
million over the subsequent 13-month period in the Funds
or any other funds in the Franklin Templeton Group. Trust
companies and bank trust departments making such purchases
may be required to register as dealers pursuant to state
law; or
(c) Government, municipalities and other tax-exempt entities
that meet the requirements for qualification under Section
501 of the Code are subject to an initial investment in
the Funds of $1 million.
LETTER OF INTENT
An initial investment of less than $5 million may be made if the investor
executes a Letter of Intent ("Letter") which expresses the investor's intention
to invest at least $5 million within a 13-month period in the Franklin Templeton
Group, including at least $1 million in the Funds. See the Institutional Account
Application Form. The minimum initial investment under a Letter is $1 million.
If the investor does not invest at least $5 million in Shares of the Funds or
other funds in the Franklin Templeton Group within the 13-month period, the
Shares actually purchased will be involuntarily redeemed and the proceeds sent
the investor at the address of record. Any redemptions made by the Shareholder
during the 13-month period will be subtracted from the amount of the purchases
for purposes of determining whether the terms of the Letter have been completed.
GROUP PURCHASES
Any other investor, including a private investment vehicle such as a family
trust or foundation, who is a member of a qualified group may also purchase
Shares of the Funds if the group as a whole meets the minimum initial investment
of $5 million, at least $1 million of which is invested or to be invested in the
Funds. The minimum initial investment is based upon the aggregate dollar value
of Shares previously purchased and still owned by the group, plus the amount of
the current purchase. A "qualified group" is one which (i) has formalized
operations which have been in existence for more than six months, (ii) has a
purpose other than acquiring Fund Shares, and (iii) satisfies uniform criteria,
such as centralized accounting and communications, which enable Distributors to
realize economies of scale in its costs of distributing Shares.
PURCHASES BY TELEPHONE. Shares of the Funds may be purchased for existing
accounts by telephone, and paid for by wire, in the following manner:
1. Call Institutional Services to advise of the intention to
wire funds for investment. The call must be received prior to
4:00 p.m. Eastern time to receive that day's price. Each Fund
will supply a wire control number for the investment. It is
necessary to obtain a new wire control number every time money
is wired into an account in a Fund. Wire control numbers are
effective for one transaction only and cannot be used more
than once. Wired money which is not properly identified with a
currently effective wire control number will be returned to
the bank from which it was wired and will not be credited to
the Shareholder's account.
2. On the next business day, wire funds to Bank of America, ABA
Routing No. 121000358, for credit account no. 1493304779. Be
sure to include the wire control number, the investor's
Franklin or Templeton account number and account registration.
Wired funds received by the bank and reported by the bank to
the Fund by the close of the Federal Reserve Wire System are
available for credit on that day. Later wires are credited the
following business day. In order to maximize efficient Fund
management, investors are urged to place and wire their
investments as early in the day as possible.
If the purchase is not for an existing account, identify the Fund in which the
investment is being made and send a completed Institutional Account Application
Form to Institutional Services.
PURCHASES BY MAIL. Shares of the Funds may be purchased by mail, and paid for by
check, Federal Reserve draft or negotiable bank draft in the following manner:
1. For an initial investment, send a completed Institutional
Account Application Form to Institutional Services.
2. Make the check, Federal Reserve draft or negotiable bank
draft payable to the Fund in which the investment is being
made.
3. Send the check, Federal Reserve draft or negotiable bank
draft to Institutional Services. Investments in good order and
received by the Fund prior to 4:00 p.m. Eastern time on any
business day will receive the price next calculated on that
day. Items received after 4:00 p.m. Eastern time will receive
the price calculated on the next business day.
Orders mailed to Distributors by dealers or individual investors do not require
advance notice. Checks or negotiable bank drafts must be in U.S. currency drawn
on a commercial bank in the U.S. and, if over $100,000, may not be deemed to
have been received until the proceeds have been collected, unless the check is
certified or issued by such bank. Any subscription may be rejected by
Distributors or by the Company.
Shares of the Funds may be purchased with "in-kind" securities, if approved in
advance by the Company. Securities used to purchase Fund Shares must be
appropriate investments for that Fund, consistent with its investment objective,
policies and limitations, as determined by the Company, and must have readily
available market quotations. The securities will be valued in accordance with
the Company's policy for calculating net asset value (as set forth above),
determined as of the close of the day on which the securities are received by
the Company in salable form. A prospective Shareholder will receive Shares of
the applicable Fund next computed after such receipt. To obtain the approval of
the Company, call Institutional Services. Investors who are affiliated persons
of the Company (as defined in the 1940 Act) may not purchase Shares in this
manner in the absence of SEC approval.
If an investment in the Funds is made through a broker that has executed a
dealer agreement with respect to the Templeton Funds, Distributors or one of its
affiliates may make a payment out of its own resources to such dealer in an
amount not to exceed 0.25% of the amount invested. Dealers may contact the
Franklin Templeton Institutional Services Department for additional information.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund and its rules and
requirements for exchanges. For example, some Franklin Templeton Funds do not
accept exchanges and others may have different investment minimums. In general,
no sales charge applies, and in the case of an exchange into a Franklin
Templeton Fund that offers two classes of shares, a shareholder would receive
Class I shares, which generally bear lower Rule 12b-1 distribution fees than
Class II shares of the same fund.
<TABLE>
<CAPTION>
METHOD STEPS TO FOLLOW
<S> <C>
- -BY MAIL 1. Send us written instructions signed
by all account owners
2. Include any outstanding share certificates
for the shares you're exchanging
BY PHONE Call Institutional Services at 1-800/321-8563
If you do not want the ability to exchange by
phone to apply to your account, please let
us know.
THROUGH YOUR DEALER Call your investment representative
</TABLE>
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
The accounts must be identically registered. You may exchange shares from a
Fund account requiring two or more signatures into an identically registered
money fund account requiring only one signature for all transactions. Please
notify us in writing if you do not want this option to be available on your
account(s). Additional procedures may apply. Please see "Transaction
Procedures and Special Requirements."
Trust Company IRA or 403(b) retirement plans accounts may exchange shares
as described above. Restrictions may apply to other types of retirement
plans. Please contact our Retirement Plans Department for information on
exchanges within these plans.
The fund you are exchanging into must be eligible for sale in your state.
We may modify or discontinue our exchange policy if we give you 60 days'
written notice. Your exchange may be restricted or refused if you: (i)
request an exchange out of a Fund within two weeks of
an earlier exchange request, (ii) exchange shares out of a Fund more than
twice in a calendar quarter, or (iii) exchange shares equal to at least $5
million, or more than 1% of a Fund's net assets. Shares under common
ownership or control are combined for these limits. If you exchange shares
as described in this paragraph, you will be considered a Market Timer. Each
exchange by a Market Timer, if accepted, will be charged $5.00. Some of our
funds do not allow investments by Market Timers.
Because excessive trading can hurt Fund performance and shareholders, we may
refuse any exchange purchase if (i) we believe a Fund would be harmed or unable
to invest effectively, or (ii) a Fund receives or anticipates simultaneous
orders that may significantly affect the Fund.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
HOW DO I SELL SHARES?
You may sell (redeem) your shares any time.
<TABLE>
<CAPTION>
METHOD STEPS TO FOLLOW
<S> <C>
BY MAIL 1. Send us written instructions signed by all
account owners
2. Include any outstanding share certificates
for the shares you are selling
3. Provide a signature guarantee if required
4. Corporate, partnership and trust accounts
may need to send additional documents.
Accounts under court jurisdiction may have
additional requirements.
BY PHONE Call Institutional Services at 1-800/321-8563
(Only available if you Telephone requests will be accepted only if:
have completed and sent
the Institutional Telephone You have filed an Institutional Telephone
Privileges Agreement.) Privileges Agreement.
The redemption is to be sent to
the address of record.
THROUGH YOUR DEALER Call your investment representative
</TABLE>
We will send your redemption check within seven days after we receive your
request in proper form. If you sell your shares by phone, the check may only be
made payable to all registered owners on the account and sent to the address of
record. We are not able to pay out cash in the form of currency.
If you sell shares you just purchased with a check or draft, we may delay
sending you the proceeds for up to 15 days or more to allow the check or draft
to clear. A certified or cashier's check may clear in less time.
Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS
To comply with IRS regulations, you need to complete additional forms before
selling shares in a Trust Company retirement plan account. Tax penalties
generally apply to any distribution from these plans to a participant under age
59 1/2, unless the distribution meets an exception stated in the Code. To obtain
the necessary forms, please call our Retirement Plans Department.
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
Each Fund except Emerging Fixed Income Markets Series intends to pay a
dividend at least annually representing substantially all of the Fund's net
investment income and any net realized capital gains. Emerging Fixed Income
Markets Series intends normally to pay a quarterly dividend representing all
or substantially all of its net investment income and to distribute at least
annually any net realized capital gains. Income dividends and capital gain
distributions paid by a Fund, other than on those Shares whose owners keep them
registered in the name of a broker-dealer, are automatically reinvested on the
payment date in whole or fractional Shares of the Fund at net asset value as of
the ex-dividend date, unless a Shareholder makes a written request for payments
in cash.
Dividend payments are not guaranteed, are subject to the Board's
discretion and may vary with each payment. THE FUNDS DO NOT PAY "INTEREST" OR
GUARANTEE ANY FIXED RATE OF RETURN ON AN INVESTMENT IN ITS SHARES.
IF YOU BUY SHARES SHORTLY BEFORE THE RECORD DATE, PLEASE KEEP IN MIND THAT ANY
DISTRIBUTION WILL LOWER THE VALUE OF THE FUND'S SHARES BY THE AMOUNT OF THE
DISTRIBUTION.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
HOW AND WHEN SHARES ARE PRICED
The Company is open for business each day the NYSE is open. We determine the Net
Asset Value per share as of the scheduled close of the NYSE, generally 4:00 p.m.
Eastern time. You can find the prior day's closing Net Asset Value and Offering
Price for each Fund in many newspapers.
To calculate Net Asset Value per share of each Fund, the assets of each Fund are
valued and totaled, liabilities are subtracted, and the balance, called net
assets, is divided by the number of shares of the Fund outstanding. Each Fund's
assets are valued as described under "How are Fund Shares Valued?" in the SAI.
THE PRICE WE USE WHEN YOU BUY OR SELL SHARES
We will use the Net Asset Value next calculated after we receive your
transaction request in proper form. If you buy or sell shares through your
Securities Dealer, however, we will use the Net Asset Value next calculated
after your Securities Dealer receives your request, which is promptly
transmitted to the Fund. Your redemption proceeds will not earn interest between
the time we receive the order from your dealer and the time we receive any
required documents.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:
Your name,
The Fund's name,
Your account number,
A description of the request,
The dollar amount or number of shares,
For exchanges, the name of the fund you're exchanging into,
A telephone number where we may reach you during the day, or in the evening
if preferred, The address the check is to be sent to if different from the
address of record, and The name of the payee if different from the
registered owner(s).
SIGNATURE GUARANTEES
For our mutual protection, we require a signature guarantee in the following
situations:
1. You wish to sell over $50,000 worth of shares,
2. You want the proceeds to be paid to someone other than the registered
owners,
3. You want the proceeds sent to an address other than the address of
record, or
4. We believe a signature guarantee would protect us against
potential claims based on the instructions received.
A signature guarantee verifies the authenticity of your signature and may be
obtained from certain banks, brokers or other eligible guarantors. YOU SHOULD
VERIFY THAT THE INSTITUTION IS AN ELIGIBLE GUARANTOR PRIOR TO SIGNING.
A CERTIFICATION BY A NOTARY PUBLIC IS NOT SUFFICIENT.
SHARE CERTIFICATES
We will credit your shares to your Fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate is
lost, stolen or destroyed, you may have to pay an insurance premium of up to 2%
of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the Fund if you want to
sell or exchange those shares. The certificates should be properly endorsed. You
can do this either by completing a share assignment form, and you should return
the certificate and assignment form in separate envelopes.
TELEPHONE TRANSACTIONS
You may initiate many transactions by phone. Please refer to the sections of
this prospectus that discuss the transaction you would like to make. You may
also call Institutional Services for instructions.
When you call, we will request personal or other identifying information to
confirm that your instructions are genuine. We will also record calls. We will
not be liable for following instructions communicated by telephone if we
reasonably believe they are genuine. For your protection, we may delay a
transaction or not implement one if we are not reasonably satisfied that the
instructions are genuine. If this occurs, we will not be liable for any loss.
If our lines are busy or you are otherwise unable to reach us by phone, you may
wish to ask your investment representative for assistance or send written
instructions to us, as described elsewhere in this prospectus. If you are unable
to execute a transaction by telephone, we will not be liable for any loss.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS. You may not sell shares or change
distribution options on Trust Company retirement plans by phone. While you may
exchange shares of Trust Company IRA and 403(b) retirement accounts by phone,
certain restrictions may be imposed on other retirement plans.
To obtain any required form or more information about distribution or transfer
procedures, please call our Retirement Plans Department.
ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS
When you open an account, you need to tell us how you want your shares
registered. How you register your account will affect your ownership rights and
ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
JOINT OWNERSHIP. If you open an account with two or more owners, we register the
account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or more
owners, all owners must sign instructions to process transactions and changes to
the account. Even if the law in your state says otherwise, you will not be able
to change owners on the account unless all owners agree in writing. If you would
like another person or owner to sign for you, please send us a current power of
attorney.
GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this form
of registration, a minor may not be named as an account owner.
TRUSTS. If you register your account as a trust, you should have a valid written
trust document to avoid future disputes or possible court action who owns the
account. The registration of your account should also include the name and date
of the trust.
REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please send
us the following documents when you open your account. This will help avoid
delays in processing your transactions while we verify who may sign on the
account. A transfer letter of instructions is required in addition to the
following documentation:
<TABLE>
<CAPTION>
TYPE OF ACCOUNT DOCUMENT REQUIRED
<S> <C>
CORPORATION Corporate Resolution
PARTNERSHIP 1.The pages from the partnership
agreement that identify the general
partners, or
2. A certification for a partnership
agreement
TRUST 3. The pages from the trust document that
identify the trustees, or
4. A certification for trust
</TABLE>
STREET OR NOMINEE ACCOUNTS. If you have Fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the shares
to the street or nominee name account of another Securities Dealer. Both dealers
must have an agreement with Distributors or we will not process the transfer.
Contact your Securities Dealer to initiate the transfer. We will process the
transfer after we receive authorization in proper form from your delivering
Securities Dealer. Accounts may be transferred electronically through the NSCC.
For accounts registered in street or nominee name, we may take instructions
directly from the Securities Dealer or your nominee.
TAX IDENTIFICATION NUMBER
For tax reasons, we must have your correct Social Security or tax identification
number on a signed shareholder application or applicable tax form. Federal law
requires us to withhold 31% of your taxable distributions and sale proceeds if
(i) you have not furnished a certified correct taxpayer identification number,
(ii) you have not certified that withholding does not apply, (iii) the IRS or a
Securities Dealer notifies the Fund that the number you gave us is incorrect, or
(iv) you are subject to backup withholding.
We may refuse to open an account if you fail to provide the required tax
identification number and certifications. We may also close your account if the
IRS notifies us that your tax identification number is incorrect. If you
complete an "awaiting TIN" certification, we must receive a correct tax
identification number within 60 days of your initial purchase to keep your
account open.
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $1,000.
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
INSTITUTIONAL ACCOUNTS
Institutional investors will be required to complete an institutional account
application. There may be additional methods of opening accounts and purchasing,
redeeming or exchanging shares of the Funds available for institutional
accounts. To obtain an institutional application or additional information
regarding institutional accounts, contact Franklin Templeton Institutional
Services at 1-800/321-8563 Monday through Friday, from 9:00 a.m. - 8:00 p.m.
Eastern time.
SYSTEMATIC WITHDRAWAL PLAN
Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or annual
basis. The value of your account must be at least $5,000 and the minimum payment
amount for each withdrawal must be at least $50. For retirement plans subject to
mandatory distribution requirements, the $50 minimum will not apply.
If you would like to establish a systematic withdrawal plan, please complete the
systematic withdrawal plan section of the shareholder Plan application included
with this prospectus. Be sure to indicate how you would like to receive your
payments. You may choose to direct your payments to buy the same class of shares
of another Franklin Templeton Fund or have the money sent directly to you, to
another person, or to a checking account. If you choose to have the money sent
to a checking account, another location, or an address other than the address of
record, a signature guarantee is required.
You will generally receive your payment by the end of the month in which a
payment is scheduled. When you sell your shares under a systematic withdrawal
plan, it is a taxable transaction.
You may discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying us in writing at
least seven business days before the end of the month preceding a scheduled
payment. Please see "How Do I Buy, Sell and Exchange Shares? - Systematic
Withdrawal Plan" in the SAI for more information.
TELEFACTS
From a touch-tone phone, you may call our TeleFACTS system (day or night) at
1-800/247-1753 to:
obtain information about your account;
obtain price and performance information about any Franklin Templeton Fund;
and request duplicate statements and deposit slips for your account.
You will need the Funds' code numbers to use TeleFACTS. The Funds' codes are:
454, Foreign Equity Series; 455, Growth Series; 456, Emerging Markets Series;
and ____, Emerging Fixed Income Markets Series.
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
Confirmation and account statements reflecting transactions in your
account, including transfers from your account and dividend reinvestments.
PLEASE VERIFY THE ACCURACY OF YOUR STATEMENTS WHEN YOU RECEIVE THEM.
Financial reports of the Fund will be sent every six months. To reduce Fund
expenses, we attempt to identify related shareholders within a household and
send only one copy of a report. Call Fund Information if you would like an
additional free copy of the Fund's financial reports or an interim quarterly
report.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your shares
are held by a financial institution, in a street name account, or networked
through the NSCC, the Fund may not be able to offer these services directly to
you. Please contact your investment representative.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Institutional
Services, PO Box 7777, San Mateo, CA 94403-7777. The Fund and Distributors are
located at PO Box 33030, St. Petersburg, FL 33733-8030. You may also contact us
by phone at one of the numbers listed below.
<PAGE>
<TABLE>
<CAPTION>
HOURS OF OPERATION
(EASTERN TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
- --------------- ------------- -----------------------
<S> <C> <C>
Institutional Services 1-800/321-8563 9:00 a.m. to 8:00 p.m.
Shareholder Services 1-800/632-2301 8:30 a.m. to 8:00 p.m.
Dealer Services 1-800/524-4040 8:30 a.m. to 8:00 p.m.
Fund Information 1-800/DIAL BEN 8:30 a.m. to 11:00 p.m.
(1-800/342-5236) 9:30 a.m. to 5:30 p.m.
(Saturday)
Retirement Plans 1-800/527-2020 8:30 a.m. to 8:00 p.m.
TDD (hearing impaired) 1-800/851-0637 8:30 a.m. to 8:00 p.m.
</TABLE>
Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.
Glossary
USEFUL TERMS AND DEFINITIONS
1940 ACT - Investment Company Act of 1940, as amended
BOARD - The Board of Directors of the Company
CD - Certificate of Deposit
CLASS I AND CLASS II - Certain funds in the Franklin Templeton Funds offer two
classes of shares, designated "Class I" and "Class II." The two classes have
proportionate interests in the same portfolio of investment securities. They
differ, however, primarily in their sales charge structures and Rule 12b-1
plans. Shares of the Fund are considered Class I shares for redemption, exchange
and other purposes.
CODE - Internal Revenue Code of 1986, as amended.
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Directors."
FRANKLIN FUNDS - The mutual funds in the Franklin Group of Funds except Franklin
Valuemark Funds and the Franklin Government Securities Trust.
FRANKLIN TEMPLETON FUNDS - The Franklin Funds and the Templeton Funds.
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries.
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds and the Templeton Group of Funds.
FT SERVICES - Franklin Templeton Services, Inc., the Funds' administrator.
INVESTMENT MANAGER - The Fund's investment manager: Templeton Investment
Counsel, Inc. ("TICI") for Growth Series and Foreign Equity Series; Templeton
Asset Management Ltd. - Hong Kong Branch ("Templeton (Hong Kong)") for Emerging
Markets Series; and Templeton Global Bond Managers ("TGBM"), a division of
TICI, for Emerging Fixed Income Markets Series.
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Funds'
shareholder servicing and transfer agent.
IRS - Internal Revenue Service.
LETTER - Letter of Intent
MARKET TIMER(S) - Market Timers generally include market timing or allocation
services, accounts administered so as to buy, sell or exchange shares based on
predetermined market indicators, or any person or group whose transactions seem
to follow a timing pattern.
MOODY'S - Moody's Investors Service, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NSCC - National Securities Clearing Corporation.
NYSE - New York Stock Exchange, Inc.
OFFERING PRICE - The public offering price is the Net Asset Value per share.
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Ratings Service, a division of McGraw Hill Companies
Inc.
SEC - U.S. Securities and Exchange Commission.
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TELEFACTS - Franklin Templeton's automated customer servicing system.
TEMPLETON (HONG KONG) - Templeton Asset Management Ltd. - Hong Kong branch, the
investment manager for Emerging Markets Series, is located at Two Exchange
Square, Hong Kong.
TEMPLETON FUNDS - The U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund.
TGBM - Templeton Global Bond Managers, the investment manager of Emerging Fixed
Income Markets Series, is a division of TICI.
TFTC - Templeton Funds Trust Company.
TICI - Templeton Investment Counsel, Inc., the investment manager of Growth
Series and Foreign Equity Series, is located at Broward Financial Centre, Fort
Lauderdale, FL 33394-3091.
TRUST COMPANY - Franklin Templeton Trust Company. Trust Company is an affiliate
of Distributors and both are wholly owned subsidiaries of Resources.
U.S. - United States.
WE/OUR/US - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
700 CENTRAL AVENUE
ST. PETERSBURG. FL 33701 1-800/DIAL BEN
TABLE OF CONTENTS
How do the Funds Invest their Assets?.........................
What are the Funds' Potential Risks?.........................
Investment Restrictions......................................
Officers and Directors ............................
Investment Management and Other Services.......................
How do the Funds Buy Securities for their Portfolios?..........
How Do I Buy, Sell and Exchange Shares?......................
How are Fund Shares Valued?..................................
Additional Information on Distributions and Taxes............
The Funds' Underwriter.......................................
How do the Funds Measure Performance?.......................
Miscellaneous Information....................................
Financial Statements.........................................
Useful Terms and Definitions.................................
Appendix [Appendices]........................................
Description of Ratings.....................................
- ------------------------------------------------------------------------------
When reading this SAI, you will see certain terms beginning with capital
letters. This means the term is explained under "Useful Terms and
Definitions."
- ------------------------------------------------------------------------------
Templeton Institutional Funds, Inc. (the "Company") is an open-end management
investment company currently consisting of four separate series (the "Funds,"
individually a "Fund"). The Funds are the Growth Series, the Foreign Equity
Series, the Emerging Markets Series and the Emerging Fixed Income Markets
Series. All of the Funds, with the exception of the Emerging Fixed Income
Markets Series, are diversified series of the Company. The Emerging Fixed Income
Markets Series is a non-diversified series of the Company.
The Growth Series' investment objective is to achieve long-term capital
growth. The Fund seeks to achieve its objective by investing in stocks
and debt obligations of companies and governments of any nation.
The Foreign Equity Series' investment objective is to achieve long-term
capital growth. The Fund seeks to achieve its objective by investing in
stocks and debt obligations of companies and governments outside the
United States.
The Emerging Markets Series' investment objective is to achieve
long-term capital growth. The Fund seeks to achieve its objective by
investing in securities of issuers of countries having emerging markets.
The Emerging Fixed Income Markets Series' investment objective is to
achieve high total return. The Fund seeks to achieve its objective by
investing primarily in a portfolio of debt obligations of companies,
governments and government related entities in emerging market
countries.
The Prospectus, dated May 1, 1997, as may be amended from time to time, contains
the basic information you should know before investing in the Funds. For a free
copy, call 1-800/DIAL BEN or write the Company at the address shown.
THIS SAI IS NOT A PROSPECTUS. IT CONTAINS INFORMATION IN ADDITION TO AND IN MORE
DETAIL THAN SET FORTH IN THE PROSPECTUS. THIS SAI IS INTENDED TO PROVIDE YOU
WITH ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF THE
FUNDS, AND SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS.
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK;
ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
<PAGE>
HOW DO THE FUNDS INVEST THEIR ASSETS?
The following provides more detailed information about some of the securities
the Funds may buy and their investment policies. You should read it together
with the section in the Prospectus entitled "How do the Funds Invest their
Assets?"
Each Fund may invest a portion of its assets, and may invest without limit for
defensive purposes, in commercial paper which, at the date of investment, must
be rated A-1 by S&P or Prime-1 by Moody's or, if not rated, be issued by a
company which at the date of investment has an outstanding debt issue rated AAA
or AA by S&P or Aaa or Aa by Moody's.
REPURCHASE AGREEMENTS. The Funds may enter into 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. Each Fund's investment manager, Templeton Investment
Counsel, Inc. ("TICI") in the case of Growth Series and Foreign Equity Series;
Templeton Asset Management Ltd.- Hong Kong Branch, ("Templeton Hong Kong") in
the case of Emerging Markets Series; and the Templeton Global Bond Managers
division of TICI ("TGBM") in the case of Emerging Fixed Income Markets Series
(collectively, the "Investment Managers"), 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 a
Fund's ability to dispose of the underlying securities. A Fund will enter into
repurchase agreements only with parties who meet creditworthiness standards
approved by the Company's Directors, i.e., banks or broker-dealers which have
been determined by a Fund's Investment Manager to present no serious risk of
becoming involved in bankruptcy proceedings within the time frame contemplated
by the repurchase transaction.
DEBT SECURITIES. Each of the Funds with may invest a portion of its assets in
debt securities, including bonds, notes, debentures, commercial paper,
certificates of deposit, time deposits and bankers' acceptances. Debt securities
purchased by a Fund may be rated as low as C by S&P or Moody's or, if unrated,
of comparable quality as determined by the Fund's Investment Manager. As an
operating policy, which may be changed by the Board of Directors without
Shareholder approval, each Fund, with the exception of Emerging Fixed Income
Markets Series, will limit its investment in debt securities rated lower than
BBB by S&P or Baa by Moody's to 5% of its total assets. The Board may consider a
change in this operating policy if, in its judgment, economic conditions change
such that a higher level of investment in high risk, lower quality debt
securities would be consistent with the interests of the Funds and their
Shareholders. Commercial paper purchased by the Funds will meet the credit
quality criteria set forth under "Investment Policies" above.
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 Funds' net asset value.
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 a 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 a Fund to obtain accurate market
quotations for the purposes of valuing the Fund's portfolio. Market quotations
are generally available on many low rated or unrated securities only from a
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of low rated debt securities,
especially in a thinly traded market. Analysis of the creditworthiness of
issuers of low rated debt securities may be more complex than for issuers of
higher rated securities, and the ability of a 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, a Fund may incur additional expenses to seek
recovery.
The Funds investing in debt securities 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 corresponding cash payment until a later time,
generally the security's maturity date. In order to qualify for beneficial tax
treatment, a Fund must distribute substantially all of its net investment income
to shareholders on an annual basis (see "Additional Information on Distributions
and Taxes"). Thus, a 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.
STRUCTURED INVESTMENTS. Included among the issuers of debt securities in which
the Funds may invest are entities organized and operated solely for the purpose
of restructuring the investment characteristics of various securities. These
entities are typically organized by investment banking firms which receive fees
in connection with establishing each entity and arranging for the placement of
its securities. This type of restructuring involves the deposit with or purchase
by an entity, such as a corporation or trust, of specified instruments and the
issuance by that entity of one or more classes of securities ("Structured
Investments") backed by, or representing interests in, the underlying
instruments. The cash flows on the underlying instruments may be apportioned
among the newly issued Structured Investments to create securities with
different investment characteristics such as varying maturities, payment
priorities or interest rate provisions; the extent of the payments made with
respect to Structured Investments is dependent on the extent of the cash flows
on the underlying instruments. Because Structured Investments of the type in
which the Funds anticipate investing typically involve no credit enhancement,
their credit risk will generally be equivalent to that of the underlying
instruments.
The Funds are permitted to invest in a class of Structured Investments that is
either subordinated or unsubordinated to the right of payment of another
class. Subordinated structured Investments typically have higher yields and
present greater risks than subordinated structured Investments. Although a
Fund's purchase of subordinated Structured Investments would have a similar
economic effect to that of borrowing against the underlying securities, the
purchase will not be deemed to be leveraged for purposes of the limitations
placed on the extent of a Fund's assets that may be used for borrowing
activities.
Certain issuers of Structured Investments may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, a Fund's investment in these
Structured Investments may be limited by the restrictions contained in the 1940
Act.
Structured Investments are typically sold in private placement transactions, and
there currently is no active trading market for Structured Investments. To the
extent such investments are illiquid, they will be subject to a Funds'
restrictions on investment in illiquid securities.
FUTURES CONTRACTS. The Funds may purchase and sell financial futures contracts.
Although some financial futures contracts call for making or taking delivery of
the underlying securities, in most cases these obligations are closed out before
the settlement date. The closing of a contractual obligation is accomplished by
purchasing or selling an identical offsetting futures contract. Other financial
futures contracts by their terms call for cash settlements.
The Funds 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 a 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, a 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, a 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 Funds may write (i.e., sell) covered put
and call options and purchase put and call options on securities or securities
indices that are traded on United States and foreign exchanges or in the
over-the-counter markets.
An option on a security is a contract that gives the purchaser 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.
A Fund may write a call or put option only if the option is "covered." A call
option on a security written by a Fund is "covered" if a Fund owns the
underlying security covered by the call or has an absolute and immediate right
to acquire that security without additional cash consideration (or for
additional cash consideration held in a segregated account by its Custodian)
upon conversion or exchange of other securities held in its portfolio. A call
option on a security is also covered if a 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 a 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.
A Fund will cover call options on stock indices that it writes by owning
securities whose price changes, in the opinion of the Fund's 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 a 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, a 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. A 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.
A 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 a 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, a 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, a 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 a 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.
A Fund may also purchase put options to hedge its investments against a decline
in value. By purchasing a put option, a 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 a 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 a Fund's security holdings being hedged.
A 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, a 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, a
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 a 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 a 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 Funds 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 Funds may
also conduct their foreign currency exchange transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market.
A 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. A Fund may enter into a forward contract,
for example, when it enters into a contract for the purchase or sale of a
security denominated in a foreign currency in order to "lock in" the U.S. dollar
price of the security. In addition, for example, when a Fund believes that a
foreign currency may suffer a substantial decline against the U.S. dollar, it
may enter into a forward contract to sell an amount of that foreign currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency, or when a Fund believes that the U.S.
dollar may suffer a substantial decline against a foreign currency, it may enter
into a forward contract to buy that foreign currency for a fixed dollar amount.
This second investment practice is generally referred to as "cross-hedging."
Because in connection with a 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, a 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, a 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 a Fund than if it had not engaged in
such contracts.
The Funds may purchase and write put and call options on foreign currencies for
the purpose of protecting against declines in the dollar value of foreign
portfolio securities and against increases in the dollar cost of foreign
securities to be acquired. As is the case with other kinds of options, however,
the writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received, and a 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 a 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 a Fund will be traded on U.S. and
foreign exchanges or over-the-counter.
The Funds 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 a
Fund's portfolio securities or adversely affect the prices of securities that a
Fund intends to purchase at a later date. The successful use of foreign currency
futures will usually depend on the ability of a Fund's Investment Manager to
forecast currency exchange rate movements correctly. Should exchange rates move
in an unexpected manner, a Fund may not achieve the anticipated benefits of
foreign currency futures or may realize losses.
CONVERTIBLE SECURITIES. As with a straight fixed-income security, a convertible
security tends to increase in market value when interest rates decline and
decrease in value when interest rates rise. Like a common stock, the value of a
convertible security also tends to increase as the market value of the
underlying stock rises, and it tends to decrease as the market value of the
underlying stock declines. Because its value can be influenced by both interest
rate and market movements, a convertible security is not as sensitive to
interest rates as a similar fixed-income security, nor is it as sensitive to
changes in share price as its underlying stock.
A convertible security is usually issued either by an operating company or by an
investment bank. When issued by an operating company, a convertible security
tends to be senior to common stock, but subordinate to other types of
fixed-income securities issued by that company. When a convertible security,
issued by an operating company is "converted," the operating company often
issues new stock to the holder of the convertible security but, if the parity
price of the convertible security is less than the call price, the operating
company may pay out cash instead of common stock. If the convertible security is
issued by an investment bank, the security is an obligation of and is
convertible through the issuing investment bank. The issuer of a convertible
security may be important in determining the security's true value. This is
because the holder of a convertible security will have recourse only to the
issuer.
The Funds use the same criteria to rate a convertible debt security that it uses
to rate a more conventional debt security, a convertible preferred stock is
treated like a preferred stock for the Funds' financial reporting, credit
rating, and investment limitation purposes. A preferred stock is subordinated to
all debt obligations in the event of insolvency, and an issuer's failure to make
a dividend payment is generally not an event of default entitling the preferred
shareholder to take action. A preferred stock generally has no maturity date, so
that its market value is dependent on the issuer's business prospects for an
indefinite period of time. In addition, distributions from preferred stock are
dividends, rather than interest payments, and are usually treated as such for
corporate tax purposes.
The Funds may invest in convertible preferred stocks that offer enhanced yield
features, such as Preferred Equity Redemption Cumulative Stock ("PERCS"), which
provide an investor with the opportunity to earn higher dividend income than is
available on a company's common stock. A PERCS is a preferred stock which
generally features a mandatory conversion date, as well as a capital
appreciation limit which is usually expressed in terms of a stated price. Most
PERCS expire three years from the date of issue, at which time they are
convertible into common stock of the issuer (PERCS are generally not convertible
into cash at maturity). Under a typical arrangement, if after three years the
issuer's common stock is trading at a price below that set by the capital
appreciation limit, each PERCS would convert to one share of common stock. If,
however, the issuer's common stock is trading at a price above that set by the
capital appreciation limit, the holder of the PERCS would receive less than one
full share of common stock. The amount of that fractional share of common stock
received by the PERCS holder is determined by dividing the price set by the
capital appreciation limit of the PERCS by the market price of the issuer's
common stock. PERCS can be called at any time prior to maturity, and hence do
not provide call protection. However if called early the issuer must pay a call
premium over the market price to the investor. This call premium declines at a
preset rate daily, up to the maturity date of the PERCS.
The Funds may also invest in other classes of enhanced convertible securities.
These include but are not limited to ACES (Automatically Convertible Equity
Securities), PEPS (Participating Equity Preferred Stock), PRIDES (Preferred
Redeemable Increased Dividend Equity Securities), SAILS (Stock Appreciation
Income Linked Securities), TECONS (Term Convertible Notes), QICS (Quarterly
Income Cumulative Securities), and DECS (Dividend Enhanced Convertible
Securities). ACES, PEPS, PRIDES, SAILS, TECONS, QICS, and DECS all have the
following features: they are issued by the company, the common stock of which
will be received in the event the convertible preferred stock is converted;
unlike PERCS they do not have a capital appreciation limit; they seek to provide
the investor with high current income with some prospect of future capital
appreciation; they are typically issued with three or four-year maturities; they
typically have some built-in call protection for the first two to three years;
investors have the right to convert them into shares of common stock at a preset
conversion ratio or hold them until maturity; and, upon maturity, they will
necessarily convert into either cash or a specified number of shares of common
stock.
Similarly, there may be enhanced convertible debt obligations issued by the
operating company whose common stock is to be acquired in the event the security
is converted or by a different issuer, such as an investment bank. These
securities may be identified by names such as ELKS (Equity Linked Securities) or
similar names. Typically they share most of the salient characteristics of an
enhanced convertible preferred stock but will be ranked as senior or
subordinated debt in the issuer's corporate structure according to the terms of
the debt indenture. There may be additional types of convertible securities not
specifically referred to herein which may be similar to those described above in
which the Funds may invest, consistent with its objectives and policies.
An investment in an enhanced convertible security or any other security may
involve additional risks to a Fund. The Funds may have difficulty disposing of
such securities because there may be a thin trading market for a particular
security at any given time. Reduced liquidity may have an adverse impact on
market price and a Fund's ability to dispose of particular securities, when
necessary, to meet a Fund's liquidity needs or in response to a specific
economic event, such as the deterioration in the creditworthiness of an issuer.
Reduced liquidity in the secondary market for certain securities may also make
it more difficult for a Fund to obtain market quotations based on actual trades
for purposes of valuing the Fund's portfolio. Each Fund, however, intends to
acquire liquid securities, though there can be no assurances that this will be
achieved.
WHAT ARE THE FUNDS' POTENTIAL RISKS?
Each Fund has the right to purchase securities in any foreign country, developed
or developing. 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 Funds, 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.
The economies of individual emerging market countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, currency depreciation, capital reinvestment,
resource self-sufficiency and balance of payments position. Further, the
economies of developing countries generally are heavily dependent upon
international trade and, accordingly, have been and may continue to be adversely
affected by trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by the
countries with which they trade. These economies also have been and may continue
to be adversely affected by economic conditions in the countries with which they
trade.
Investments in companies domiciled in developing countries may be subject to
potentially higher risks than investments developed countries. These risks
include (i) less social, political and economic stability; (ii) the small
current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict a
Fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests; (iv) the absence of
developed legal structures governing private or foreign investment or allowing
for judicial redress for injury to private property; (v) the absence, until
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; and (vi) 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 Funds 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, resources 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, a Fund could lose a substantial portion of any investments
it has made in the affected 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. Further, no accounting standards exist in Eastern European
countries.
Investing in Russian securities 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: (1) delays in settling portfolio transactions and risk of loss arising
out of Russia's system of share registration and custody; (2) the risk that it
may be impossible or more difficult than in other countries to obtain and/or
enforce a judgment; (3) pervasiveness of corruption and crime in the Russian
economic system; (4) currency exchange rate volatility and the lack of available
currency hedging instruments; (5) higher rates of inflation (including the risk
of social unrest associated with periods of hyper-inflation); (6) controls on
foreign investment and local practices disfavoring foreign investors and
limitations on repatriation of invested capital, profits and dividends, and on a
Fund's ability to exchange local currencies for U.S. dollars; (7) 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; (8) the
financial condition of Russian companies, including large amounts of
inter-company debt which may create a payments crisis on a national scale; (9)
dependency on exports and the corresponding importance of international trade;
(10) the risk that the Russian tax system will not be reformed to prevent
inconsistent, retroactive and/or exorbitant taxation; and (11) possible
difficulty in identifying a purchaser of securities held by a 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 a Fund to lose its
registration through fraud, negligence or even mere oversight. While each 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 a Fund to enforce any
rights it may have against the registrar or issuer of the securities in the
event of loss of share registration. Furthermore, although a Russian public
enterprise with more than 1,000 shareholders is required by law to contract out
the maintenance of its shareholder register to an independent entity that meets
certain criteria, in practice this regulation has not always been strictly
enforced. Because of this lack of independence, management of a company may be
able to exert considerable influence over who can purchase and sell the
company's shares by illegally instructing the registrar to refuse to record
transactions in the share register. This practice may prevent a Fund from
investing in the securities of certain Russian issuers deemed suitable by its
Investment Manager. Further, this also could cause a delay in the sale of
Russian securities by a Fund if a potential purchaser is deemed unsuitable,
which may expose the Fund to potential loss on the investment.
Each Fund endeavors to buy and sell foreign currencies on as favorable a basis
as practicable. Some price spread in currency exchange (to cover service
charges) will be incurred, particularly when a 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 a Fund from transferring cash out of the
country or withhold portions of interest and dividends at the source. There is
the possibility of cessation of trading on national exchanges, expropriation,
nationalization or confiscatory taxation, withholding and other foreign taxes on
income or other amounts, foreign exchange controls (which may include suspension
of the ability to transfer currency from a given country), default in foreign
government securities, political or social instability, or diplomatic
developments which could affect investments in securities of issuers in foreign
nations.
The Funds 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 Funds 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 a Fund's portfolio securities are
denominated may have a detrimental impact on that Fund. Through the flexible
policy of the Funds, the Investment Managers endeavor to avoid unfavorable
consequences and to take advantage of favorable developments in particular
nations where from time to time they place the investments of the Funds.
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 Directors consider at least annually the likelihood of the imposition by any
foreign government of exchange control restrictions which would affect the
liquidity of the Funds' 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 Directors 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"). However, in the absence of willful misfeasance, bad faith or gross
negligence on the part of a Fund's Investment Manager, any losses resulting from
the holding of a 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 Directors' appraisal of the risks will always be correct
or that such exchange control restrictions or political acts of foreign
governments will not occur.
A 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 Funds intend 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 a Fund for hedging purposes also depends upon the
ability of that Fund's Investment Manager's to predict correctly movements in
the direction of the market, as to which no assurance can be given.
The Investment Managers and their affiliated companies serve as investment
advisers 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 quantity which may be bought or sold for each party. If the
transaction is large enough, brokerage commissions in certain countries may be
negotiated below those otherwise chargeable. Sale or purchase of securities,
without payment of brokerage commissions, fees (except customary transfer fees)
or other remuneration in connection therewith, may be effected between any of
these funds, or between funds and private clients, under procedures adopted by
the Company's Board of Directors pursuant to Rule 17a-7 under the 1940 Act.
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 transaction 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.
INVESTMENT RESTRICTIONS
Each Fund has adopted the following restrictions as fundamental policies. These
restrictions may not be changed without the approval of a majority of the
outstanding voting securities of the Fund. Under the 1940 Act, this means the
approval of (i) more than 50% of the outstanding shares of the Fund or (ii) 67%
or more of the shares of the Fund present at a shareholder meeting if more than
50% of the outstanding shares of the Fund are represented at the meeting in
person or by proxy, whichever is less. Each Fund MAY NOT:
1. Invest in real estate or mortgages on real estate (although a
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 interests
therein); invest in other open-end investment companies except
as permitted by the 1940 Act; invest in interests (other than
debentures or equity stock interests) in oil, gas or other
mineral exploration or development programs; or purchase or
sell commodity contracts (except futures contracts as
described in the Prospectus).
2. Purchase or retain securities of any company in which
Directors or officers of the Company or of the Fund's
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. Purchase any security (other than obligations of the U.S.
Government, its agencies or instrumentalities) if, as a
result, as to 75% of the Fund's total assets (i) more than 5%
of the Fund's total assets would then be invested in
securities of any single issuer, or (ii) the Fund would then
own more than 10% of the voting securities of any single
issuer; provided, however, that this restriction does not
apply to the Emerging Fixed Income Markets Series.
4. Act as an underwriter; issue senior securities except as set
forth in investment restriction 6 below; or purchase on margin
or sell (but a Fund may make margin payments in connection
with options on securities or securities indices and foreign
currencies; futures contracts and related options; and forward
contracts and related options).
5. Loan money apart from the purchase of a portion of an issue of
publicly distributed bonds, debentures, notes and other
evidences of indebtedness, although a Fund may buy from a bank
or broker-dealer United States government obligations with a
simultaneous agreement by the seller to repurchase them within
no more than seven days at the original purchase price plus
accrued interest and loan its portfolio securities.
6. Borrow money, except that a Fund may borrow money from banks
in an amount not exceeding 33-1/3% of the value of its total
assets (including the amount borrowed).
7. Invest more than 5% of the value of its total assets in
securities of issuers which have been in continuous operation
less than three years; provided that this restriction does not
apply to Emerging Fixed Income Markets Series.
8. Invest more than 5% of its 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; provided that
this restriction does not apply to Emerging Fixed Income
Markets Series.
9. Invest more than 25% of its total assets in a single industry.
10. Participate on a joint or a joint and several basis in any
trading account in securities; (See "What are the Funds'
Potential Risks?" above as to transactions in the same
securities for a Fund and/or other mutual funds with the same
or affiliated advisers.)
If a 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 9 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.
If a percentage restriction is met at the time of investment, a later increase
or decrease in the percentage due to a change in the value of portfolio
securities or the amount of assets will not be considered a violation of any of
the foregoing restrictions.
<PAGE>
OFFICERS AND DIRECTORS
The Board has the responsibility for the overall management of the Company,
including general supervision and review of its investment activities. The
Board, in turn, elects the officers of the Company who are responsible for
administering the Funds' day-to-day operations. The affiliations of the officers
and Board members and their principal occupations for the past five years are
shown below. Members of the Board who are considered "interested persons" of the
Fund under the 1940 Act are indicated by an asterisk (*).
<TABLE>
<CAPTION>
POSITIONS AND OFFICES WITH PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS THE COMPANY DURING THE PAST FIVE YEARS
- ---------------------- ----------- --------------------------
<S> <C> <C>
Harris J. Ashton, Age 63 Director Chairman of the Board, President and Chief
Metro Center Executive Officer of General Host Corporation
1 Stanton Place (nursery and craft centers; and a Director of
Stamford, Connecticut RCG Holdings (U.S.A.) Inc. (a bank holding
company) and Bar-S Foods.
Nicholas F. Brady, Age 66 Director Chairman of Templeton Emerging Markets
102 East Dover Street Investment Trust, PLC; Chairman of Templeton
Easton, Maryland Latin America Investment Trust PLC; Chairman of
Darby Overseas Investments, Ltd. (an investment
firm) (1994-present); Director of 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, Reed & Co., Inc. )
investment banking) prior thereto.
Frank J. Crothers, Age 51 Director President and Chief Executive Officer of
P.O. Box N-3238 Atlantic Equipment & Power Ltd.; Vice Chairman
Nassau, Bahamas of Caribbean Utilities Co., Ltd.; President of
Provo Power Corporation; and a director of
various other business and nonprofit organizations.
S. Joseph Fortunato Director Member of the law firm of Pitney, Hardin, Kipp &
Age 63. Szuch; and a director of General Host
200 Campus Drive Corporation.
Florham Park, New Jersey
John Wm. Galbraith Director President of Galbraith Properties, Inc.
Age 74 (personal investment company); Director of
360 Central Avenue Gulwest Banks, Inc. (bank holding company)
Suite 1300 (1995-present) and Mercantile Bank
St. Petersburg, Florida (1991-present); Vice Chairman of Templeton,
Galbraith & Hansberger Ltd. (1986-1992); and
Chairman of Templeton Funds Management, Inc.
(1974-1991).
Andrew H. Hines, Jr., Director Consultant for the Triangle consulting Group;
Age 73 Chairman of the Board and Chief Executive
150 2nd Avenue N. Officer of Florida Progress Corporation
St. Petersburg, Florida (1982-February 1990) and Director of various to
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.
Charles B. Johnson* Chairman of the Board and President, Chief Executive Officer, and Director
777 Mariners Island Blvd. Vice President of Franklin Resources, Inc.; Chairman of the
San Mateo, California Board and Director of Franklin Advisers, Inc.
and Franklin Templeton Distributors, Inc.;
Betty P. Krahmer, Age 66 Director Director or trustee of various civic
2201 Kentmere Park associations; formerly, economic analyst, U.S.
Wilmington, Delaware Government.
<PAGE>
Gordon S. Macklin, Director Chairman of White River Corporation (information
Age 67 services); Director of Fund America Enterprises
8212 Burning Tree Road Holdings, Inc., Lockheed Martin Corporation, MCI
Bethesda, Maryland Communications Corporation, Fusion Systems,
Infovest Corporation, and Medimmune, Inc.; and
formerly: Chairman of Hambrecht and Quist
Group; Director of H&Q Healthcare Investors; and
President of the National Association of
Securities Dealers, Inc.
Fred R. Millsaps Director Manager of personal investments (1978-present);
Age 67. Chairman and Chief Executive Officer of Landmark
2665 N.E. 37th Drive Banking Corporation (1969-1978); Financial Vice
Fort Lauderdale, Florida President of Florida Power and Light (1965-1969);
Vice President of the Federal Reserve Bank of
Atlanta (1958-1965); and a director of various
business and nonprofit organizations.
Constatine Dean Tseretopoulos, Director Physician, Lyford Cay Hospital (July
Age 42 1987-present); Cardiology Fellow, University of
Lyford Cay Hospital Maryland (July 1985-July 1987); Internal
P.O. Box N-7776 Medicine Intern, Greater Baltimore Medical
Nassau, Bahamas Center (July 1982-July 1985).
Donald F. Reed, Age 51 Vice President Executive Vice President of Templeton Worldwide,
4 King Street West Inc.; President of Templeton Investment Counsel,
Toronto, Ontario Inc.; President and Chief Executive Officer of
Canada Templeton Management Limited; co-founder and
Director of International Society of Financial
Analysts; Chairman of Canadian Council of
Financial Analysts; formerly, President and
Director, Reed Monahan Nicolishen Investment
Counsel (1982-1989).
<PAGE>
Harmon E. Burns, Age 51 Vice President Executive Vice President, Secretary and Director
777 Mariners Blvd. of Franklin Resources, Inc.; Director and
San Mateo, California Executive Vice President of Franklin Templeton
Distributors, Inc.; Executive Vice President of
Franklin Advisers, Inc.; Director of Franklin
Templeton Investor Services, Inc.; officer
and/or director, as the case may be, of other
subsidiairies of Franklin Resources, Inc.; and
officer and/or director or trustee of 61 of the
investment companies in the Franklin Templeton
Group of Funds.
Rupert H. Johnson, Jr., Age 55 Vice President Executive Vice President, Secretary and Director
777 Mariners Island Blvd. of Franklin Resources, Inc.; Executive Vice
San Mateo, California President of Franklin Templeton Distributors,
Inc.; Executive Vice President of Franklin
Advisers, Inc.; Director of Franklin Templeton
Investor Services, Inc.; officer and/o director,
as the case may be, of other subsidiaries of
Franklin Resources, Inc.; and officer and/or
director or trustee of 61 of the investment
companies in the Franklin Templeton Group of
Funds.
Deborah R. Gatzek, Vice President Senior Vice President and General Counsel of
Age 47 Franklin Resources, Inc.; Senior Vice President
777 Mariners Island Blvd. of Franklin Templeton Distributors, Inc.; Vice
San Mateo, California President of Franklin Advisers, Inc.; and
officer of 61 of the investment companies in the
Franklin Templeton Group of Funds.
<PAGE>
Charles E. Johnson Vice President Senior Vice President and Director of Franklin
Age 39 Resources, Inc.; Senior Vice President of
500 East Broward Blvd. Franklin Templeton Distributors, Inc.; President
Fort Lauderdale, Florida and Director of Templeton Worldwide, Inc. and
Franklin Institutional Services Corporation;
Chairman of the Board of Templeton Investment
Counsel, Inc.; vice president and/or
director, as the case may be, for some of the
subsidiairies of Franklin Resources, Inc.; and
an officer and/or director, as the case may
be, of 24 of the investment companies in
the Franklin Templeton Group.
Mark G. Holowesko, Vice President President, Chief Executive Officer and Director
Age 36. of Templeton Global Advisors Limited; Chief
Lyford Cay Investment Officer of global equity research for
Nassau, Bahamas Templeton Worldwide, Inc.; president or vice
president of the Templeton Funds; formerly,
investment administrator with Roy West Trust
Corporation (Bahamas) Limited (1984-1985).
</TABLE>
*These are Directors who are "interested persons" of the Company 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 Global Advisors Limited are limited partners of Darby Emerging
Markets Fund, L.P.
There are no family relationships between any of the Directors.
The table above shows the officers and Board members who are affiliated with
Distributors and the Investment Managers. Nonaffiliated members of the Board and
Mr. Brady are currently paid an annual retainer and/or fees for attendance at
Board and committee meetings. Currently, the Company pays the nonaffiliated
Board members and Mr. Brady an annual retainer of $6,000, a fee of $500 per
Board meeting, and its portion of a flat fee of $2,000 for each audit committee
meeting and/or nominating and compensation committee meeting attended. All of
the nonaffiliated Board members also serve as directors, trustees or managing
general partners of other investment companies in the Franklin Templeton Group
of Funds. They may receive fees from these funds for their services. The
following table provides the total fees paid to nonaffiliated Board members and
Mr. Brady by the Company and by other funds in the Franklin Templeton Group of
Funds for the year ended December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF BOARDS IN THE
TOTAL FEES TOTAL FEES RECEIVED FROM THE FRANKLIN TEMPLETON GROUP OF
RECEIVED FROM FRANKLIN TEMPLETON GROUP FUNDS ON WHICH
NAME THE COMPANY OF FUNDS EACH SERVES*
<S> <C> <C> <C>
Harris J. Ashton $8,000 $327,925 55
Nicholas F. Brady 8,000 98,225 24
Frank J. Crothers 8,902 22,975 4
S. Joseph Fortunato 8,000 334,745 58
John Wm. Galbraith 6,000 70,100 23
Andrew H. Hines, Jr. 8,000 106,325 24
Betty P. Krahmer 6,000 93,475 24
Gordon S. Macklin 8,000 321,525 53
Fred R. Millsaps 8,743 104,325 24
C.D. Tseretopoulos 8,902 8,902 4
</TABLE>
*We base the number of boards on the number of registered investment companies
in the Franklin Templeton Group of Funds. This number does not include the total
number of series or funds within each investment company for which the Board
members are responsible. The Franklin Templeton Group of Funds currently
includes 61 registered investment companies, with approximately 171 U.S. based
funds or series.
Nonaffiliated members of the Board and Mr. Brady are reimbursed for expenses
incurred in connection with attending board meetings, paid pro rata by each fund
in the Franklin Templeton Group of Funds for which they serve as director,
trustee or managing general partner. No officer or Board member received any
other compensation, including pension or retirement benefits, directly or
indirectly from the Company or other funds in the Franklin Templeton Group of
Funds. Certain officers or Board members who are shareholders of Resources may
be deemed to receive indirect remuneration by virtue of their participation, if
any, in the fees paid to its subsidiaries.
As of ______, 1997, the officers and Board members did not own of record or
beneficially any shares of the Funds.
INVESTMENT MANAGEMENT AND OTHER SERVICES
INVESTMENT MANAGER AND SERVICES PROVIDED. The Investment Manager of Growth
Series and Foreign Equity Series is Templeton Investment Counsel, Inc. ("TICI").
The Investment Manager of Emerging Markets Series is Templeton Asset Management
Ltd.-Hong Kong branch ("Templeton Hong Kong"). The Investment Manager of
Emerging Fixed Income Markets Series is the Templeton Global Bond Managers
division of TICI ("TGBM") (collectively, the "Investment Managers"). The
Investment Managers provide investment research and portfolio management
services, including the selection of securities for the respective Funds to buy,
hold or sell, and the selection of brokers through whom the Funds' portfolio
transactions are executed. The Investment Managers' activities are subject to
the review and supervision of the Board to whom the Investment Managers render
periodic reports of the respective Fund's investment activities. The Investment
Managers are covered by fidelity insurance on their officers, directors and
employees for the protection of the Funds.
The Investment Managers and their affiliates act as investment managers to
numerous other investment companies and accounts. An Investment Manager may give
advice and take action with respect to any of the other funds it manages, or for
its own account, that may differ from action taken by the Investment Manager on
behalf of the Funds. Similarly, with respect to the Funds, the Investment
Managers are not obligated to recommend, buy or sell, or to refrain from
recommending, buying or selling any security that the Investment Managers and
access persons, as defined by the 1940 Act, may buy or sell for its or their own
account or for the accounts of any other fund. The Investment Managers are not
obligated to refrain from investing in securities held by the Funds or other
funds they manage. Of course, any transactions for the accounts of the
Investment Managers and other access persons will be made in compliance with the
Funds' Code of Ethics. Please see "Miscellaneous Information - Summary of Code
of Ethics."
MANAGEMENT FEES. Under their management agreements, the Funds pay the Investment
Managers management fees, computed the close of business on the last business
day of each month. Growth Series and Foreign Equity Series each pays TICI a
monthly fee equal on an annual basis to 0.70% of its average daily net assets
during the year. During the fiscal years ended December 31, 1996, 1995, and
1994, TICI received from Foreign Equity Series fees of $__________, $9,916,869,
and $5,740,479, respectively. During the fiscal years ended December 31, 1996,
1995, and 1994, TICI received from Growth Series fees of $___________,
$1,469,015, and $1,365,883, respectively. Emerging Markets Series pays Templeton
Hong Kong a monthly fee equal on an annual basis to 1.25% of its average daily
net assets during the year. This fee is higher than advisory fees paid by most
other U.S. investment companies, primarily because investing in equity
securities of companies in emerging markets, which are not widely followed by
professional analysts, requires Templeton Hong Kong to invest additional time
and incur added expense in developing specialized resources, including research
facilities. During the fiscal years ended December 31, 1996, 1995, and 1994,
Templeton Hong Kong received from Emerging Markets Series fees of $___________,
$8,488,442, and $6,669, respectively. Emerging Fixed Income Markets Series will
pay TGBM a monthly fee equal on an annual basis to ____% of its average daily
net assets during the year.
MANAGEMENT AGREEMENTS. The management agreements between TICI and the Company on
behalf of Foreign Equity Series and the Growth Series are in effect until April
30, 1998. The management agreement between Templeton Hong Kong and the Company
on behalf of Emerging Markets Series is in effect until April 30, 1998. The
management agreement between TGBM and the Company on behalf of Emerging Fixed
Income Markets Series is in effect until ________. Each management agreement may
continue in effect for successive annual periods if its continuance is
specifically approved at least annually by a vote of the Board or by a vote of
the holders of a majority of the relevant Fund's outstanding voting securities,
and in either event by a majority vote of the Board members who are not parties
to the management agreement or interested persons of any such party (other than
as members of the Board), cast in person at a meeting called for that purpose. A
management agreement may be terminated without penalty at any time by the Board
or by a vote of the holders of a majority of the relevant Fund's outstanding
voting securities, or by the Investment manager, on ___ days' written notice,
and will automatically terminate in the event of its assignment, as defined in
the 1940 Act.
SHAREHOLDER SERVICING AGENT. Investor Services, a wholly owned subsidiary of
Resources, is the Funds' shareholder servicing agent and acts as the Funds'
transfer agent and dividend-paying agent. Investor Services is compensated on
the basis of a fixed fee per account.
CUSTODIAN. The Chase Manhattan Bank, at its principal office at MetroTech
Center, Brooklyn, New York, 11245, and at the offices of its branches and
agencies throughout the world, acts as custodian of the Funds' assets. The
custodian does not participate in decisions relating to the purchase and sale of
portfolio securities.
AUDITORS. McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York, 10017,
are the Funds' independent auditors. During the fiscal year ended December 31,
1996, their auditing services consisted of rendering an opinion on the financial
statements of Growth Series, Foreign Equity Series and Emerging Markets Series
included in the Funds' Annual Report to Shareholders for the fiscal year ended
December, 1996, and review of the Funds' filings with the SEC and the IRS.
HOW DO THE FUNDS BUY SECURITIES FOR THEIR PORTFOLIOS?
The selection of brokers and dealers to execute transactions in the Funds'
portfolios is made by the Investment Managers in accordance with criteria set
forth in the management agreements and any directions that the Board may give.
When placing a portfolio transaction, the Investment Managers seek to obtain
prompt execution of orders at the most favorable net price. When portfolio
transactions are done on a securities exchange, the amount of commission paid by
a Fund is negotiated between that Investment Manager and the broker executing
the transaction. The determination and evaluation of the reasonableness of the
brokerage commissions paid in connection with portfolio transactions are based
to a large degree on the professional opinions of the persons responsible for
the placement and review of the transactions. These opinions are based on the
experience of these individuals in the securities industry and information
available to them about the level of commissions being paid by other
institutional investors of comparable size. The Investment Managers will
ordinarily place orders to buy and sell over-the-counter securities on a
principal rather than agency basis with a principal market maker unless, in the
opinion of an Investment Manager, a better price and execution can otherwise be
obtained. Purchases of portfolio securities from underwriters will include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers will include a spread between the bid and ask price.
In placing orders to effect transactions for a Fund, an Investment Manager may
pay to particular brokers commissions that are higher than another broker might
charge, if the Investment Manager determines in good faith that the amount of
commission paid is reasonable in relation to the value of the brokerage and
research services to be received, viewed in terms of the particular transaction
or the Investment Manager's overall responsibilities with respect to client
accounts for which it exercises investment discretion. Services received by the
Investment Managers may include, among other things, information relating to
particular companies, markets or countries, local, regional, national or
transnational economies, statistical data, quotations and other securities
pricing information and other information which provide lawful and appropriate
assistance to the Investment Managers in carrying out their investment advisory
responsibilities. The Services received may not always be of direct benefit to
the Funds but must of value to an Investment Manager in carrying out it overall
responsibilities to its clients.
It is not possible to place a dollar value on the special executions or on the
research services received by the Investment Managers from broker-dealers
effecting transactions in portfolio securities. The allocation of transactions
in order to obtain additional research services permits the Investment Managers
to supplement their own research and analysis activities and to receive the
views and information of individuals and research staff of other securities
firms. As long as it is lawful and appropriate to do so, the Investment Managers
and their affiliates may use this research and data in their investment advisory
capacities with other clients. If the Company's officers are satisfied that the
best execution is obtained, consistent with internal policies, the sale of Fund
shares, as well as shares of other funds in the Franklin Templeton Group of
Funds, may also be considered a factor in the selection of broker-dealers to
execute the Funds' portfolio transactions.
Because Distributors is a member of the NASD, it may sometimes receive certain
fees when a Fund tenders portfolio securities pursuant to a tender-offer
solicitation. As a means of recapturing brokerage for the benefit of a Fund, any
portfolio securities tendered by the Fund will be tendered through Distributors
if it is legally permissible to do so. In turn, the next management fee payment
to that Fund's Investment Manager will be reduced by the amount of any fees
received by Distributors in cash, less any costs and expenses incurred in
connection with the tender.
If purchases or sales of securities of a Fund and one or more other investment
companies or clients supervised by an Investment Manager are considered at or
about the same time, transactions in these securities will be allocated among
the several investment companies and clients in a manner deemed equitable to all
by the Investment Manager, taking into account the respective sizes of the funds
and the amount of securities to be purchased or sold. In some cases this
procedure could have a detrimental effect on the price or volume of the security
so far as the Funds are concerned. In other cases it is possible that the
ability to participate in volume transactions and to negotiate lower brokerage
commissions will be beneficial to the Funds.
During the fiscal years ended December 31, 1996, 1995, and 1994, Foreign Equity
Series paid brokerage commissions totaling $__________, $2,779,325, and
$1,856,075, respectively. During the fiscal years ended December 31, 1996, 1995
and 1994, Growth Series paid brokerage commissions totaling $___________,
$302,096, and $196,751, respectively. During the fiscal years ended December 31,
1996, 1995 and 1994, Emerging Markets Series paid brokerage commissions totaling
$___________, $1,949,885, and $1,442,148, respectively.
As of December 31, 1996, the Funds did not own securities of their regular
broker-dealers.
HOW DO I BUY, SELL AND EXCHANGE SHARES?
ADDITIONAL INFORMATION ON BUYING SHARES
The Funds continuously offer their shares through Securities Dealers who have an
agreement with Distributors.
Securities laws of states where the Funds offers their shares may differ from
federal law. Banks and financial institutions that sell shares of the Funds may
be required by state law to register as Securities Dealers.
When you buy shares, if you submit a check or a draft that is returned unpaid to
the Funds we may impose a $10 charge against your account for each returned
item.
Distributors and/or its affiliates provide financial support to various
Securities Dealers that sell shares of the Franklin Templeton Group of Funds.
This support is based primarily on the amount of sales of fund shares. The
amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a Securities Dealer's sales and marketing efforts
in the Franklin Templeton Group of Funds; a Securities Dealer's support of, and
participation in, Distributors' marketing programs; a Securities Dealer's
compensation programs for its registered representatives; and the extent of a
Securities Dealer's marketing programs relating to the Franklin Templeton Group
of Funds. Financial support to Securities Dealers may be made by payments from
Distributors' resources, from Distributors' retention of underwriting
concessions and, in the case of funds that have Rule 12b-1 plans, from payments
to Distributors under such plans. In addition, certain Securities Dealers may
receive brokerage commissions generated by fund portfolio transactions in
accordance with the NASD's rules.
REINVESTMENT DATE. Shares acquired through the reinvestment of dividends will be
purchased at the Net Asset Value determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The processing
date for the reinvestment of dividends may vary and does not affect the amount
or value of the shares acquired.
ADDITIONAL INFORMATION ON EXCHANGING SHARES
If you request the exchange of the total value of your account, declared but
unpaid income dividends and capital gain distributions will be exchanged into
the new fund and will be invested at Net Asset Value. Backup withholding and
information reporting may apply. Information regarding the possible tax
consequences of an exchange is included in the tax section in this SAI and in
the Prospectus.
If a substantial number of shareholders should, within a short period, sell
their shares of a Fund under the exchange privilege, that Fund might have to
sell portfolio securities it might otherwise hold and incur the additional costs
related to such transactions. On the other hand, increased use of the exchange
privilege may result in periodic large inflows of money. If this occurs, it is
the Funds' general policy to initially invest this money in short-term,
interest-bearing money market instruments, unless it is believed that attractive
investment opportunities consistent with that Fund's particular investment
objective exist immediately. This money will then be withdrawn from the
short-term money market instruments and invested in portfolio securities in as
orderly a manner as is possible when attractive investment opportunities arise.
The proceeds from the sale of shares of an investment company are generally not
available until the fifth business day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange until
that fifth business day. The sale of Fund shares to complete an exchange will be
effected at Net Asset Value at the close of business on the day the request for
exchange is received in proper form. Please see "May I Exchange Shares for
Shares of Another Fund?" in the Prospectus.
ADDITIONAL INFORMATION ON SELLING SHARES
SYSTEMATIC WITHDRAWAL PLAN. There are no service charges for establishing or
maintaining a systematic withdrawal plan. Once your plan is established, any
distributions paid by the Fund will be automatically reinvested in your account.
Payments under the plan will be made from the redemption of an equivalent amount
of shares in your account, generally on the 25th day of the month in which a
payment is scheduled. If the 25th falls on a weekend or holiday, we will process
the redemption on the prior business day.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you. Because the amount
withdrawn under the plan may be more than your actual yield or income, part of
the payment may be a return of your investment.
The Fund may discontinue a systematic withdrawal plan by notifying you in
writing and will automatically discontinue a systematic withdrawal plan if all
shares in your account are withdrawn or if the Fund receives notification of the
shareholder's death or incapacity.
THROUGH YOUR SECURITIES DEALER. If you sell shares through your Securities
Dealer, it is your dealer's responsibility to transmit the order to the Fund in
a timely fashion. Any loss to you resulting from your dealer's failure to do so
must be settled between you and your Securities Dealer.
REDEMPTIONS IN KIND. The Funds have committed themselves to pay in cash (by
check) all requests for redemption by any shareholder of record, limited in
amount, however, during any 90-day period to the lesser of $250,000 or 1% of the
value of the Funds' net assets at the beginning of the 90-day period. This
commitment is irrevocable without the prior approval of the SEC. In the case of
redemption requests in excess of these amounts, the Board reserves the right to
make payments in whole or in part in securities or other assets of the Funds, in
case of an emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of the Funds. In these circumstances,
the securities distributed would be valued at the price used to compute the
pertinent Fund's net assets and you may incur brokerage fees in converting the
securities to cash. The Funds do not intend to redeem illiquid securities in
kind. If this happens, however, you may not be able to recover your investment
in a timely manner.
GENERAL INFORMATION
If dividend checks are returned to the Fund marked "unable to forward" by the
postal service, we will consider this a request by you to change your dividend
option to reinvest all distributions. The proceeds will be reinvested in
additional shares at Net Asset Value until we receive new instructions.
If mail is returned as undeliverable or we are unable to locate you or verify
your current mailing address, we may deduct the costs of our efforts to find you
from your account. These costs may include a percentage of the account when a
search company charges a percentage fee in exchange for its location services.
All checks, drafts, wires and other payment mediums used to buy or sell shares
of the Funds must be denominated in U.S. dollars. We may, in our sole
discretion, either (a) reject any order to buy or sell shares denominated in any
other currency or (b) honor the transaction or make adjustments to your account
for the transaction as of a date and with a foreign currency exchange factor
determined by the drawee bank.
SPECIAL SERVICES. The Franklin Templeton Institutional Services Department
provides specialized services, including recordkeeping, for institutional
investors. The cost of these services is not borne by the Fund.
Investor Services may pay certain financial institutions that maintain omnibus
accounts with the Funds on behalf of numerous beneficial owners for
recordkeeping operations performed with respect to such owners. For each
beneficial owner in the omnibus account, a Fund may reimburse Investor Services
an amount not to exceed the per account fee that the Fund normally pays Investor
Services. These financial institutions may also charge a fee for their services
directly to their clients.
Certain shareholder servicing agents may be authorized to accept our
transaction request.
HOW ARE FUND SHARES VALUED?
We calculate the Net Asset Value per share as of the scheduled close of the
NYSE, generally 4:00 p.m. Eastern time, each day that the NYSE is open for
trading. As of the date of this SAI, the Company is informed that the NYSE
observes the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
For the purpose of determining the aggregate net assets of each Fund, cash and
receivables are valued at their realizable amounts. Interest is recorded as
accrued and dividends are recorded on the ex-dividend date. Over-the-counter
portfolio securities are valued within the range of the most recent quoted bid
and ask prices. Portfolio securities that are traded both in the
over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market as determined by the Investment
Managers.
Portfolio securities underlying actively traded call options are valued at their
market price as determined above. The current market value of any option held by
a Fund is its last sale price on the relevant exchange before the time when
assets are valued. Lacking any sales that day or if the last sale price is
outside the bid and ask prices, options are valued within the range of the
current closing bid and ask prices if the valuation is believed to fairly
reflect the contract's market value.
The value of a foreign security is determined as of the close of trading on the
foreign exchange on which it is traded or as of the scheduled close of trading
on the NYSE, if that is earlier. The value is then converted into its U.S.
dollar equivalent at the foreign exchange rate in effect at noon, New York time,
on the day the value of the foreign security is determined. If no sale is
reported at that time, the mean between the current bid and ask prices is used.
Occasionally events that affect the values of foreign securities and foreign
exchange rates may occur between the times at which they are determined and the
close of the exchange and will, therefore, not be reflected in the computation
of a Fund's Net Asset Value. If events materially affecting the values of these
foreign securities occur during this period, the securities will be valued in
accordance with procedures established by the Board.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
of the NYSE on each day that the NYSE is open. Trading in European or Far
Eastern securities generally, or in a particular country or countries, may not
take place on every NYSE business day. Furthermore, trading takes place in
various foreign markets on days that are not business days for the NYSE and on
which a Fund's Net Asset Value is not calculated. Thus, the calculation of a
Fund's Net Asset Value does not take place contemporaneously with the
determination of the prices of many of the portfolio securities used in the
calculation and, if events materially affecting the values of these foreign
securities occur, the securities will be valued at fair value as determined by
management and approved in good faith by the Board.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times before
the scheduled close of the NYSE. The value of these securities used in computing
the Net Asset Value of a Fund's shares is determined as of such times.
Occasionally, events affecting the values of these securities may occur between
the times at which they are determined and the scheduled close of the NYSE that
will not be reflected in the computation of a Fund's Net Asset Value. If events
materially affecting the values of these securities occur during this period,
the securities will be valued at their fair value as determined in good faith by
the Board.
Other securities for which market quotations are readily available are valued at
the current market price, which may be obtained from a pricing service, based on
a variety of factors including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific issues. Securities and other assets for which
market prices are not readily available are valued at fair value as determined
following procedures approved by the Board. With the approval of the Board, the
Funds may utilize a pricing service, bank or Securities Dealer to perform any of
the above described functions.
ADDITIONAL INFORMATION ON DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
You may receive two types of distributions from the Fund:
1. INCOME DIVIDENDS. A Fund receives income generally in the form of dividends,
interest and other income derived from its investments. This income, less the
expenses incurred in the Funds' operations, is their net investment income from
which income dividends may be distributed. Thus, the amount of dividends paid
per share may vary with each distribution.
2. CAPITAL GAIN DISTRIBUTIONS. A Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any capital loss carryforward or post October
loss deferral) may generally be made twice each year. One distribution may be
made in December to reflect any net short-term and net long-term capital gains
realized by the Fund as of October 31 of that year. Any net short-term and net
long-term capital gains realized by the Fund during the remainder of the fiscal
year may be distributed following the end of the fiscal year. The Fund may make
one distribution derived from net short-term and net long-term capital gains in
any year or adjust the timing of its distributions for operational or other
reasons.
TAXES
Each Fund intends normally to pay a dividend at least once annually representing
substantially all of its net investment income and to distribute at least
annually any net realized capital gains. By so doing and meeting certain
diversification of assets and other requirements of the Internal Revenue Code of
1986, as amended (the "Code"), each Fund intends to qualify as a regulated
investment company under the Code. The status of a Fund as a regulated
investment company does not involve government supervision of management or of
its investment practices or policies. As a regulated investment company, a Fund
generally will be relieved of liability for United States Federal income tax on
that portion of its net investment income and net realized capital gains which
it distributes to its Shareholders. Amounts not distributed on a timely basis in
accordance with a calendar year distribution requirement also are subject to a
nondeductible 4% excise tax. To prevent application of the excise tax, the Funds
intend to make distributions in accordance with the calendar year distribution
requirement. The Board reserves the right not to maintain the qualification of
the Fund as a regulated investment company if it determines this course of
action to be beneficial to shareholders. In that case, the Fund will be subject
to federal and possibly state corporate taxes on its taxable income and gains,
and distributions to shareholders will be taxable to the extent of the Fund's
available earnings and profits.
Dividends of net investment income and of short-term capital gains (the excess
of net short-term capital gains over net long-term capital losses) are taxable
to Shareholders as ordinary income. It is anticipated that only a small
percentage (if any) of a Fund's distributions will qualify for the corporate
dividends-received deduction. Distributions of net long-term capital gains (the
excess of net long-term capital gains over net short-term capital losses)
designated by a Fund as capital gain dividends are taxable to Shareholders as
long-term capital gains, regardless of the length of time the Fund's Shares have
been held by a Shareholder, and are not eligible for the dividends-received
deduction. Generally, dividends and distributions are taxable to Shareholders,
whether or not reinvested in Shares of a Fund. Any distributions that are not
from a Fund's investment company taxable income or net capital gain may be
characterized as a return of capital to Shareholders or, in some cases, as
capital gain. Shareholders will be notified annually as to the Federal tax
status of dividends and distributions they receive and any tax withheld thereon.
Income received by a Fund from sources within a foreign country may be subject
to withholding taxes and other taxes imposed by that country. Tax conventions
between certain countries and the U.S. may reduce or eliminate such taxes.
If, at the close of any fiscal year, more than 50% of the value of a Fund's
total assets is invested in securities of foreign corporations (as to which no
assurance can be given), the Fund generally may elect pursuant to Section 853 of
the Code to pass through to its Shareholders the foreign income and similar
taxes paid by the Fund in order to enable such Shareholders to take a credit (or
deduction) for foreign income taxes paid by the Fund. In that case, a
Shareholder must include in his gross income on his Federal income tax return
both dividends received by him from the Fund and the amount which the Fund
advises him is his pro rata portion of foreign income taxes paid with respect
to, or withheld from, dividends, interest, or other income of the Fund from its
foreign investments. The Shareholder may then subtract from his Federal income
tax the amount of such taxes withheld, or else treat such foreign taxes as an
itemized deduction from his gross income; however, the above-described tax
credit and deduction are subject to certain limitations. Foreign taxes may not
be deducted in computing alternative taxable income and may at most offset (as a
credit) 90% of the alternative minimum tax. The foregoing is only a general
description of the foreign tax credit. Because application of the credit depends
on the particular circumstances of each Shareholder, Shareholders are advised to
contact their own tax advisers.
The Funds may invest in shares of foreign corporations which may be classified
under the Code as passive foreign investment companies ("PFICs"). In general, a
foreign corporation is classified as a PFIC for a taxable year if at least
one-half of its assets constitute investment-type assets or 75% or more of its
gross income is investment-type income. If a Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to Shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which a Fund held the PFIC shares. A 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 Funds may be eligible to elect alternative tax treatment with respect to
PFIC shares. Under an election that currently is available in some
circumstances, a 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 each 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 Funds could, in limited circumstances, incur
nondeductible interest charges. Each Fund's intention to qualify annually as a
regulated investment company may limit its elections with respect to PFIC
shares. Because the application of the PFIC rules may affect, among other
things, the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC stock, as well as subject a Fund
itself to tax on certain income from PFIC stock, the amount that must be
distributed to Shareholders, and which will be taxed to Shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not invest in PFIC stock.
Under the Code, gains or losses attributable to fluctuations in foreign currency
exchange rates which occur between the time a Fund accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and on disposition of certain financial contracts and options, gains or losses
attributable to fluctuations in the value of foreign currency between the date
of acquisition of the security or contract and the date of disposition also are
treated as ordinary gain or loss. These gains and losses, referred to under the
Code as "section 988" gains and losses, may increase or decrease the amount of a
Fund's net investment income to be distributed to its Shareholders as ordinary
income. For example, fluctuations in exchange rates may increase the amount of
income that a Fund must distribute in order to qualify for treatment as a
regulated investment company and to prevent application of an excise tax on
undistributed income. Alternatively, fluctuations in exchange rates may decrease
or eliminate income available for distribution. If section 988 losses exceed
other net investment income during a taxable year, a 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.
Certain options, futures contracts and forward contracts in which the Funds may
invest are "section 1256 contracts." Gains or losses on section 1256 contracts
generally are considered 60% long-term and 40% short-term capital gains or
losses ("60/40"); however, foreign currency gains or losses (as discussed above)
arising from certain section 1256 contracts may be treated as ordinary income or
loss. Also, section 1256 contracts held by a 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.
The hedging transactions undertaken by the Funds may result in "straddles" for
Federal income tax purposes. The straddle rules may affect the character of
gains (or losses) realized by a Fund. In addition, losses realized by a 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 such losses are realized. Because only a few regulations
implementing the straddle rules have been promulgated, the tax consequences to
the Funds of hedging transactions are not entirely clear. The hedging
transactions may increase the amount of short-term capital gain realized by the
Funds which is taxed as ordinary income when distributed to Shareholders.
Each Fund may make one or more of the elections available under the Code which
are applicable to straddles. If the Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
elections(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 substantially as compared
to a fund that did not engage in such hedging transactions.
Rules governing the tax aspects of swap agreements are in a developing stage and
are not entirely clear in certain respects. Accordingly, while the Emergingl
Fixed Income Markets Series intends to account for such transactions in a manner
deemed by it to be appropriate, the Internal Revenue Service might not
necessarily accept such treatment. If it did not, the status of the Emerging
Fixed Income Markets Series as a regulated investment company might be affected.
The Emerging Fixed Income Markets Series intends to monitor developments in this
area. Certain requirements that must be met under the Code in order for the
Emerging Fixed Income Markets Series to qualify as a regulated investment
company may limit the extent to which it will be able to engage in swap
agreements.
Certain requirements that must be met under the Code in order for each Fund to
qualify as a regulated investment company may limit the extent to which a Fund
will be able to engage in transactions in options, futures, forward contracts
and swap agreements.
Some of the debt securities that may be acquired by the Funds may be subject to
the special rules for obligations issued or acquired at a discount. Generally,
under these rules, the amount of the discount is treated as ordinary income and,
depending upon the circumstances, the discount is included in income (i) over
the term of the debt security, even though payment of the discount is not
received until a later time, usually when the debt security matures, or (ii)
upon the disposition of, and any partial payment of principal on, the debt
security.
A Fund generally will be required to distribute dividends to Shareholders
representing discount on debt securities that is currently includable in income,
even though cash representing such income may not have been received by the
Fund. Cash to pay such dividends may be obtained from sales proceeds of
securities held by the Fund or by borrowing.
Upon the sale or exchange of his Shares, a Shareholder generally will realize a
taxable gain or loss depending upon his basis in the Shares. Such gain or loss
will be treated as capital gain or loss if the Shares are capital assets in the
Shareholder's hands, and will be long-term if the Shareholder's holding period
for the Shares is more than one year and generally otherwise will be short-term.
Any loss realized on a sale or exchange of a Fund's Shares will be disallowed to
the extent that the Shares disposed of are replaced (including replacement
through the reinvesting of dividends and capital gain distributions in the Fund)
within a period of 61 days beginning 30 days before and ending 30 days after the
disposition of the Shares. In such a case, the basis of the Shares acquired will
be adjusted to reflect the disallowed loss. Any loss realized by a Shareholder
on the sale of Fund Shares held by the Shareholder for six months or less will
be treated for Federal income tax purposes as a long-term capital loss to the
extent of any distributions of long-term capital gains (designated by the Fund
as capital gain dividends) received by the Shareholder with respect to such
Shares.
Each Fund generally will be required to withhold Federal income tax at a rate of
31% ("backup withholding") from dividends paid, capital gain distributions, and
redemption proceeds to Shareholders if (1) the Shareholder fails to furnish the
Fund with the Shareholder's correct taxpayer identification number or social
security number and to make such certifications as the Fund may require, (2) the
IRS notifies the Shareholder or the Fund that the Shareholder has failed to
report properly certain interest and dividend income to the IRS and to respond
to notices to that effect, or (3) when required to do so, the Shareholder fails
to certify that he is not subject to backup withholding. Any amounts withheld
may be credited against the Shareholder's Federal income tax liability.
Ordinary dividends and taxable capital gain distributions declared in October,
November or December with a record date in such month and paid during the
following January will be treated as having been paid by a Fund and received by
Shareholders on December 31 of the calendar year in which declared, rather than
the calendar year in which the dividends are actually received.
Distributions from the Funds and dispositions of Fund Shares also may be subject
to state and local taxes. Non-U.S. Shareholders may be subject to U.S. tax rules
that differ significantly from those summarized above. Shareholders are advised
to consult their own tax advisers for details with respect to the particular tax
consequences to them of an investment in the Funds.
THE FUNDS' UNDERWRITER
Pursuant to an underwriting agreement, Distributors acts as principal
underwriter in a continuous public offering for shares of the Funds. The
underwriting agreement with respect to a Fund will continue in effect for
successive annual periods if its continuance is specifically approved at least
annually by a vote of the Board or by a vote of the holders of a majority of
that Fund's outstanding voting securities, and in either event by a majority
vote of the Board members who are not parties to the underwriting agreement or
interested persons of any such party (other than as members of the Board), cast
in person at a meeting called for that purpose. The underwriting agreement
terminates automatically in the event of its assignment and may be terminated by
either party on60 days' written notice.
Distributors pays the expenses of the distribution of the Funds' shares,
including advertising expenses and the costs of printing sales material and
prospectuses used to offer shares to the public. The Funds pay the expenses of
preparing and printing amendments to their registration statements and
prospectuses (other than those necessitated by the activities of Distributors)
and of sending prospectuses to existing shareholders.
HOW DOES THE FUND MEASURE PERFORMANCE?
Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Fund be accompanied by
certain standardized performance information computed as required by the SEC.
Average annual total return and/or current yield quotations used by the Funds
are based on the standardized methods of computing performance mandated by the
SEC. If a Rule 12b-1 plan is adopted, performance figures reflect fees from the
date of the plan's implementation. An explanation of these and other methods
used by the Fund to compute or express performance follows. Regardless of the
method used, past performance does not guarantee future results, and is an
indication of the return to shareholders only for the limited historical period
used.
TOTAL RETURN
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is determined by
finding the average annual rates of return over one-, five- and ten-year
periods, or fractional portion thereof, that would equate an initial
hypothetical $1,000 investment to its ending redeemable value. The calculation
assumes income dividends and capital gain distributions are reinvested at Net
Asset Value. The quotation assumes the account was completely redeemed at the
end of each one-, five- and ten-year period and the deduction of all applicable
charges and fees. If a change is made to the sales charge structure, historical
performance information will be restated to reflect the maximum front-end sales
charge currently in effect.
The average annual total return of Growth Series for the one year period ended
December 31, 1996 and for the period from commencement of operations on May 3,
1993 to December 31, 1996 was ___% and ___%, respectively. The average annual
total return of Foreign Equity Series for the one and five-year periods ended
December 31, 1996 and for the period from commencement of operations on October
18, 1990 to December 31, 1996 was ___%, ___% and ___%, respectively. The average
annual total return of Emerging Markets Series for the one year period ended
December 31, 1996 and for the period from commencement of operations on May 3,
1993 to December 31, 1996 was ___% and ___%, respectively. There is no
historical total return information for Emerging Fixed Income Markets Series as
of the date of this Statement of Additional Information.
These figures were calculated according to the SEC formula:
P(1+T)n = ERV
where:
P =a hypothetical initial payment of $1,000
T =average annual total return
n =number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the one-, five- or -year periods at
the end of the one-, five- or ten-year periods (or fractional
portion thereof)
CUMULATIVE TOTAL RETURN. Like average annual total return, cumulative total
return assumes income dividends and capital gain distributions are reinvested at
Net Asset Value. Cumulative total return, however, will be based on each Fund's
actual return for a specified period rather than on its average annual return
over one-, five- and ten-year periods , or fractional portion hereof. The
cumulative total return of Growth Series for the one year period ended December
31, 1996 and for the period from commencement of operations on May 3, 1993 to
December 31, 1996 was ___% and ___%, respectively. The cumulative total return
of Foreign Equity Series for the one and five-year periods ended December 31,
1996 and for the period from commencement of operations on October 18, 1990 to
December 31, 1996 was ___%, ___% and ___%, respectively. The average annual
total return of Emerging Markets Series for the one year period ended December
31, 1996 and for the period from commencement of operations on May 3, 1993 to
December 31, 1996 was ___% and ___%, respectively.
YIELD
CURRENT YIELD. Current yield shows the income per share earned by the Fund. It
is calculated by dividing the net investment income per share earned during a
30-day base period by the maximum Offering Price per share on the last day of
the period and annualizing the result. Expenses accrued for the period include
any fees charged to all shareholders during the base period.
Current yield figures will be obtained using the following SEC formula:
Yield = 2 [(A-B + 1)6 - 1]
cd
where:
a =dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends d = the maximum Offering Price per share on the
last day of the period
VOLATILITY
Occasionally statistics may be used to show a Fund's volatility or risk.
Measures of volatility or risk are generally used to compare a Fund's Net Asset
Value or performance to a market index. One measure of volatility is beta. Beta
is the volatility of a fund relative to the total market, as represented by an
index considered representative of the types of securities in which the fund
invests. A beta of more than 1.00 indicates volatility greater than the market
and a beta of less than 1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation. Standard deviation is used
to measure variability of Net Asset Value or total return around an average over
a specified period of time. The idea is that greater volatility means greater
risk undertaken in achieving performance.
<PAGE>
OTHER PERFORMANCE QUOTATIONS
Sales literature referring to the use of the Fund as a potential investment for
Individual Retirement Accounts (IRAs), Business Retirement Plans, and other
tax-advantaged retirement plans may quote a total return based upon compounding
of dividends on which it is presumed no federal income tax applies.
The Funds may include in advertising or sales material information relating to
investment objectives and performance results of funds belonging to the Franklin
Templeton Group of Funds. Resources is the parent company of the advisors and
underwriter of both the Franklin Group of Funds and Templeton Group of Funds.
COMPARISONS
To help you better evaluate how an investment in the Funds may satisfy your
investment objective, advertisements and other materials about the Funds may
discuss certain measures of Fund performance as reported by various financial
publications. Materials may also compare performance (as calculated above) to
performance as reported by other investments, indices, and averages. These
comparisons may include, but are not limited to, the following examples: (i)
unmanaged indices so that you may compare the Funds' results with those of a
group of unmanaged securities widely regarded by investors as representative of
the securities market in general; (ii) other groups of mutual funds tracked by
Lipper Analytical Services, Inc., a widely used independent research firm that
ranks mutual funds by overall performance, investment objectives and assets, or
tracked by other services, companies, publications, or persons who rank mutual
funds on overall performance or other criteria; and (iii) the Consumer Price
Index (measure for inflation) to assess the real rate of return from an
investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
From time to time, the Funds and the Investment Managers may also refer to the
following information:
a) Investment Managers and their affiliates' market share of international
equities managed in mutual funds prepared or published by Strategic
Insight or a similar statistical organization.
b) 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.
c) 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.
d) The geographic and industry distribution of each Fund's portfolio and
ten holdings.
e) 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.
f) To assist investors in understanding the different returns and risk
characteristics of various investments, the Funds may show historical
returns of various investments and published indices (E.G., Ibbotson
Associates, Inc. Charts and Morgan Stanley EAFE - Index).
g) The major industries located in various jurisdictions as published by
the Morgan Stanley Index.
h) Rankings by DALBAR Surveys, Inc. with respect to mutual fund
shareholder services.
i) Allegorical stories illustrating the importance of persistent long-
term investing.
j) The Funds' portfolio turnover rates and their rankings relative to
industry standards as published by Lipper Analytical Services, Inc. or
Morningstar, Inc.
k) 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.
l) The number of shareholders in the Funds or the aggregate number of
shareholders of the open-end investment companies in the Franklin
Templeton Group of Funds or the dollar amount of fund and private
account assets under management.
m) Comparison of the characteristics of various emerging markets,
including population, financial and economic conditions.
n) Quotations from the Templeton organization's founder, Sir John
Templeton,* advocating the virtues of diversification and long-term
investing, including the following:
(degree) "Never follow the crowd. Superior performance is
possible only if you invest differently from
the crowd."
(degree) "Diversify by company, by industry and by country."
(degree) "Always maintain a long-term perspective."
(degree) "Invest for maximum total real return."
(degree) "Invest - don't trade or speculate."
(degree) "Remain flexible and open-minded about types of
investment."
(degree) "Buy low."
(degree) "When buying stocks, search for bargains among quality
stocks."
(degree) "Buy value, not market trends or the economic outlook."
(degree) "Diversify. In stocks and bonds, as in much else,
there is safety in numbers."
(degree) "Do your homework or hire wise experts to help you."
(degree) "Aggressively monitor your investments."
(degree) "Don't panic."
(degree) "Learn from your mistakes."
(degree) "Outperforming the market is a difficult task."
(degree) "An investor who has all the answers doesn't even
understand all the questions."
(degree) "There's no free lunch."
(degree) "And now the last principle: Do not be fearful or
negative too often."
From time to time, advertisements or information for the Funds may include a
discussion of certain attributes or benefits to be derived from an investment in
the Funds. The advertisements or information may include symbols, headlines, or
other material that highlights or summarizes the information discussed in more
detail in the communication.
Advertisements or information may also compare a Fund's performances to the
return on CDs or other investments. You should be aware, however, that an
investment in a Fund involves the risk of fluctuation of principal value, a risk
generally not present in an investment in a CD issued by a bank. For example, as
the general level of interest rates rise, the value of a Fund's fixed-income
investments, if any, as well as the value of its shares that are based upon the
value of such portfolio investments, can be expected to decrease. Conversely,
when interest rates decrease, the value of the Funds' shares can be expected to
increase. CDs are frequently insured by an agency of the U.S. government. An
investment in the Fund is not insured by any federal, state or private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Funds' portfolios, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the Funds to calculate their figures. In
addition, there can be no assurance that the Funds will continue their
performance as compared to these other averages.
MISCELLANEOUS INFORMATION
The Company is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 48 years and
now services more than 2.5 million shareholder accounts. In 1992, Franklin, a
leader in managing fixed-income mutual funds and an innovator in creating
domestic equity funds, joined forces with Templeton Worldwide, Inc., a pioneer
in international investing. Mutual Series Fund Inc., known for its value-driven
approach to domestic equity investing, became part of the organization four
years later. Together, the Franklin Templeton Group has over $171 billion in
assets under management for more than 4.8 million U.S. based mutual fund
shareholder and other accounts. The Franklin Templeton Group of Funds offers 121
U.S. based open-end investment companies to the public. The Fund may identify
itself by its NASDAQ symbol or CUSIP number.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one
in service quality for five of the past eight years.
As of _________, 1997, the principal shareholders of the Fund, beneficial or of
record, were as follows:
NAME AND ADDRESS SHARE AMOUNT PERCENTAGE
[] [] []%
From time to time, the number of Fund shares held in the "street name" accounts
of various Securities Dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding. To the
best knowledge of the Fund, no other person holds beneficially or of record more
than 5% of the Fund's outstanding shares.
In the event of disputes involving multiple claims of ownership or authority to
control your account, the Fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all persons deemed by
the Fund to have a potential property interest in the account, before executing
instructions regarding the account; (b) interplead disputed funds or accounts
with a court of competent jurisdiction; or (c) surrender ownership of all or a
portion of the account to the IRS in response to a Notice of Levy.
SUMMARY OF CODE OF ETHICS. Employees of Resources or its subsidiaries who are
access persons under the 1940 Act are permitted to engage in personal securities
transactions subject to the following general restrictions and procedures: (i)
the trade must receive advance clearance from a compliance officer and must be
completed within 24 hours after clearance; (ii) copies of all brokerage
confirmations must be sent to a compliance officer and, within 10 days after the
end of each calendar quarter, a report of all securities transactions must be
provided to the compliance officer; and (iii) access persons involved in
preparing and making investment decisions must, in addition to (i) and (ii)
above, file annual reports of their securities holdings each January and inform
the compliance officer (or other designated personnel) if they own a security
that is being considered for a fund or other client transaction or if they are
recommending a security in which they have an ownership interest for purchase or
sale by a fund or other client.
FINANCIAL STATEMENTS
The audited financial statements contained in the Annual Report to Shareholders
of Growth Series, Foreign Equity Series and Emerging Markets Series, for the
fiscal year ended December 31, 1996, including the auditors' report, are
incorporated herein by reference.
USEFUL TERMS AND DEFINITIONS
1940 ACT - Investment Company Act of 1940, as amended
BOARD - The Board of Directors of the Company
CD - Certificate of deposit
CLASS I AND CLASS II - Certain funds in the Franklin Templeton Funds offer two
classes of shares, designated "Class I" and "Class II." The two classes have
proportionate interests in the same portfolio of investment securities. They
differ, however, primarily in their sales charge structures and Rule 12b-1
plans. Shares of the Fund are considered Class I shares for redemption, exchange
and other purposes.
CODE - Internal Revenue Code of 1986, as amended
COMPANY - Templeton Institutional Funds, Inc., and open-end management
investment company, currently consisting of four separate series: Growth Series,
Foreign Equity Series, Emerging Markets Series and Emerging Fixed Income Markets
Series.
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter
FRANKLIN FUNDS - The mutual funds in the Franklin Group of FundsAE except
Franklin Valuemark Funds and the
Franklin Government Securities Trust
FRANKLIN TEMPLETON FUNDS - The Franklin Funds and the Templeton Funds
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of FundsAE and the Templeton Group of Funds.
FT SERVICES - Franklin Templeton Services, Inc., the Funds' administrator
FUNDS - The four separate series of the Company: Growth Series, Foreign Equity
Series, Emerging Markets Series and Emerging Fixed Income Markets Series.
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Funds'
shareholder servicing and transfer agent
IRS - Internal Revenue Service
LETTER - Letter of Intent
MOODY'S - Moody's Investors Service, Inc.
NASD - National Association of Securities Dealers, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NYSE - New York Stock Exchange
PROSPECTUS - The prospectus for the Fund dated May 1, 1997, as may be amended
from time to time
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Ratings Service, a division of McGraw-Hill Companies
Inc.
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution which, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TEMPLETON ASSET MANAGEMENT LTD.-HONG KONG BRANCH - The Investment Manager of
Emerging Markets Series, is located at Two Exchange Square, Hong Kong.
TEMPLETON FUNDS - The U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund
TICI - Templeton Investment Counsel, Inc., the Investment Manager for the Growth
Series and Foreign Equity Series and, through its Global Bond Managers division,
the Investment Manager for the Emerging Fixed Income Markets Series, is located
at Broward Financial Centre, Fort Lauderdale, FL 33394-3091.
U.S. - United States
WE/OUR/US - Unless a different meaning is indicated by the context, these terms
refer to the Fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.
APPENDIX
DESCRIPTION OF RATINGS
CORPORATE BOND RATINGS
MOODY'S
AAA - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA - Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large, fluctuation of protective elements may be of greater amplitude, or
there may be other elements present which make the long-term risks appear
somewhat larger.
A - Bonds rated A possess many favorable investment attributes and are
considered upper medium grade obligations. Factors giving security to principal
and interest are considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
BAA - Bonds rated Baa are considered medium grade obligations. They are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.
BA - Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of interest
and principal payments is very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
CAA - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
CA - Bonds rated Ca represen obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C - Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
S&P
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C - Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating may also reflect the
filing of a bankruptcy petition under circumstances where debt service payments
are continuing. The C1 rating is reserved for income bonds on which no interest
is being paid.
D - Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
MUNICIPAL BOND RATINGS
MOODY'S
AAA: Municipal bonds rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA: Municipal bonds rated Aa are judged to be high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large, fluctuation of protective elements may be of
greater amplitude, or there may be other elements present which make the
long-term risks appear somewhat larger.
A: Municipal bonds rated A possess many favorable investment attributes and are
considered upper medium-grade obligations. Factors giving security to principal
and interest are considered adequate, but elements may be present which suggest
a susceptibility to impairment sometime in the future.
BAA: Municipal bonds rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
BA: Municipal bonds rated Ba are judged to have predominantly speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and, thereby,
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B: Municipal bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA: Municipal bonds rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA: Municipal bonds rated Ca represent obligations which are speculative to a
high degree. Such issues are often in default or have other marked shortcomings.
C: Municipal bonds rated C are the lowest-rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
CON.(-): Municipal bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon the
completion of construction or the elimination of the basis of the condition.
S&P
AAA: Municipal bonds rated AAA are the highest-grade obligations. They possess
the ultimate degree of protection as to principal and interest. In the market,
they move with interest rates and, hence, provide the maximum safety on all
counts.
AA: Municipal bonds rated AA also qualify as high-grade obligations, and in the
majority of instances differ from AAA issues only in a small degree. Here, too,
prices move with the long-term money market.
A: Municipal bonds rated A are regarded as upper medium-grade. They have
considerable investment strength but are not entirely free from adverse effects
of changes in economic and trade conditions. Interest and principal are regarded
as safe. They predominantly reflect money rates in their market behavior but
also, to some extent, economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
BB, B, CCC, CC: Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C: This rating is reserved for income bonds on which no interest is being paid.
D: Debt rated "D" is in default and payment of interest and/or repayment of
principal is in arrears.
Note: The S&P ratings may be modified by the addition of a plus (+) or minus (-)
sign to show relative standing within the major rating categories.
FITCH
AAA: Municipal bonds rated AAA are considered to be of investment grade and of
the highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal which is unlikely to be affected by reasonably
foreseeable events.
AA: Municipal bonds rated AA are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong although not quite as strong as bonds rated AAA and not
significantly vulnerable to foreseeable future developments.
A: Municipal bonds rated A are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB: Municipal bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB: Municipal bonds rated BB are considered speculative. The obligor's ability
to pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be identified
which could assist the obligor in satisfying its debt service requirements.
B: Municipal bonds rated B are considered highly speculative. While bonds in
this class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC: Municipal bonds rated CCC have certain identifiable characteristics which,
if not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
CC: Municipal bonds rated CC are minimally protected. Default in payment of
interest and/or principal seems probable over time.
C: Municipal bonds rated C are in imminent default in the payment of interest
or principal.
DDD, DD AND D: Municipal bonds rated DDD, DD and D are in default on interest
and/or principal payments. Such bonds are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. DDD represents the highest potential for recovery
while D represents the lowest potential for recovery.
Plus (+) or minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus or minus are not
used for the AAA and the DDD, DD or D categories.
MUNICIPAL NOTE RATINGS
MOODY'S
Moody's ratings for state, municipal and other short-term obligations will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing; factors of the first importance in long-term borrowing
risk are of lesser importance in the short run. Symbols used will be as follows:
MIG 1: Notes are of the best quality enjoying strong protection from established
cash flows of funds for their servicing or from established and broad-based
access to the market for refinancing, or both.
MIG 2: Notes are of high quality, with margins of protection ample, although not
so large as in the preceding group.
MIG 3: Notes are of favorable quality, with all security elements accounted for,
but lacking the undeniable strength of the preceding grades. Market access for
refinancing, in particular, is likely to be less well established.
MIG 4: Notes are of adequate quality, carrying specific risk but having
protection and not distinctly or predominantly speculative.
S&P
Until June 29, 1984, S&P used the same rating symbols for notes and bonds. After
June 29, 1984, for new municipal note issues due in three years or less, the
ratings below will usually be assigned. Notes maturing beyond three years will
most likely receive a bond rating of the type recited above.
SP-1: Issues carrying this designation have a very strong or strong capacity to
pay principal and interest. Issues determined to possess overwhelming safety
characteristics will be given a "plus" (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity to pay
principal and interest.
COMMERCIAL PAPER RATINGS
MOODY'S
Moody's commercial paper ratings [, which are also applicable to municipal paper
investments permitted to be made by the Fund,] are opinions of the ability of
issuers to repay punctually their promissory obligations not having an original
maturity in excess of nine months. Moody's employs the following designations,
all judged to be investment grade, to indicate the relative repayment capacity
of rated issuers:
P-1 (PRIME-1): Superior capacity for repayment.
P-2 (PRIME-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
FITCH
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes. The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+: Exceptionally strong credit quality. Regarded as having the strongest
degree of assurance for timely payment.
F-1: Very strong credit quality. Reflect on assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2: Good credit quality. A satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as for issues assigned F-1+ and F-1
ratings.
F-3: Fair credit quality. Have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
F-5: Weak credit quality. Have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
D: Default. Actual or imminent payment default.
LOC: The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
- --------
* Sir John Templeton sold the Templeton organization to Resources in
October, 1992 and resigned from the Board on April 16, 1995. He is no
longer involved with the investment management process.
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
Incorporated by reference to 1996 Annual Reports to
Shareholders of Growth Series, Foreign Equity Series,
and Emerging Markets Series:
Independent Auditor's Report
Statement of Assets and Liabilities as of
December 31, 1996
Statement of Operations for fiscal period ended
December 31,1996
Statement of Changes in Net Assets
Portfolio of Investments as of December 31, 1996
Notes to Financial Statements
(b) EXHIBITS
(1) (a) Articles of Incorporation*
(b) Articles of Amendment dated January 11, 1993*
(c) Articles Supplementary dated January 11,
1993*
(d) Articles Supplementary dated April 28, 1993*
(e) Articles Supplementary dated July 1, 1993*
(f) Articles Supplementary dated September 30,
1993*
(g) Articles Supplementary dated March 1, 1994**
(h) Articles Supplementary dated January 5,
1995**
(i) Articles Supplementary dated January 17,
1996*
(j) Articles Supplementary dated April 15, 1996*
(2) By-Laws*
(3) Not Applicable
(4) Specimen Security***
(5) (a) Amended and Restated Investment Management
Agreement for Foreign Equity Series*
(b) Amended and Restated Investment Management
Agreement for Growth Series*
(c) Amended and Restated Investment Management
Agreement for Emerging Markets Series*
(d) Form of Investment Management Agreement
for Emerging Fixed Income Markets Series
(6) Form of Amended and Restated Distribution
Agreement
(7) Not Applicable
(8) Form of Amended and Restated Custody Agreement
(9) (a) Form of Amended and Restated Transfer Agent
Agreement
(b) Form of Amended and Restated Fund
Administration Agreement
(10) Opinion and Consent of Counsel--filed with
Rule 24f-2 Notice on February 28, 1996
(11) Opinion and consent of independent public
accountants
(12) Not Applicable
(13) Letter concerning initial capital*
(14) Not Applicable
(15) Not Applicable
(16) Schedule showing computation of performance
quotations provided in response to Item 22**
(27) Financial Data Schedule
- ---------------------
* Filed with Post-Effective Amendment No. 9 to the Registration
Statement on April 28, 1996
** Filed with Post-Effective Amendment No. 8 to the Registration
Statement on May 1, 1995.
*** Filed with Pre-Effective Amendment No. 3 to the Registration Statement
on October 17, 1990.
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 26. NUMBER OF RECORD HOLDERS
<TABLE>
<CAPTION>
TITLE OF CLASS NUMBER OF RECORD HOLDERS
<S> <C>
Growth Series
Class of Common Shares 24 as of January 31, 1997
Foreign Equity Series
Class of Common Shares 909 as of January 31, 1997
Emerging Markets Series
Class of Common Shares 454 as of January 31, 1997
ITEM 27. INDEMNIFICATION.
Reference is made to Articles Eight and Eleven of the
Registrant's Articles of Incorporation.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant by the Registrant
pursuant to the Articles of Incorporation or otherwise, the
Registrant is aware that in the opinion of the Securities and
Exchange Commission, such indemnification is against public
policy as expressed in the Act and, therefore, is
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by directors, officers
or controlling persons of the Registrant in connection with
the successful defense of any act, suit or proceeding) is
asserted by such directors, officers or controlling persons in
connection with the shares being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issues.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER AND ITS OFFICERS
AND DIRECTORS
The business and other connections of Registrant's Investment
Managers are described in art B of this Registration
Statement.
For information relating to the Investment Managers' officers
and directors, reference is made to Forms ADV filed under the
Investment Advisers Act of 1940 by Templeton Investment
Counsel, Inc. and Templeton Asset Management Ltd., which are
incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Franklin Templeton Distributors, Inc. also acts as
principal underwriter of shares of:
Franklin Templeton Japan Fund
Templeton Growth Fund, Inc.
Templeton Funds, Inc.
Templeton Gloal Smaller Companies Fund, Inc.
Templeton Income Trust
Templeton Global Real Estate Fund
Templeton Capital Accumulator Fund, Inc.
Templeton Developing Markets Trust
Templeton American Trust, Inc.
Templeton Global Opportunities Trust
Templeton Variable Products Series Fund
Templeton Global Investment Trust
Franklin Asset Allocation Fund
Franklin California Tax Free Income Fund, Inc.
Franklin California Tax Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Gold Fund
Franklin High Income Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund
Franklin New York Tax-Free Trust
Franklin Pennsylvania Investors Fund
Franklin Premier Return Fund
Franklin Real Estate Securities Fund
Franklin Strategic Mortgage Portfolio
Franklin Strategic Series
Franklin Tax-Advantaged High Yield Securities Fund
Franklin Tax-Advantaged International Bond Fund
Franklin Tax-Advantaged U.S. Government Securities
Fund
Franklin Tax Exempt Money Fund
Franklin Tax Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton Global Trust
Franklin Templeton International Trust
Franklin Templeton Money Fund Trust
Franklin Value Investors Trust
Institutional Fiduciary Trust
(b) The directors and officers of FTD, located at 777
Mariners Island Blvd., San Mateo, CA 94404, are as
follows:
</TABLE>
<TABLE>
<CAPTION>
POSITION WITH POSITION WITH
NAME UNDERWRITER THE REGISTRANT
<S> <C> <C>
Charles B. Johnson Chairman of the Board Trustee, Vice President and
Chairman
Gregory E. Johnson President None
Rupert H. Johnson, Jr. Executive Vice President and Vice President
Director
Harmon E. Burns Executive Vice President and Vice President
Director
Edward V. McVey Senior Vice President None
Kenneth V. Domingues Senior Vice President None
William J. Lippman Senior Vice President None
Deborah R. Gatzek Senior Vice President and Assistant Vice President
Secretary
Richard C. Stoker Senior Vice President None
Charles E. Johnson Senior Vice President Vice President
500 E. Broward Blvd.
Ft. Lauderdale, Fl
Daniel T. O'Lear Senior Vice President None
Peter Jones Senior Vice President None
700 Central Avenue
St. Petersburg, Fl
Bert W. Feuss Vice President None
Loretta Fry Vice President None
James K. Blinn Vice President None
Richard O. Conboy Vice President None
Robert N. Geppner Vice President None
James A. Escobedo Vice President None
Mike Hackett Vice President None
Philip J. Kearns Vice President None
Ken Leder Vice President None
Jack Lemein Vice President None
John R. McGee Vice President None
Harry G. Mumford Vice President None
Vivian J. Palmieri Vice President None
Kent P. Strazza Vice President None
John R. Kay Assistant Vice President Vice President
500 E. Broward Blvd.
Ft. Lauderdale
Francie Arnone Assistant Vice President None
Sarah Stypa Assistant Vice President None
Alison Hawksley Assistant Vice President None
Virginia Marans Assistant Vice President None
Bernadette Marino Howard Assistant Vice President None
Susan Thompson Assistant Vice President None
Laura Komar Assistant Vice President None
Kenneth A. Lewis Treasurer None
Karen DeBellis Assistant Treasurer None
700 Central Avenue
St. Petersburg, Fl
Philip A. Scatena Assistant Treasurer None
Leslie M. Kratter Secretary None
</TABLE>
(c) Not Applicable (Information on unaffiliated underwriters).
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books, and other documents required to be
maintained by Registrant pursuant to Section 31(a) of the
Investment Company Act of 1940 and rules promulgated
thereunder are in the possession of Templeton Global
Investors, Inc., 500 East Broward Blvd., Fort Lauderdale,
Florida 33394.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS.
(a) Not Applicable.
(b) Not Applicable.
(c) Registrant undertakes to furnish to each person to
whom its Prospectus is provided a copy of its latest
Annual Report, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that it has met the
requirement for effectiveness of the Registration Statement pursuant to Rule
485(a) under the Securities Act of 1933 and certifies that has duly caused this
amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of St. Petersburg, Florida
on the 14th day of February, 1997.
TEMPLETON INSTITUTIONAL FUNDS, INC.
By:
Donald F. Reed, President*
*By: /s/JEFFREY L. STEELE
Jeffrey L. Steele,
attorney-in-fact**
Pursuant to the requirements of the Securities Act of 1933,
this amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Charles B. Johnson* Director February 14, 1997
Constantine Dean Tseretopoulos* Director February 14, 1997
Frank J. Crothers* Director February 14, 1997
Harris J. Ashton* Director February 14, 1997
S. Joseph Fortunato* Director February 14, 1997
Fred R. Millsaps* Director February 14, 1997
Gordon S. Macklin* Director February 14, 1997
Andrew H. Hines,Jr.* Director February 14, 1997
John Wm. Galbraith* Director February 14, 1997
Nicholas F. Brady* Director February 14, 1997
Betty P. Krahmer* Director February 14, 1997
Donald F. Reed* President (Chief February 14, 1997
Executive Officer)
James R. Baio* Treasurer (Chief February 14, 1997
Financial and Accounting
Officer)
</TABLE>
*By: /s/JEFFREY L. STEELE
Jeffrey L. Steele
as attorney-in-fact**
** Powers of Attorney are contained in Post-Effective Amendment No. 4 to
the Registration Statement filed on March 25, 1993, Post-Effective
Amendment No. 5 to the Registration Statement filed on November 4,
1993, Post-Effective Amendment No. 7 to the Registration Statement
filed on March 2, 1994, and herewith.
<PAGE>
POWER OF ATTORNEY
The undersigned officers and Directors of TEMPLETON
INSTITUTIONAL FUNDS, INC. (the "Registrant") hereby appoint Allan S. Mostoff,
Jeffrey L. Steele, William J. Kotapish, Deborah R. Gatzek, Barbara J. Green,
Larry L. Greene, and John K. Carter (with full power to each of them to act
alone) his attorney-in-fact and agent, in all capacities, to execute, and to
file any of the documents referred to below relating to Post-Effective
Amendments to the Registrant's registration statement on Form N-1A under the
Investment Company Act of 1940, as amended, and under the Securities Act of 1933
covering the sale of shares by the Registrant under prospectuses becoming
effective after this date, including any amendment or amendments increasing or
decreasing the amount of securities for which registration is being sought, with
all exhibits and any and all documents required to be filed with respect thereto
with any regulatory authority. Each of the undersigned grants to each of said
attorneys, full authority to do every act necessary to be done in order to
effectuate the same as fully, to all intents and purposes as he could do if
personally present, thereby ratifying all that said attorneys-in-fact and
agents, may lawfully do or cause to be done by virtue hereof.
The undersigned officers and Directors hereby execute this
Power of Attorney as of this 12th day of December, 1996.
/s/HARRIS J. ASHTON /s/EDITH E. HOLIDAY
Harris J. Ashton, Director Edith E. Holiday, Director
/s/NICHOLAS F. BRADY /s/CHARLES B. JOHNSON
Nicholas F. Brady, Director Charles B. Johnson, Director
/s/FRANK J. CROTHERS /s/BETTY P. KRAHMER
Frank J. Crothers, Director Betty P. Krahmer, Director
/s/S. JOSEHP FORTUNATO /s/GORDON S.MACKLIN
S. Joseph Fortunato, Director Gordon S. Macklin, Director
/s/JOHN WM. GALBRAITH /s/FRED R.MILLSAPS
John Wm. Galbraith, Director Fred R. Millsaps, Director
/s/ANDREW H.HINES, JR. /s/CONSTANTINE D. TSERETOPOULOS
Andrew H. Hines, Jr., Director Constantine D. Tseretopoulos,
Director
/s/DONALD F. REED /s/JAMES R. BAIO
Donald F. Reed, President James R. Baio, Treasurer
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS FILED WITH
POST-EFFECTIVE AMENDMENT NO. 10 TO
REGISTRATION STATEMENT
ON
FORM N-1A
TEMPLETON INSTITUTIONAL FUNDS, INC.
<PAGE>
EXHIBIT LIST
<TABLE>
<CAPTION>
EXHIBIT NUMBER NAME OF EXHIBIT
<S> <C>
(5)(d) Form of Investment Management Agreement for
Emerging Fixed Income Markets Series
(6) Form of Amended and Restated Distribution
Agreement
(8) Form of Amended and Restated Custody Agreement
(9)(a) Form of Amended and Restated Transfer Agent
Agreement
(b) Form of Amended and Restated Fund Administration
Agreement
(11) Consent of Independent Public Accountants
(27) Financial Data Schedule
</TABLE>
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT dated as of the , 1997 between TEMPLETON
INSTITUTIONAL FUNDS, INC. (hereinafter referred to as the "Company") on behalf
of Emerging Fixed Income Markets Series (hereinafter referred to as the "Fund"),
and TEMPLETON INVESTMENT COUNSEL, INC., through its TEMPLETON GLOBAL BOND
MANAGERS division (hereinafter referred to as the "Investment Manager").
In consideration of the mutual agreements herein made, the
Company and the Investment Manager understand and agree as follows:
(1) The Investment Manager shall manage the investment and
reinvestment of the Fund's assets consistent with the provisions of the Fund's
Agreement and Articles of Incorporation and the investment policies adopted and
declared by the Fund's Board of Directors. In pursuance of the foregoing, the
Investment Manager shall make all determinations with respect to the investment
of the Fund's assets and the purchase and sale of its investment securities, and
shall take all such steps as may be necessary to implement those determinations.
Such determinations and services shall include determining the manner in which
any voting rights, rights to consent to corporate action and any other rights
pertaining to the Fund's investment securities shall be exercised, subject to
the guidelines adopted by the Board of Directors.
(2) The Investment Manager is not required to furnish any
personnel, overhead items or facilities for the Company, including trading desk
facilities or daily pricing of the Fund's portfolio.
(3) The Investment Manager shall be responsible for selecting
members of securities exchanges, brokers and dealers (such members, brokers and
dealers being hereinafter referred to as "brokers") for the execution of the
Fund's portfolio transactions consistent with the Fund's brokerage policies and,
when applicable, the negotiation of commissions in connection therewith.
All decisions and placements shall be made in accordance with
the following principles:
A. Purchase and sale orders will usually be placed with
brokers which are selected by the Investment Manager
as able to achieve "best execution" of such orders.
"Best execution" shall mean prompt and reliable
execution at the most favorable security price,
taking into account the other provisions herein-
after 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.
B. In selecting brokers for portfolio transactions, the
Investment Manager shall take into account its past
experience as to brokers qualified to achieve "best
execution," including brokers who specialize in any
foreign securities held by the Fund.
C. The Investment Manager is authorized to allocate
brokerage business to brokers who have provided
brokerage and research services, as such services
are defined in Section 28(e) of the Securities
Exchange Act of 1934 (the "1934 Act"), for the
Fund and/or other accounts, if any, for which the
Investment Manager exercises investment discretion
(as defined in Section 3(a)(35) of the 1934 Act)
and, as to transactions for 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 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 will not be
required to place or attempt to place a specific
dollar value on the research or execution services
of a broker or on the portion of any commission
reflecting either of said services. In demonstrating
that such 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. Whether commissions were
within a reasonable range shall be based on any
available information as to the level of commission
known to be charged by other brokers on comparable
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 that are provided
for the Investment Manager are useful to the
Investment Manager in performing its advisory
services under this Agreement. 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 this Agreement. Research furnished by
brokers through which the Fund effects securities
transactions may be used by the Investment Manager
for any of its accounts, and not all research may be
used by the Investment Manager for the Fund. When
execution of portfolio transactions is allocated to
brokers trading on exchanges with fixed brokerage
commission rates, account may be taken of various
services provided by the broker.
D. Purchases and sales of portfolio securities within
the United States other than on a securities exchange
shall be executed with primary market makers acting
as principal, except where, in the judgment of the
Investment Manager, better prices and execution may
be obtained on a commission basis or from other
sources.
E. Sales of the Fund's shares (which shall be deemed to
include also shares of other registered investment
companies which have either the same adviser or an
investment adviser affiliated with the Investment
Manager) by a broker are one factor among others to
be taken into account in deciding to allocate
portfolio transactions (including agency
transactions, principal transactions, purchases in
underwritings or tenders in response to tender
offers) for the account of the Fund to that broker;
provided that the broker shall furnish "best
execution," as defined in subparagraph A above, and
that such allocation shall be within the scope of
the Fund's policies as stated above; provided
further, that in every allocation made to a broker
in which the sale of Fund shares is taken into
account, there shall be no increase in the amount of
the commissions or other compensation paid to such
broker beyond a reasonable commission or other
compensation determined, as set forth in
subparagraph C above, on the basis of best execution
alone or best execution plus research services,
without taking account of or placing any value upon
such sale of the Fund's shares.
(4) The Company agrees to pay to the Investment Manager a
monthly fee in dollars at an annual rate of % of the Fund's average daily net
assets, payable at the end of each calendar month. The Investment Manager may
waive all or a portion of its fees provided for hereunder and such waiver shall
be treated as a reduction in purchase price of its services. The Investment
Manager shall be contractually bound hereunder by the terms of any publicly
announced waiver of its fee, or any limitation of the Fund's expenses, as if
such waiver or limitation were fully set forth herein.
Notwithstanding the foregoing, if the total expenses of the
Fund (including the fee to the Investment Manager) in any fiscal year of the
Fund exceed any expense limitation imposed by applicable State law, the
Investment Manager shall reimburse the Fund for such excess in the manner and to
the extent required by applicable State law. The term "total expenses," as used
in this paragraph, does not include interest, taxes, litigation expenses,
distribution expenses, brokerage commissions or other costs of acquiring or
disposing of any of the Fund's portfolio securities or any costs or expenses
incurred or arising other than in the ordinary and necessary course of the
Fund's business. When the accrued amount of such expenses exceeds this limit,
the monthly payment of the Investment Manager's fee will be reduced by the
amount of such excess, subject to adjustment month by month during the balance
of the Fund's fiscal year if accrued expenses thereafter fall below the limit.
(5) This Agreement shall continue in effect until , 199 and
shall continue in effect until , 199 . If not sooner terminated, this Agreement
shall continue in effect for successive periods of 12 months each thereafter,
provided that each such continuance shall be specifically approved annually by
the vote of a majority of the Company's Board of Directors who are not parties
to this Agreement or "interested persons" (as defined in Investment Company Act
of 1940 (the "1940 Act")) of any such party, cast in person at a meeting called
for the purpose of voting on such approval and either the vote of (a) a majority
of the outstanding voting securities of the Fund, as defined in the 1940 Act, or
(b) a majority of the Company's Board of Directors as a whole.
(6) Notwithstanding the foregoing, this Agreement may be
terminated by either party at any time, without the payment of any penalty, on
sixty (60) days' written notice to the other party, provided that termination by
the Company is approved by vote of a majority of the Company's Board of
Directors in office at the time or by vote of a majority of the outstanding
voting securities of the Fund (as defined by the 1940 Act).
(7) This Agreement will terminate automatically and
immediately in the event of its assignment (as defined in the 1940 Act).
(8) In the event this Agreement is terminated and the
Investment Manager no longer acts as Investment Manager to the Fund, the
Investment Manager reserves the right to withdraw from the Fund the use of the
name "Templeton" or any name misleadingly implying a continuing relationship
between the Fund and the Investment Manager or any of its affiliates.
(9) Except as may otherwise be provided by the 1940 Act,
neither the Investment Manager nor its officers, directors, employees or agents
shall be subject to any liability for any error of judgment, mistake of law, or
any loss arising out of any investment or other act or omission in the
performance by the Investment Manager of its duties under the Agreement or for
any loss or damage resulting from the imposition by any government of exchange
control restrictions which might affect the liquidity of the Fund's assets, or
from acts or omissions of custodians, or securities depositories, or from any
war or political act of any foreign government to which such assets might be
exposed, or for failure, on the part of the custodian or otherwise, timely to
collect payments, except for any liability, loss or damage resulting from
willful misfeasance, bad faith or gross negligence on the Investment Manager's
part or by reason of reckless disregard of the Investment Manager's duties under
this Agreement.
(10) It is understood that the services of the Investment Manager
are not deemed to be exclusive, and nothing in this Agreement shall prevent the
Investment Manager, or any affiliate thereof, from providing similar services to
other investment companies and other clients, including clients which may invest
in the same types of securities as the Fund, or, in providing such services,
from using information furnished by others. When the Investment Manager
determines to buy or sell the same security for the Fund that the Investment
Manager or one or more of its affiliates has selected for clients of the
Investment Manager or its affiliates, the orders for all such security
transactions shall be placed for execution by methods determined by the
Investment Manager, with approval by the Company's Board of Directors, to be
impartial and fair.
(11) This Agreement shall be construed in accordance with the laws
of the State of Maryland, provided that nothing herein shall be construed as
being inconsistent with applicable Federal and state securities laws and any
rules, regulations and orders thereunder.
(12) If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby and, to this extent, the provisions of
this Agreement shall be deemed to be severable.
(13) Nothing herein shall be construed as constituting the
Investment Manager an agent of the Company or of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their duly authorized officers and their
respective corporate seals to be hereunto duly affixed and attested.
TEMPLETON INSTITUTIONAL FUNDS, INC.
By:________________________________
TEMPLETON INVESTMENT COUNSEL, INC.
By:_________________________________
TEMPLETON INSTITUTIONAL FUNDS, INC.
700 Central Avenue
St. Petersburg, Florida 33701-3628
Franklin Templeton Distributors, Inc.
700 Central Avenue
St. Petersburg, Florida 33701-3628
Re: Amended and Restated Distribution Agreement
Gentlemen:
We, TEMPLETON INSTITUTIONAL FUNDS, INC. (the "Company"), comprised of five
series (Foreign Equity Series, Growth Series, Emerging Markets Series, and
Emerging Fixed Income Markets Series) (referred to herein as a "Fund" or
collectively as the "Funds") are a Maryland corporation operating as an open-end
management investment company or "mutual fund", which is registered under the
Investment Company Act of 1940 (the "1940 Act") and whose shares are registered
under the Securities Act of 1933 (the "1933 Act"). We desire to issue one or
more series or classes of our authorized but unissued shares of capital stock or
beneficial interest (the "Shares") to authorized persons in accordance with
applicable Federal and State securities laws. The Funds' Shares may be made
available in one or more separate series, each of which may have one or more
classes.
You have informed us that your company is registered as a broker-dealer under
the provisions of the Securities Exchange Act of 1934 and that your company is a
member of the National Association of Securities Dealers, Inc. You have
indicated your desire to act as the exclusive selling agent and distributor for
the Shares. We have been authorized to execute and deliver this Distribution
Agreement ("Agreement") to you by a resolution of our Board of Directors
("Board") passed at a meeting at which a majority of Board members, including a
majority who are not otherwise interested persons of the Company and who are not
interested persons of our investment adviser, its related organizations or with
you or your related organizations, were present and voted in favor of the said
resolution approving this Agreement.
1. APPOINTMENT OF UNDERWRITER. Upon the execution of this Agreement and
in consideration of the agreements on your part herein expressed and upon the
terms and conditions set forth herein, we hereby appoint you as the exclusive
sales agent for our Shares and agree that we will deliver such Shares as you may
sell. You agree to use your best efforts to promote the sale of Shares, but are
not obligated to sell any specific number of Shares.
However, the Fund and each series retain the right to make direct sales
of its Shares without sales charges consistent with the terms of the then
current prospectus and applicable law, and to engage in other legally authorized
transactions in its Shares which do not involve the sale of Shares to the
general public. Such other transactions may include, without limitation,
transactions between the Fund or any series or class and its shareholders only,
transactions involving the reorganization of the Fund or any series, and
transactions involving the merger or combination of the Fund or any series with
another corporation or trust.
2. INDEPENDENT CONTRACTOR. You will undertake and discharge your
obligations hereunder as an independent contractor and shall have no authority
or power to obligate or bind us by your actions, conduct or contracts except
that you are authorized to promote the sale of Shares. You may appoint
sub-agents or distribute through dealers or otherwise as you may determine from
time to time, but this Agreement shall not be construed as authorizing any
dealer or other person to accept orders for sale or repurchase on our behalf or
otherwise act as our agent for any purpose.
3. OFFERING PRICE. Shares shall be offered for sale at a price
equivalent to the net asset value per share of that series and class plus any
applicable percentage of the public offering price as sales commission or as
otherwise set forth in our then current prospectus. On each business day on
which the New York Stock Exchange is open for business, we will furnish you with
the net asset value of the Shares of each available series and class which shall
be determined in accordance with our then effective prospectus. All Shares will
be sold in the manner set forth in our then effective prospectus and statement
of additional information, and in compliance with applicable law.
4. COMPENSATION.
A. SALES COMMISSION. You shall be entitled to charge a sales
commission on the sale or redemption, as appropriate, of each series and class
of each Fund's Shares in the amount of any initial, deferred or contingent
deferred sales charge as set forth in our then effective prospectus. You may
allow any sub-agents or dealers such commissions or discounts from and not
exceeding the total sales commission as you shall deem advisable, so long as any
such commissions or discounts are set forth in our current prospectus to the
extent required by the applicable Federal and State securities laws. You may
also make payments to sub-agents or dealers from your own resources, subject to
the following conditions: (a) any such payments shall not create any obligation
for or recourse against the Fund or any series or class, and (b) the terms and
conditions of any such payments are consistent with our prospectus and
applicable federal and state securities laws and are disclosed in our prospectus
or statement of additional information to the extent such laws may require.
B. DISTRIBUTION PLANS. You shall also be entitled to
compensation for your services as provided in any Distribution Plan adopted as
to any series and class of any Fund's Shares pursuant to Rule 12b-1 under the
1940 Act.
5. TERMS AND CONDITIONS OF SALES. Shares shall be offered for sale only
in those jurisdictions where they have been properly registered or are exempt
from registration, and only to those groups of people which the Board may from
time to time determine to be eligible to purchase such shares.
6. ORDERS AND PAYMENT FOR SHARES. Orders for Shares shall be directed
to the Funds' shareholder services agent, for acceptance on behalf of the Funds.
At or prior to the time of delivery of any of our Shares you will pay or cause
to be paid to the custodian of the Funds' assets, for our account, an amount in
cash equal to the net asset value of such Shares. Sales of Shares shall be
deemed to be made when and where accepted by the Funds' shareholder services
agent. The Funds' custodian and shareholder services agent shall be identified
in its prospectus.
7. PURCHASES FOR YOUR OWN ACCOUNT. You shall not purchase our Shares
for your own account for purposes of resale to the public, but you may purchase
Shares for your own investment account upon your written assurance that the
purchase is for investment purposes and that the Shares will not be resold
except through redemption by us.
8. SALE OF SHARES TO AFFILIATES. You may sell our Shares at net asset
value to certain of your and our affiliated persons pursuant to the applicable
provisions of the federal securities statutes and rules or regulations
thereunder (the "Rules and Regulations"), including Rule 22d-1 under the 1940
Act, as amended from time to time.
9. ALLOCATION OF EXPENSES. We will pay the expenses:
(a) Of the preparation of the audited and certified
financial statements of our company to be included in
any Post-Effective Amendments ("Amendments") to our
Registration Statement under the 1933 Act or 1940
Act, including the prospectus and statement of
additional information included therein;
(b) Of the preparation, including legal fees, and
printing of all Amendments or supplements filed with
the Securities and Exchange Commission, including the
copies of the prospectuses included in the Amendments
and the first 10 copies of the definitive
prospectuses or supplements thereto, other than those
necessitated by your (including your "Parent's")
activities or Rules and Regulations related to your
activities where such Amendments or supplements
result in expenses which we would not otherwise have
incurred;
(c) Of the preparation, printing and distribution of any
reports or communications which we send to our
existing shareholders; and
(d) Of filing and other fees to Federal and State
securities regulatory authorities necessary to
continue offering our Shares.
You will pay the expenses:
(a) Of printing the copies of the prospectuses and any
supplements thereto and statements of additional
information which are necessary to continue to offer
our Shares;
(b) Of the preparation, excluding legal fees, and
printing of all Amendments and supplements to our
prospectuses and statements of additional information
if the Amendment or supplement arises from your
(including your "Parent's") activities or Rules and
Regulations related to your activities and those
expenses would not otherwise have been incurred by
us;
(c) Of printing additional copies, for use by you as
sales literature, of reports or other communications
which we have prepared for distribution to our
existing shareholders; and
(d) Incurred by you in advertising, promoting and
selling our Shares.
10. FURNISHING OF INFORMATION. We will furnish to you such information
with respect to each series and class of Shares, in such form and signed by such
of our officers as you may reasonably request, and we warrant that the
statements therein contained, when so signed, will be true and correct. We will
also furnish you with such information and will take such action as you may
reasonably request in order to qualify our Shares for sale to the public under
the Blue Sky Laws of jurisdictions in which you may wish to offer them. We will
furnish you with annual audited financial statements of our books and accounts
certified by independent public accountants, with semi-annual financial
statements prepared by us, with registration statements and, from time to time,
with such additional information regarding our financial condition as you may
reasonably request.
11. CONDUCT OF BUSINESS. Other than our currently effective prospectus,
you will not issue any sales material or statements except literature or
advertising which conforms to the requirements of Federal and State securities
laws and regulations and which have been filed, where necessary, with the
appropriate regulatory authorities. You will furnish us with copies of all such
materials prior to their use and no such material shall be published if we shall
reasonably and promptly object.
You shall comply with the applicable Federal and State laws
and regulations where our Shares are offered for sale and conduct your affairs
with us and with dealers, brokers or investors in accordance with the Rules of
Fair Practice of the National Association of Securities Dealers, Inc.
12. REDEMPTION OR REPURCHASE WITHIN SEVEN DAYS. If Shares are tendered
to us for redemption or repurchase by us within seven business days after your
acceptance of the original purchase order for such Shares, you will immediately
refund to us the full sales commission (net of allowances to dealers or brokers)
allowed to you on the original sale, and will promptly, upon receipt thereof,
pay to us any refunds from dealers or brokers of the balance of sales
commissions reallowed by you. We shall notify you of such tender for redemption
within 10 days of the day on which notice of such tender for redemption is
received by us.
13. OTHER ACTIVITIES. Your services pursuant to this Agreement
shall not be deemed to be exclusive, and you may render similar services and
act as an underwriter, distributor or dealer for other investment companies in
the offering of their shares.
14. TERM OF AGREEMENT. This Agreement shall become effective on the
date of its execution, and shall remain in effect for a period of two (2) years.
The Agreement is renewable annually thereafter, with respect to the Fund or, if
the Fund has more than one series, with respect to each series, for successive
periods not to exceed one year (i) by a vote of (a) a majority of the
outstanding voting securities of the Fund or, if the Fund has more than one
series, of each series, or (b) by a vote of the Board, AND (ii) by a vote of a
majority of the members of the Board who are not parties to the Agreement or
interested persons of any parties to the Agreement (other than as members of the
Board), cast in person at a meeting called for the purpose of voting on the
Agreement.
This Agreement may at any time be terminated by the Fund or by
any series without the payment of any penalty, (i) either by vote of the Board
or by vote of a majority of the outstanding voting securities of the Fund or any
series on 90 days' written notice to you; or (ii) by you on 90 days' written
notice to the Fund; and shall immediately terminate with respect to the Fund and
each series in the event of its assignment.
15. SUSPENSION OF SALES. We reserve the right at all times to
suspend or limit the public offering of Shares upon two days' written notice to
you.
16. MISCELLANEOUS. This Agreement shall be subject to the laws of the
State of California and shall be interpreted and construed to further promote
the operation of the Fund as an open-end investment company. This Agreement
shall supersede all Distribution Agreements and Amendments previously in effect
between the parties. As used herein, the terms "Net Asset Value," "Offering
Price," "Investment Company," "Open-End Investment Company," "Assignment,"
"Principal Underwriter," "Interested Person," "Parent," "Affiliated Person," and
"Majority of the Outstanding Voting Securities" shall have the meanings set
forth in the 1933 Act or the 1940 Act and the Rules and Regulations thereunder.
Nothing herein shall be deemed to protect you against any liability to us or to
our securities holders to which you would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of your
duties hereunder, or by reason of your reckless disregard of your obligations
and duties hereunder.
If the foregoing meets with your approval, please acknowledge your acceptance by
signing each of the enclosed copies, whereupon this will become a binding
agreement as of the date set forth below.
Very truly yours,
Templeton Institutional Funds, Inc.
By:_______________________________
Accepted:
Franklin Templeton Distributors, Inc.
By:__________________________________
DATED:
CUSTODY AGREEMENT
AGREEMENT dated as of May 3, 1993, as amended and restated
December 31, 1996 and , 1997, between THE CHASE MANHATTAN BANK ("Chase"), having
its principal place of business at 1 Chase Manhattan Plaza, New York, New York
10081, and TEMPLETON INSTITUTIONAL FUNDS, INC. (the "Company"), an investment
company registered under the Investment Company Act of 1940 ("Act of 1940"),
having its principal place of business at 700 Central Avenue, St. Petersburg,
Florida 33701, on behalf of Growth Series, Foreign Equity Series, Emerging
Markets Series, and Emerging Fixed Income Markets Series, (the "Funds"), series
of shares issued by the Company.
WHEREAS, the Company wishes to appoint Chase as custodian to
the securities and assets of the Funds and Chase is willing to act as custodian
under the terms and conditions hereinafter set forth;
NOW, THEREFORE, the Company and its successors and assigns and
Chase and its successors and assigns, hereby agree as follows:
1. APPOINTMENT AS CUSTODIAN. Chase agrees to act as custodian
for the Funds, as provided herein, in connection with (a) cash ("Cash") received
from time to time from, or for the account of, a Fund for credit to the Fund's
deposit account or accounts administered by Chase, Chase Branches and Domestic
Securities Depositories (as hereinafter defined), and/or Foreign Banks and
Foreign Securities Depositories (as hereinafter defined) ("Deposit Account");
(b) all stocks, shares, bonds, debentures, notes, mortgages, or other
obligations for the payment of money and any certificates, receipts, warrants,
or other instruments representing rights to receive, purchase, or subscribe for
the same or evidencing or representing any other rights or interests therein and
other similar property ("Securities") from time to time received by Chase and/or
any Chase Branch, Domestic Securities Depository, Foreign Bank or Foreign
Securities Depository for the account of a Fund ("Custody Account"); and (c)
original margin and variation margin payments in a segregated account for
futures contracts ("Segregated Account").
<PAGE>
All Cash held in a Deposit Account or in a Segregated Account
in connection with which Chase agrees to act as custodian is hereby denominated
as a special deposit which shall be held in trust for the benefit of the
relevant Fund and to which Chase, Chase Branches and Domestic Securities
Depositories and/or Foreign Banks and Foreign Securities Depositories shall have
no ownership rights, and Chase will so indicate on its books and records
pertaining to the Deposit Account and the Segregated Account. All cash held in
auxiliary accounts that may be carried for a Fund with Chase (including a Money
Market Account, Redemption Account, Distribution Account and Imprest Account) is
not so denominated as a special deposit and title thereto is held by Chase
subject to the claims of creditors.
2. AUTHORIZATION TO USE BOOK-ENTRY SYSTEM, DOMESTIC
SECURITIES DEPOSITORIES, BRANCH OFFICES, FOREIGN BANKS AND FOREIGN SECURITIES
DEPOSITORIES. Chase is hereby authorized to appoint and utilize, subject to
the provisions of Sections 4 and 5 hereof:
A. The Book Entry System and The Depository
Trust Fund; and also such other Domestic Securities
Depositories selected by Chase and as to which Chase has
received a certified copy of a resolution of the Company's
Board of Directors authorizing deposits therein;
B. Chase's foreign branch offices in the
United Kingdom, Hong Kong, Singapore, and Tokyo, and such
other foreign branch offices of Chase located in countries
approved by the Board of Directors of the Company as to which
Chase shall have given prior notice to the Company;
C. Foreign Banks which Chase shall have
selected, which are located in countries approved by the
Board of Directors of the Company, and as to which banks
Chase shall have given prior notice to the Company; and
D. Foreign Securities Depositories which
Chase shall have selected and as to which Chase has received
a certified copy of a resolution of the Company's Board of
Directors authorizing deposits therein; to hold Securities
and Cash at any time owned by the Funds, it being understood
that no such appointment or utilization shall in any way
relieve Chase of its responsibilities as provided for in this
Agreement. Foreign branch offices of Chase appointed and
utilized by Chase are herein referred to as "Chase Branches."
Unless otherwise agreed to in writing, (a) each Chase Branch,
each Foreign Bank and each Foreign Securities Depository shall
be selected by Chase to hold only Securities as to which the
principal trading market or principal location as to which such
Securities are to be presented for payment is located outside
the United States; and (b) Chase and each Chase Branch,
Foreign Bank and Foreign Securities Depository will promptly
transfer or cause to be transferred to Chase, to be held in
the United States, Securities and/or Cash that are then
being held outside the United States upon request of the
Company and/or of the Securities and Exchange Commission
Utilization by Chase of Chase Branches, Domestic Securities
Depositories, Foreign Banks and Foreign Securities
Depositories shall be in accordance with provisions as from
time to time amended, of an operating agreement to be
entered into between Chase and the Company (the "Operating
Agreement").
3. DEFINITIONS. As used in this Agreement, the following
terms shall have the following meanings:
(a) "Authorized Persons of the Company" shall mean
such officers or employees of the Company or any other person
or persons as shall have been designated by a resolution of
the Board of Directors of the Company, a certified copy of
which has been filed with Chase, to act as Authorized Persons
hereunder. Such persons shall continue to be Authorized
Persons of the Company, authorized to act either singly or
together with one or more other of such persons as provided in
such resolution, until such time as the Company shall have
filed with Chase a written notice of the Company
supplementing, amending, or revoking the authority of such
persons.
(b) "Book-Entry system" shall mean the Federal
Reserve/Treasury book-entry system for United States and
federal agency securities, its successor or successors and its
nominee or nominees.
(c) "Domestic Securities Depository" shall mean The
Depository Trust Fund, a clearing agency registered with the
Securities and Exchange Commission, its successor or
successors and its nominee or nominees; and (subject to the
receipt by Chase of a certified copy of a resolution of the
Company's Board of Directors specifically approving deposits
therein as provided in Section 2(a) of this Agreement) any
other person authorized to act as a depository under the Act
of 1940, its successor or successors and its nominee or
nominees.
(d) "Foreign Bank" shall mean any banking institution
organized under the laws of a jurisdiction other than the
United States or of any state thereof.
(e) A "Foreign Securities Depository" shall mean any
system for the central handling of securities abroad where all
securities of any particular class or series of any issuer
deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping without physical
delivery of the securities by any Chase Branch or Foreign
Bank.
(f) "Written Instructions" shall mean instructions in
writing signed by Authorized Persons of the Company giving
such instructions, and/or such other forms of communications
as from time to time shall be agreed upon in writing between
the Company and Chase.
4. SELECTION OF COUNTRIES IN WHICH SECURITIES MAY BE HELD.
Chase shall not cause Securities and Cash to be held in any country outside
the United States until the Company has directed the holding of the Funds'
assets in such country. Chase will be provided with a copy of a resolution of
the Company's Board of Directors authorizing such custody in any country
outside of the United States, which resolution shall be based upon, among other
factors, the following:
(a) comparative operational efficiencies of custody;
(b) clearance and settlement and the costs thereof; and
(c) political and other risks, other than those risks
specifically assumed by Chase.
5. RESPONSIBILITY OF CHASE TO SELECT CUSTODIANS IN INDIVIDUAL
FOREIGN COUNTRIES. The responsibility for selecting the Chase Branch, Foreign
Bank or Foreign Securities Depository to hold the Funds' Securities and Cash in
individual countries authorized by the Company shall be that of Chase. Chase
generally shall utilize Chase Branches where available. In locations where there
are no Chase Branches providing custodial services, Chase shall select as its
agent a Foreign Bank, which may be an affiliate or subsidiary of Chase. To
facilitate the clearance and settlement of securities transactions, Chase
represents that, subject to the approval of the Company, it may deposit
Securities in a Foreign Securities Depository in which Chase is a participant.
In situations in which Chase is not a participant in a Foreign Securities
Depository, Chase may, subject to the approval of the Company, authorize a
Foreign Bank acting as its subcustodian to deposit the Securities in a Foreign
Securities Depository in which the Foreign Bank is a participant.
Notwithstanding the foregoing, such selection by Chase of a Foreign Bank or
Foreign Securities Depository shall not become effective until Chase has been
advised by the Company that a majority of its Board of Directors:
(a) Has approved Chase's selection of the particular
Foreign Bank or Foreign Securities Depository, as the case may
be, as consistent with the best interests of the Funds and
their Shareholders; and
(b) Has approved as consistent with the best
interests of the Funds and their Shareholders a written
contract prepared by Chase which will govern the manner in
which such Foreign Bank will maintain the Funds' assets.
6. CONDITIONS ON SELECTION OF FOREIGN BANK OR FOREIGN
SECURITIES DEPOSITORY. Chase shall authorize the holding of Securities and
Cash by a Chase Branch, Foreign Bank or Foreign Securities Depository only:
(a) to the extent that the Securities and Cash are
not subject to any right, charge, security interest, lien or
claim of any kind in favor of any such Foreign Bank or Foreign
Securities Depository, except for their safe custody or
administration; and
(b) to the extent that the beneficial ownership of
Securities is freely transferable without the payment of
money or value other than for safe custody or administration.
7. CHASE BRANCHES AND FOREIGN BANKS NOT AGENTS OF THE COMPANY
OR FUNDS. Chase Branches, Foreign Banks and Foreign Securities Depositories
shall be subject to the instructions of Chase and/or the Foreign Bank, and not
to those of the Company or the Funds. Chase warrants and represents that all
such instructions shall afford protection to the Funds at least equal to that
afforded for Securities held directly by Chase. Any Chase Branch, Foreign
Bank or Foreign Securities Depository shall act solely as agent of Chase or of
such Foreign Bank.
8. CUSTODY ACCOUNT. Securities held in a Custody Account shall
be physically segregated at all times from those of any other person or persons
except that (a) with respect to Securities held by Chase Branches, such
Securities may be placed in an omnibus account for the customers of Chase, and
Chase shall maintain separate book entry records for each such omnibus account,
and such Securities shall be deemed for the purpose of this Agreement to be held
by Chase in the Custody Account; (b) with respect to Securities deposited by
Chase with a Foreign Bank, a Domestic Securities Depository or a Foreign
Securities Depository, Chase shall identify on its books as belonging to the
relevant Fund the Securities shown on Chase's account on the books of the
Foreign Bank, Domestic Securities Depository or Foreign Securities Depository;
and (c) with respect to Securities deposited by a Foreign Bank with a Foreign
Securities Depository, Chase shall cause the Foreign Bank to identify on its
books as belonging to Chase, as agent, the Securities shown on the Foreign
Bank's account on the books of the Foreign Securities Depository. All Securities
of the Funds maintained by Chase pursuant to this Agreement shall be subject
only to the instructions of Chase, Chase Branches or their agents. Chase shall
only deposit Securities with a Foreign Bank in accounts that include only assets
held by Chase for its customers.
8a. SEGREGATED ACCOUNT FOR FUTURES CONTRACTS. With respect to
every futures contract purchased, sold or cleared for a Custody Account, Chase
agrees, pursuant to Written Instructions, to:
(a) deposit original margin and variation margin
payments in a segregated account maintained by Chase; and
(b) perform all other obligations attendant to
transactions or positions in such futures contracts, as such
payments or performance may be required by law or the
executing broker.
8b. SEGREGATED ACCOUNT FOR REPURCHASE AGREEMENTS.
With respect to purchases for a Custody Account from banks (including Chase) or
broker-dealers, of United States or foreign government obligations subject to
repurchase agreements, Chase agrees, pursuant to Written Instructions, to:
(a) deposit such securities and repurchase
agreements in a segregated account maintained by Chase; and
(b) promptly show on Chase's records that such
securities and repurchase agreements are being held on behalf
of the relevant Fund and deliver to the Company a written
confirmation to that effect.
8c. SEGREGATED ACCOUNTS FOR DEPOSITS OF COLLATERAL. Chase
agrees, with respect to (i) cash or high quality debt securities to secure a
Fund's commitments to purchase new issues of debt obligations offered on a
when-issued basis; (ii) cash, U.S. government securities, or irrevocable
letters of credit of borrowers of a Fund's portfolio securities to secure the
loan to them of such securities; and/or (iii) cash, securities or any other
property delivered to secure any other obligations; (all of such items being
hereinafter referred to as "collateral"), pursuant to Written Instructions, to:
(a) deposit the collateral for each such
obligation in a separate segregated account maintained by
Chase; and
(b) promptly to show on Chase's records that
such collateral is being held on behalf of the relevant Fund
and deliver to the Company a written confirmation to that
effect.
9. DEPOSIT ACCOUNT. Subject to the provisions of this
Agreement, the Company authorizes Chase to establish and maintain in each
country or other jurisdiction in which the principal trading market for
any Securities is located or in which any Securities are to be presented for
payment, an account or accounts, which may include nostro accounts with
Chase Branches and omnibus accounts of Chase at Foreign Banks, for receipt of
cash in a Deposit Account, in such currencies as directed by Written
Instructions. For purposes of this Agreement, cash so held in any such
account shall be evidenced by separate book entries maintained by
Chase at its office in London and shall be deemed to be Cash held by Chase in a
Deposit Account. Unless Chase receives Written Instructions to the contrary,
cash received or credited by Chase or any other Chase Branch, Foreign Bank or
Foreign Securities Depository for a Deposit Account in a currency other than
United States dollars shall be converted promptly into United States dollars
whenever it is practicable to do so through customary banking channels
(including without limitation the effecting of such conversions at Chase's
preferred rates through Chase, its affiliates or Chase Branches), and shall be
automatically transmitted back to Chase in the United States.
10. SETTLEMENT PROCEDURES. Settlement procedures for
transactions in Securities delivered to, held in, or to be delivered from a
Custody Account in Chase Branches, Domestic Securities Depositories, Foreign
Banks and Foreign Securities Depositories, including receipts and payments of
cash held in any nostro account or omnibus account for a Deposit Account as
described in Section 9, shall be carried out in accordance with the provisions
of the Operating Agreement. It is understood that such settlement procedures may
vary, as provided in the Operating Agreement, from securities market to
securities market, to reflect particular settlement practices in such markets.
Chase shall make or cause the appropriate Chase Branch or
Foreign Bank to move payments of Cash held in a Deposit Account only:
(a) in connection with the purchase of Securities for
the account of a Fund and only against the receipt of such
Securities by Chase or by another appropriate Chase Branch,
Domestic Securities Depository, Foreign Bank or Foreign
Securities Depository, or otherwise as provided in the
Operating Agreement, each such payment to be made at prices
confirmed by Written Instructions, or
(b) in connection with any dividend, interim
dividend or other distribution declared by the Company, or
(c) as directed by the Company by Written
Instructions setting forth the name and address of the person
to whom the payment is to be made and the purpose for which
the payment is to be made.
Upon the receipt by Chase of Written Instructions specifying
the Securities to be so transferred or delivered, which instructions shall name
the person or persons to whom transfers or deliveries of such Securities shall
be made and shall indicate the time(s) for such transfers or deliveries,
Securities held in a Custody Account shall be transferred, exchanged, or
delivered by Chase, any Chase Branch, Domestic Securities Depository, Foreign
Bank, or Foreign Securities Depository, as the case may be, against payment in
Cash or Securities, or otherwise as provided in the Operating Agreement, only:
(a) upon sale of such Securities for the account of
the relevant Fund and receipt of such payment in the amount
shown in a broker's confirmation of sale of the Securities or
other proper authorization received by Chase before such
payment is made, as confirmed by Written Instructions;
(b) in exchange for or upon conversion into other
Securities alone or other Securities and Cash pursuant to any
plan of merger, consolidation, reorganization,
recapitalization, readjustment, or tender offer;
(c) upon exercise of conversion, subscription,
purchase, or other similar rights represented by such
Securities; or
(d) otherwise as directed by the Company by Written
Instructions which shall set forth the amount and purpose of
such transfer or delivery.
Until Chase receives Written Instructions to the contrary, Chase shall,
and shall cause each Chase Branch, Domestic Securities Depository, Foreign
Bank and Foreign Securities Depository holding Securities or Cash to, take the
following actions in accordance with procedures established in the Operating
Agreement:
(a) collect and timely deposit in the Deposit Account
all income due or payable with respect to any Securities and
take any action which may be necessary and proper in
connection with the collection and receipt of such income;
(b) present timely for payment all Securities in a
Custody Account which are called, redeemed or retired or
otherwise become payable and all coupons and other income
items which call for payment upon presentation and to receive
and credit to the appropriate Deposit Account Cash so paid for
the account of a Fund except that, if such Securities are
convertible, such Securities shall not be presented for
payment until two business days preceding the date on which
such conversion rights would expire unless Chase previously
shall have received Written Instructions with respect thereto;
(c) present for exchange all Securities in a Custody
Account converted pursuant to their terms into other
Securities;
(d) in respect of securities in a Custody Account,
execute in the name of the relevant Fund such ownership and
other certificates as may be required to obtain payments in
respect thereto, provided that Chase shall have requested and
the Company shall have furnished to Chase any information
necessary in connection with such certificates;
(e) exchange interim receipts or temporary Securities
in a Custody Account for definitive Securities; and
(f) receive and hold in a Custody Account all
Securities received as a distribution on Securities held in
that Custody Account as a result of a stock dividend, share
split-up or reorganization, recapitalization, readjustment or
other rearrangement or distribution of rights or similar
Securities issued with respect to any Securities held in the
Custody Account.
11. RECORDS. Chase hereby agrees that Chase and any Chase
Branch or Foreign Bank shall create, maintain, and retain all records
relating to their activities and obligations as custodian for the Funds under
this Agreement in such manner as will meet the obligations of the Funds
under the Act of 1940, particularly Section 31 thereof and Rules 31a-1 and
31a-2 thereunder, and Federal, state and foreign tax laws and other legal or
administrative rules or procedures, in each case as currently in effect and
applicable to the Funds. All records so maintained in connection with the
performance of its duties under this Agreement shall, in the event of
termination of this Agreement, be preserved and maintained by Chase as required
by regulation, and shall be made available to the Company or its agent upon
request, in accordance with the provisions of Section 19.
Chase hereby agrees, subject to restrictions under applicable
laws, that the books and records of Chase and any Chase Branch pertaining to
their actions under this Agreement shall be open to the physical, on-premises
inspection and audit at reasonable times by the independent accountants
("Accountants") employed by, or other representatives of, the Company. Chase
hereby agrees that, subject to restrictions under applicable laws, access shall
be afforded to the Accountants to such of the books and records of any Foreign
Bank, Domestic Securities Depository or Foreign Securities Depository with
respect to Securities and Cash as shall be required by the Accountants in
connection with their examination of the books and records pertaining to the
affairs of the Funds. Chase also agrees that as the Company may reasonably
request from time to time, Chase shall provide the Accountants with information
with respect to Chase's and Chase Branches' systems of internal accounting
controls as they relate to the services provided under this Agreement, and Chase
shall use its best efforts to obtain and furnish similar information with
respect to each Domestic Securities Depository, Foreign Bank and Foreign
Securities Depository holding Securities and Cash.
12. REPORTS. Chase shall supply periodically, upon the
reasonable request of the Company, such statements, reports, and advices with
respect to Cash in the Deposit Accounts and the Securities in the Custody
Accounts and transactions in Securities from time to time received and/or
delivered for or from the Custody Accounts, as the case may be, as the Funds
shall require. Such statements, reports and advices shall include an
identification of the Chase Branch, Domestic Securities Depository, Foreign Bank
and Foreign Securities Depository having custody of the Securities and Cash, and
descriptions thereof.
13. REGISTRATION OF SECURITIES. Securities in a Custody
Account which are issued or issuable only in bearer form (except such securities
as are held in the Book-Entry System) shall be held by Chase, Chase Branches,
Domestic Securities Depositories, Foreign Banks or Foreign Securities
Depositories in that form. All other Securities in a Custody Account shall be
held in registered form in the name of Chase, or any Chase Branch, the
Book-Entry System, Domestic Securities Depository, Foreign Bank or Foreign
Securities Depository and their nominees, as custodian or nominee.
14. STANDARD OF CARE.
(a) GENERAL. Chase shall assume entire responsibility
for all Securities held in the Custody Accounts, Cash held in
the Deposit Accounts, Cash or Securities held in the
Segregated Accounts and any of the Securities and Cash while
in the possession of Chase or any Chase Branch, Domestic
Securities Depository, Foreign Bank or Foreign Securities
Depository, or in the possession or control of any employees,
agents or other personnel of Chase or any Chase Branch,
Domestic Securities Depository, Foreign Bank or Foreign
Securities Depository; and shall be liable to the relevant
Fund for any loss to the Fund occasioned by any destruction of
the Securities or Cash so held or while in such possession, by
any robbery, burglary, larceny, theft or embezzlement by any
employees, agents or personnel of Chase or any Chase Branch,
Domestic Securities Depository, Foreign Bank or Foreign
Securities Depository, and/or by virtue of the disappearance
of any of the Securities or Cash so held or while in such
possession, with or without any fault attributable to Chase
("fault attributable to Chase" for the purposes of this
Agreement being deemed to mean any negligent act or omission,
robbery, burglary, larceny, theft or embezzlement by any
employees or agents of Chase or any Chase Branch, Domestic
Securities Depository, Foreign Bank or Foreign Securities
Depository). In the event of Chase's discovery or notification
of any such loss of Securities or Cash, Chase shall promptly
notify the Company and shall reimburse the relevant Fund to
the extent of the market value of the missing Securities or
Cash as at the date of the discovery of such loss. The Company
shall not be obligated to establish any negligence,
misfeasance or malfeasance on Chase's part from which such
loss resulted, but Chase shall be obligated hereunder to make
such reimbursement to a Fund after the discovery or notice of
such loss, destruction or theft of such Securities or Cash.
Chase may at its option insure itself against loss from any
cause but shall be under no obligation to insure for the
benefit of the Funds.
(b) COLLECTIONS. All collections of funds or other
property paid or distributed in respect of Securities held in
a Custody Account shall be made at the risk of the relevant
Fund. Chase shall have no liability for any loss occasioned by
delay in the actual receipt of notice by Chase (or by any
Chase Branch or Foreign Bank in the case of Securities or Cash
held outside of the United States) of any payment, redemption
or other transaction regarding Securities held in a Custody
Account or Cash held in a Deposit Account in respect of which
Chase has agreed to take action in the absence of Written
Instructions to the contrary as provided in Section 10 of this
Agreement, which does not appear in any of the publications
referred to in Section 16 of this Agreement.
(c) EXCLUSIONS. Notwithstanding any other provision
in this Agreement to the contrary, Chase shall not be
responsible for (i) losses resulting from war or from the
imposition of exchange control restrictions, confiscation,
expropriation, or nationalization of any securities or assets
of the issuer of such securities, or (ii) losses resulting
from any negligent act or omission of the Company or any of
its affiliates, or any robbery, theft, embezzlement or
fraudulent act by any employee or agent of the Company or any
of its affiliates. Chase shall not be liable for any action
taken in good faith upon Written Instructions of Authorized
Persons of the Company or upon any certified copy of any
resolution of the Board of Directors of the Company, and may
rely on the genuineness of any such documents which it may in
good faith believe to be validly executed.
(d) LIMITATION ON LIABILITY UNDER SECTION 14(A).
Notwithstanding any other provision in this Agreement to the
contrary, it is agreed that Chase's sole responsibility with
respect to losses under Section 14(a) shall be to pay a Fund
the amount of any such loss as provided in Section 14(a)
(subject to the limitation provided in Section 14(e) of this
Agreement). This limitation does not apply to any liability of
Chase under Section 14(f) of this Agreement.
(e) ANNUAL ADJUSTMENT OF LIMITATION OF LIABILITY. As
soon as practicable after June 1 of every year, the Company
shall provide Chase with the amount of each Fund's total net
assets as of the close of business on such date (or if the New
York Stock Exchange is closed on such date, then in that event
as of the close of business on the next day on which the New
York Stock Exchange is open for business).
It is understood by the parties to this Agreement (1)
that Chase has entered into substantially similar custody
agreements with other Templeton funds, all of which funds have
as their investment adviser either one of the Investment
Managers of the Funds or companies which are affiliated with
the Investment Managers; and (2) that Chase may enter into
substantially similar custody agreements with additional
mutual funds under Templeton management which may hereafter be
organized. Each of such custody agreements with each of such
other Templeton funds contains (or will contain) a "Standard
of Care" section similar to this Section 14, except that the
limit of Chase's liability is (or will be) in varying amounts
for each fund, with the aggregate limits of liability in all
of such agreements, including this Agreement, amounting to
$150,000,000.
On each June 1, Chase will total the net assets
reported by each one of the Templeton funds, and will
calculate the percentage of the aggregate net assets of all
the Templeton funds that is represented by the net asset value
of the Funds. Thereupon Chase shall allocate to this Agreement
with the Company that proportion of the Funds' total of
$150,000,000 responsibility undertaking which is substantially
equal to the proportion which the Funds' net assets bears to
the total net assets of all such Templeton funds subject to
adjustments for claims paid as follows: all claims previously
paid to the Funds shall first be deducted from their
proportionate allocable share of the $150,000,000 Chase
responsibility, and if the claims paid to the Funds amount to
more than their allocable share of the Chase responsibility,
then the excess of such claims paid to the Funds shall
diminish the balance of the $150,000,000 Chase responsibility
available for the proportionate shares of all of the other
Templeton funds having similar custody agreements with Chase.
Based on such calculation, and on such adjustment for claims
paid, if any, Chase thereupon shall notify the Company of such
limit of liability under this Section 14 which will be
available to the Funds with respect to (1) losses in excess of
payment allocations for previous years and (2) losses
discovered during the next year this Agreement remains in
effect and until a new determination of such limit of
responsibility is made on the next succeeding June 1.
(f) OTHER LIABILITY. Independently of Chase's
liability to the Funds as provided in Section 14(a) above (it
being understood that the limitations in Sections 14(d) and
14(e) do not apply to the provisions of this Section 14(f)),
Chase shall be responsible for the performance of only such
duties as are set forth in this Agreement or contained in
express instructions given to Chase which are not contrary to
the provisions of this Agreement. Chase will use and require
the same care with respect to the safekeeping of all
Securities held in the Custody Accounts, Cash held in the
Deposit Accounts, and Securities or Cash held in the
Segregated Accounts as it uses in respect of its own similar
property, but it need not maintain any insurance for the
benefit of the Funds. With respect to Securities and Cash held
outside of the United States, Chase will be liable to a Fund
for any loss to the Fund resulting from any disappearance or
destruction of such Securities or Cash while in the possession
of Chase or any Chase Branch, Foreign Bank or Foreign
Securities Depository, to the same extent it would be liable
to the Funds if Chase had retained physical possession of such
Securities and Cash in New York. It is specifically agreed
that Chase's liability under this Section 14(f) is entirely
independent of Chase's liability under Section 14(a).
Notwithstanding any other provision in this Agreement to the
contrary, in the event of any loss giving rise to liability
under this Section 14(f) that would also give rise to
liability under Section 14(a), the amount of such liability
shall not be charged against the amount of the limitation on
liability provided in Section 14(d).
(g) COUNSEL; LEGAL EXPENSES. Chase shall be entitled
to the advice of counsel (who may be counsel for the Company)
at the expense of the Company, in connection with carrying out
Chase's duties hereunder and in no event shall Chase be liable
for any action taken or omitted to be taken by it in good
faith pursuant to advice of such counsel. If, in the absence
of fault attributable to Chase and in the course of or in
connection with carrying out its duties and obligations
hereunder, any claims or legal proceedings are instituted
against Chase or any Chase Branch by third parties, the
Company will hold Chase harmless against any claims,
liabilities, costs, damages or expenses incurred in connection
therewith and, if the Company so elects, the Company may
assume the defense thereof with counsel satisfactory to Chase,
and thereafter shall not be responsible for any further legal
fees that may be incurred by Chase, provided, however, that
all of the foregoing is conditioned upon the Company's receipt
from Chase of prompt and due notice of any such claim or
proceeding.
15. EXPROPRIATION INSURANCE. Chase represents that it does not
intend to obtain any insurance for the benefit of the Funds which protects
against the imposition of exchange control restrictions on the transfer from
any foreign jurisdiction of the proceeds of sale of any Securities or against
confiscation, expropriation or nationalization of any securities or the assets
of the issuer of such securities by a government of any foreign country in which
the issuer of such securities is organized or in which securities are held for
safekeeping either by Chase, or any Chase Branch, Foreign Bank or Foreign
Securities Depository in such country. Chase has discussed the availability
of expropriation insurance with the Company, and has advised the Company as to
its understanding of the position of the staff of the Securities and Exchange
Commission that any investment company investing in securities of foreign
issuers has the responsibility for reviewing the possibility of the imposition
of exchange control restrictions which would affect the liquidity of such
investment company's assets and the possibility of exposure to political risk,
including the appropriateness of insuring against such risk. The Company has
acknowledged that it has the responsibility to review the possibility of such
risks and what, if any, action should be taken.
16. PROXY, NOTICES, REPORTS, ETC. Chase shall watch for the
dates of expiration of (a) all purchase or sale rights (including warrants,
puts, calls and the like) attached to or inherent in any of the Securities held
in a Custody Account and (b) conversion rights and conversion price changes for
each convertible Security held in a Custody Account as published in Telstat
Services, Inc., Standard & Poor's Financial Inc. and/or any other publications
listed in the Operating Agreement (it being understood that Chase may give
notice to the Company as provided in Section 21 as to any change, addition
and/or omission in the publications watched by Chase for these purposes). If
Chase or any Chase Branch, Foreign Bank or Foreign Securities Depository shall
receive any proxies, notices, reports, or other communications relative to any
of the Securities held in the Custody Account, Chase shall, on its behalf or on
behalf of a Chase Branch, Foreign Bank or Foreign Securities Depository,
promptly transmit in writing any such communication to the Company. In addition,
Chase shall notify the Company by person-to-person collect telephone concerning
any such notices relating to any matters specified in the first sentence of this
Section 16.
As specifically requested by the Company, Chase shall execute
or deliver or shall cause the nominee in whose name Securities are registered to
execute and deliver to such person as may be designated by the Company proxies,
consents, authorizations and any other instruments whereby the authority of a
Fund as owner of any Securities in the Custody Account registered in the name of
Chase or such nominee, as the case may be, may be exercised. Chase shall vote
Securities in accordance with Written Instructions timely received by Chase, or
such other person or persons as designated in or pursuant to the Operating
Agreement.
Chase and any Chase Branch shall have no liability for any
loss or liability occasioned by delay in the actual receipt by them or any
Foreign Bank or Foreign Securities Depository of notice of any payment or
redemption which does not appear in any of the publications referred to in the
first sentence of this Section 16.
17. COMPENSATION. The Company agrees to pay to Chase from time
to time such compensation for its services pursuant to this Agreement as may be
mutually agreed upon in writing from time to time and Chase's out-of-pocket or
incidental expenses, as from time to time shall be mutually agreed upon by Chase
and the Company. The Company shall have no responsibility for the payment of
services provided by any Domestic Securities Depository, such fees being paid
directly by Chase. In the event of any advance of Cash for any purpose made by
Chase pursuant to any Written Instruction, or in the event that Chase or any
nominee of Chase shall incur or be assessed any taxes in connection with the
performance of this Agreement, the Company shall indemnify and reimburse Chase
therefor, except such assessment of taxes as results from the negligence, fraud,
or willful misconduct of Chase, any Domestic Securities Depository, Chase
Branch, Foreign Bank or Foreign Securities Depository, or as constitutes a tax
on income, gross receipts or the like of any one or more of them. Chase shall
have a lien on Securities in a Custody Account and on Cash in a Deposit Account
for any amount owing to Chase from time to time under this Agreement upon due
notice to the Company.
18. AGREEMENT SUBJECT TO APPROVAL OF THE COMPANY. It is
understood that this Agreement and any amendments shall be subject to the
approval of the Company.
19. TERM. This Agreement shall remain in effect until
terminated by either party upon 60 days' written notice to the other, sent by
registered mail. Notwithstanding the preceding sentence, however, if at any time
after the execution of this Agreement Chase shall provide written notice to the
Company, by registered mail, of the amount needed to meet a substantial increase
in the cost of maintaining its present type and level of bonding and insurance
coverage in connection with Chase's undertakings in Section 14(a), (d) and (e)
of this Agreement, said Section 14(a), (d) and (e) of this Agreement shall cease
to apply 60 days after the providing of such notice by Chase, unless prior to
the expiration of such 60 days the Company agrees in writing to assume the
amount needed for such purpose. Chase, upon the date this Agreement terminates
pursuant to notice which has been given in a timely fashion, shall, and/or shall
cause each Domestic Securities Depository to, deliver the Securities in a
Custody Account, pay the Cash in a Deposit Account, and deliver and pay
Securities and Cash in a Segregated Account to the Company unless Chase has
received from the Company 60 days prior to the date on which this Agreement is
to be terminated Written Instructions specifying the name(s) of the person(s) to
whom the Securities in a Custody Account shall be delivered, the Cash in a
Deposit Account shall be paid, and Securities and Cash in a Segregated Account
shall be delivered and paid. Concurrently with the delivery of such Securities,
Chase shall deliver to the Company, or such other person as the Company shall
instruct, the records referred to in Section 11 which are in the possession or
control of Chase, any Chase Branch, or any Domestic Securities Depository, or
any Foreign Bank or Foreign Securities Depository, or in the event that Chase is
unable to obtain such records in their original form Chase shall deliver true
copies of such records.
20. AUTHORIZATION OF CHASE TO EXECUTE NECESSARY DOCUMENTS. In
connection with the performance of its duties hereunder, the Company hereby
authorizes and directs Chase and each Chase Branch acting on behalf of Chase,
and Chase hereby agrees, to execute and deliver in the name of a Fund, or cause
such other Chase Branch to execute and deliver in the name of a Fund, such
certificates, instruments, and other documents as shall be reasonably necessary
in connection with such performance, provided that the Company shall have
furnished to Chase any information necessary in connection therewith.
21. NOTICES. Any notice or other communication
authorized or required by this Agreement to be given to the parties shall be
sufficiently given (except to the extent otherwise specifically provided) if
addressed and mailed postage prepaid or delivered to it at its office at the
address set forth below:
If to the Company, then to
Templeton Institutional Funds, Inc.
700 Central Avenue, P.O. Box 33030
St. Petersburg, Florida 33733
Attention: Barbara J. Green, Secretary
If to Chase, then to
The Chase Manhattan Bank
MetroTech Center
Brooklyn, New York 11245
Attention: Global Custody Division Executive
or such other person or such other address as any party shall have furnished to
the other party in writing.
22. NON-ASSIGNABILITY OF AGREEMENT. This Agreement shall
not be assignable by either party hereto; provided, however, that any
corporation into which a Fund, the Company or Chase, as the case may be, may
be merged or converted or with which it may be consolidated, or any corporation
succeeding to all or substantially all of the trust business of Chase, shall
succeed to the respective rights and shall assume the respective duties of the
Company or of Chase, as the case may be, hereunder.
23. GOVERNING LAW. This Agreement shall be governed by the
laws of the State of New York.
THE CHASE MANHATTAN BANK
By:__________________________________
TEMPLETON INSTITUTIONAL FUNDS, INC.
By:__________________________________
TRANSFER AGENT AGREEMENT BETWEEN
TEMPLETON INSTITUTIONAL FUNDS, INC. AND
FRANKLIN TEMPLETON INVESTOR SERVICES, INC.
AGREEMENT dated as of September 1, 1993, and amended and restated as of
August 10, 1995, December 31, 1996, and , 1997 between TEMPLETON INSTITUTIONAL
FUNDS, INC., a registered open-end investment company with offices at 700
Central Avenue, St. Petersburg, Florida 33701 (the "Company"), comprising Growth
Series, Foreign Equity Series, Emerging Markets Series, and Emerging Fixed
Income Markets Series, and any additional series that may be established in the
future (the "Funds") and FRANKLIN TEMPLETON INVESTOR SERVICES, INC., a
registered transfer agent with offices at 700 Central Avenue, St. Petersburg,
Florida 33701 ("FTIS").
W I T N E S S E T H:
That for and in consideration of the mutual promises hereinafter set
forth, the Company and FTIS agree as follows:
1. DEFINITIONS. Whenever used in this Agreement, the following
words and phrases, unless the context otherwise requires, shall have the
following meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation of the Company as the same may be amended from time to time;
(b) "Authorized Person" shall be deemed to include any person,
whether or not such person is an officer or employee of the Company, duly
authorized to give Oral Instructions or Written Instructions on behalf of the
Company as indicated in a certificate furnished to FTIS pursuant to Section 4(c)
hereof as may be received by FTIS from time to time;
(c) "Custodian" refers to the custodian and any sub-custodian
of all securities and other property which the Funds may from time to time
deposit, or cause to be deposited or held under the name or account of such
custodian pursuant to the Custody Agreement;
(d) "Oral Instructions" shall mean instructions, other than
written instructions, actually received by FTIS from a person reasonably
believed by FTIS to be an Authorized Person;
(e) "Shares" refers to shares of common stock, par value $.01
per share, of the Funds; and
(f) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by FTIS to be an Authorized Person and
actually received by FTIS.
2. APPOINTMENT OF FTIS. The Company hereby appoints and constitutes
FTIS as transfer agent for Shares of the Company and as shareholder servicing
agent for the Company, and FTIS accepts such appointment and agrees to perform
the duties hereinafter set forth.
3. COMPENSATION.
(a) The Company will compensate or cause FTIS to be
compensated for the performance of its obligations hereunder in accordance with
the fees set forth in the written schedule of fees annexed hereto as Schedule A
and incorporated herein. Schedule A does not include out-of-pocket disbursements
of FTIS for which FTIS shall be entitled to bill the Company separately. FTIS
will bill the Company as soon as practicable after the end of each calendar
month, and said billings will be detailed in accordance with Schedule A. The
Company will promptly pay to FTIS the amount of such billing.
Out-of-pocket disbursements shall include, but shall not be
limited to, the items specified in the written schedule of out-of-pocket
expenses annexed hereto as Schedule B and incorporated herein. Schedule B may be
modified by FTIS upon not less than 30 days' prior written notice to the
Company. Unspecified out-of-pocket expenses shall be limited to those
out-of-pocket expenses reasonably incurred by FTIS in the performance of its
obligations hereunder. Reimbursement by the Company for expenses incurred by
FTIS in any month shall be made as soon as practicable after the receipt of an
itemized bill from FTIS.
(b) Any compensation agreed to hereunder may be adjusted from
time to time by attaching to Schedule A of this Agreement a revised Fee
Schedule.
4. DOCUMENTS. In connection with the appointment of FTIS, the Company
shall, on or before the date this Agreement goes into effect, but in any case,
within a reasonable period of time for FTIS to prepare to perform its duties
hereunder, deliver or cause to be delivered to FTIS the following documents:
(a) If applicable, specimens of the certificates for Shares
of the Funds;
(b) All account application forms and other documents
relating to Shareholder accounts or to any plan, program or service offered
by the Funds;
(c) A certificate identifying the Authorized Persons and
specimen signatures of Authorized Persons who will sign Written Instructions;
and
(d) All documents and papers necessary under the laws of
Florida, under the Company's Articles of Incorporation, and as may be required
for the due performance of FTIS's duties under this Agreement or for the due
performance of additional duties as may from time to time be agreed upon between
the Company and FTIS.
5. DISTRIBUTIONS PAYABLE IN SHARES. In the event that the Board of
Trustees of the Trust shall declare a distribution payable in Shares, the Trust
shall deliver or cause to be delivered to FTIS written notice of such
declaration signed on behalf of the Trust by an officer thereof, upon which FTIS
shall be entitled to rely for all purposes, certifying (i) the number of Shares
involved, and (ii) that all appropriate action has been taken.
6. DUTIES OF THE TRANSFER AGENT. FTIS shall be responsible for
administering and/or performing transfer agent functions; for acting as service
agent in connection with dividend and distribution functions; and for performing
shareholder account and administrative agent functions in connection with the
issuance, transfer and redemption or repurchase (including coordination with the
Custodian) of Shares. The operating standards and procedures to be followed
shall be determined from time to time by agreement between the Company and FTIS.
Without limiting the generality of the foregoing, FTIS agrees to perform the
specific duties listed on Schedule C.
7. RECORDKEEPING AND OTHER INFORMATION. FTIS shall create and
maintain all necessary records in accordance with all applicable laws, rules
and regulations.
8. OTHER DUTIES. In addition, FTIS shall perform such other duties and
functions, and shall be paid such amounts therefor, as may from time to time be
agreed upon in writing between the Company and FTIS. Such other duties and
functions shall be reflected in a written amendment to Schedule C, and the
compensation for such other duties and functions shall be reflected in a written
amendment to Schedule A.
9. RELIANCE BY TRANSFER AGENT; INSTRUCTIONS.
(a) FTIS will be protected in acting upon Written or Oral
Instructions reasonably believed to have been executed or orally communicated by
an Authorized Person and will not be held to have any notice of any change of
authority of any person until receipt of a Written Instruction thereof from an
officer of the Company. FTIS will also be protected in processing Share
certificates which it reasonably believes to bear the proper manual or facsimile
signatures of the officers of the Company and the proper countersignature of
FTIS.
(b) At any time FTIS may apply to any Authorized Person of the
Company for Written Instructions and may seek advice at the Company's expense
from legal counsel for the Company or from its own legal counsel, with respect
to any matter arising in connection with this Agreement, and it shall not be
liable for any action taken or not taken or suffered by it in good faith in
accordance with such Written Instructions or in accordance with the opinion of
counsel for the Company or for FTIS. Written Instructions requested by FTIS will
be provided by the Company within a reasonable period of time. In addition,
FTIS, or its officers, agents or employees, shall accept Oral Instructions or
Written Instructions given to them by any person representing or acting on
behalf of the Company only if said representative is known by FTIS, or its
officers, agents or employees, to be an Authorized Person.
10. ACTS OF GOD, ETC. FTIS will not be liable or responsible for delays
or errors by reason of circumstances beyond its control, including acts of civil
or military authority, national emergencies, labor difficulties, fire,
mechanical breakdown beyond its control, flood or catastrophe, acts of God,
insurrection, war, riots or failure beyond its control of transportation,
communication or power supply.
11. DUTY OF CARE AND INDEMNIFICATION. The Company will indemnify FTIS
against and hold it harmless from any and all losses, claims, damages,
liabilities or expenses (including reasonable counsel fees and expenses)
resulting from any claim, demand, action or suit not resulting from willful
misfeasance, bad faith or gross negligence on the part of FTIS, and arising out
of, or in connection with, its duties hereunder. In addition, the Company will
indemnify FTIS against and hold it harmless from any and all losses, claims,
damages, liabilities or expenses (including reasonable counsel fees and
expenses) resulting from any claim, demand, action or suit as a result of: (i)
any action taken in accordance with Written or Oral Instructions, or any other
instructions or Share certificates reasonably believed by FTIS to be genuine and
to be signed, countersigned or executed, or orally communicated by an Authorized
Person; (ii) any action taken in accordance with written or oral advice
reasonably believed by FTIS to have been given by counsel for the Company or by
its own counsel; (iii) any action taken as a result of any error or omission in
any record (including but not limited to magnetic tapes, computer printouts,
hard copies and microfilm copies) delivered, or caused to be delivered by the
Company to FTIS in connection with this Agreement; or (iv) any action taken in
accordance with Oral Instructions given under the Telephone Exchange and
Redemption Privileges, as described in the applicable Fund's current prospectus,
when believed by FTIS to be genuine.
In any case in which the Company may be asked to indemnify or hold FTIS
harmless, the Company shall be advised of all pertinent facts concerning the
situation in question and FTIS will use reasonable care to identify and notify
the Company promptly concerning any situation which presents or appears likely
to present a claim for indemnification against the Company. The Company shall
have the option to defend FTIS against any claim which may be the subject of
this indemnification, and, in the event that the Company so elects, such defense
shall be conducted by counsel chosen by the Company and satisfactory to FTIS,
and thereupon, the Company shall take over complete defense of the claim and
FTIS shall sustain no further legal or other expenses in such situation for
which it seeks indemnification under this Section 11. FTIS will not confess any
claim or make any compromise in any case in which the Company will be asked to
provide indemnification, except with the Company's prior written consent. The
obligations of the parties hereto under this Section shall survive the
termination of this Agreement.
12. TERM AND TERMINATION.
(a) This Agreement shall be effective as of the date first
written above and shall continue through April 30, 1994 and thereafter shall
continue automatically for successive annual periods ending on April 30 of each
year, provided such continuance is specifically approved at least annually by
(i) the Company's Board of Directors or (ii) a vote of a "majority" (as defined
in the Investment Company Act of 1940 (the "1940 Act")) of the Company's
outstanding voting securities, provided that in either event the continuance is
also approved by a majority of the Board of Directors who are not "interested
persons" (as defined in the 1940 Act) of any party to this Agreement, by vote
cast in person at a meeting called for the purpose of voting such approval.
(b) Either party hereto may terminate this Agreement by giving
to the other party a notice in writing specifying the date of such termination,
which shall be not less than 60 days after the date of receipt of such notice.
In the event such notice is given by the Company, it shall be accompanied by a
resolution of the Board of Directors of the Company, certified by the Secretary
of the Company, designating a successor transfer agent or transfer agents. Upon
such termination and at the expense of the Company, FTIS will deliver to such
successor a certified list of Shareholders of the Company (with names and
addresses), an historical record of the account of each Shareholder and the
status thereof, and all other relevant books, records, correspondence, and other
data established or maintained by FTIS under this Agreement in a form reasonably
acceptable to the Company, and will cooperate in the transfer of such duties and
responsibilities, including provisions for assistance from FTIS's personnel in
the establishment of books, records and other data by such successor or
successors.
13. AMENDMENT. This Agreement may not be amended or modified in
any manner except by a written agreement executed by both parties.
14. SUBCONTRACTING. The Company agrees that FTIS may, in its
discretion, subcontract for certain of the services described under this
Agreement or the Schedules hereto; provided that the appointment of any such
agent shall not relieve FTIS of its responsibilities hereunder.
15. MISCELLANEOUS.
(a) Any notice or other instrument authorized or required by
this Agreement to be given in writing to the Company or FTIS shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.
To the Company:
Templeton Institutional Funds, Inc.
700 Central Avenue
St. Petersburg, Florida 33701
To FTIS:
Franklin Templeton Investor Services, Inc.
700 Central Avenue
St. Petersburg, Florida 33701
(b) This Agreement shall extend to and shall be binding upon
the parties hereto, and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable without the written consent
of the other party.
(c) This Agreement shall be construed in accordance with the
laws of the State of California.
(d) This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original; but such
counterparts shall, together, constitute only one instrument.
(e) The captions of this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective corporate officers thereunder duly authorized as of
the day and year first above written.
TEMPLETON INSTITUTIONAL FUNDS, INC.
BY:
FRANKLIN TEMPLETON INVESTOR SERVICES, INC.
BY:
<PAGE>
Schedule A
FEES
Shareholder account maintenance $14.58 for Foreign Equity Series,
per annum, prorated payable monthly) Growth Series and Emerging Markets
Series, and $15.64 for Emerging
Fixed Income Markets Series,
adjusted as of February 1 of each
year to reflect changes in the
Department of Labor Consumer
Price Index.
February 1, 1997
<PAGE>
Schedule B
OUT-OF-POCKET EXPENSES
The Company shall reimburse FTIS monthly for the following
out-of-pocket expenses:
o postage and mailing
o forms
o outgoing wire charges
o telephone
o Federal Reserve charges for check clearance
o if applicable, magnetic tape and freight
o retention of records
o microfilm/microfiche
o stationary
o insurance
o if applicable, terminals, transmitting lines and any expenses
incurred in connection with such terminals and lines
o all other miscellaneous expenses reasonably incurred by FTIS
The Company agrees that postage and mailing expenses will be paid on
the day of or prior to mailing as agreed with FTIS. In addition, the Company
will promptly reimburse FTIS for any other expenses incurred by FTIS as to which
the Company and FTIS mutually agree that such expenses are not otherwise
properly borne by FTIS as part of its duties and obligations under the
Agreement.
<PAGE>
Schedule C
DUTIES
AS TRANSFER AGENT FOR INVESTORS IN THE COMPANY, FTIS WILL:
o Record in its transfer record, countersign as transfer agent,
and deliver certificates signed manually or by facsimile, by
the President or a Vice-President and by the Secretary or the
Assistant Secretary of the Company, in such names and for such
number of authorized but hitherto unissued Shares of the Funds
as to which FTIS shall receive instructions; and
o Transfer on its records from time to time, when presented to
it for that purpose, certificates of said Shares, whether now
outstanding or hereafter issued, when countersigned by a duly
authorized transfer agent, and upon the cancellation of the
old certificates, record and countersign new certificates for
a corresponding aggregate number of Shares and deliver said
new certificates.
AS SHAREHOLDER SERVICE AGENT FOR INVESTORS IN THE COMPANY, FTIS WILL:
o Receive from the Company, from the Company's Principal
Underwriter or from a Shareholder, on a form acceptable to
FTIS, information necessary to record sales and redemptions
and to generate sale and/or redemption confirmations;
o Mail sale and/or redemption confirmations using standard
forms;
o Accept and process cash payments from investors, and clear
checks which represent payments for the purchase of Shares;
o Requisition Shares in accordance with instructions of the
Principal Underwriter of the Shares of the Company;
o Produce periodic reports reflecting the accounts receivable
and the paid pending (free stock) items;
o Open, maintain and close Shareholder accounts;
o Establish registration of ownership of Shares in accordance
with generally accepted form;
o Maintain monthly records of (i) issued Shares and (ii) number
of Shareholders and their aggregate Shareholdings classified
according to their residence in each State of the United
States or foreign country;
o Accept and process telephone exchanges and redemptions for
Shares in accordance with a Company's Telephone Exchange and
Redemption Privileges as described in the Funds' current
prospectus;
o Maintain and safeguard records for each Shareholder showing
name(s), address, number of any certificates issued, and
number of Shares registered in such name(s), together with
continuous proof of the outstanding Shares, and dealer
identification, and reflecting all current changes; on
request, provide information as to an investor's qualification
for Cumulative Quantity Discount; and provide all accounts
with confirmation statements reflecting the most recent
transactions, and also provide year-end historical
confirmation statements;
o Provide on request a duplicate set of records for file
maintenance in the Company's office in St. Petersburg,
Florida;
o Pay to the Company's Custodian Account with the Custodian, the
net asset value per Share and pay to the Principal Underwriter
its commission out of money received in payment for Shares
sales;
o Redeem Shares and prepare and mail (or wire) liquidation
proceeds;
o Pass upon the adequacy of documents submitted by a
Shareholder or his legal representative to substantiate
the transfer of ownership of Shares from the registered
owner to transferees;
o From time to time, make transfers upon the books of the
Company in accordance with properly executed transfer
instructions furnished to FTIS and make transfers of
certificates for such Shares as may be surrendered for
transfer properly endorsed, and countersign new certificates
issued in lieu thereof;
o Upon receipt of proper documentation, place stop transfers,
obtain necessary insurance forms, and reissue replacement
certificates against lost, stolen or destroyed Share
certificates;
o Check surrendered certificates for stop transfer restrictions.
Although FTIS cannot insure the genuineness of certificates
surrendered for cancellation, it will employ all due
reasonable care in deciding the genuineness of such
certificates and the guarantor of the signature(s) thereon;
o Cancel surrendered certificates and record and countersign
new certificates;
o Certify outstanding Shares to auditors;
o In connection with any meeting of Shareholders, upon receiving
appropriate detailed instructions and written materials
prepared by the Company and proxy proofs checked by the
Company, print proxy cards; deliver to Shareholders all
reports, prospectuses, proxy cards and related proxy materials
of suitable design for enclosing; receive and tabulate
executed proxies; and furnish a list of Shareholders for the
meeting;
o Answer routine correspondence and telephone inquiries about
individual accounts; prepare monthly reports for
correspondence volume and correspondence data necessary for
the Company's Semi-Annual Report on Form N-SAR;
o Prepare and mail dealer commission statements and checks;
o Maintain and furnish the Company and its Shareholders with
such information as the Company may reasonably request for the
purpose of compliance by the Company with the applicable tax
and securities laws of applicable jurisdictions;
o Mail confirmations of transactions to investors and dealers
in a timely fashion;
o Pay or reinvest income dividends and/or capital gains
distributions to Shareholders of record, in accordance with
the Company's and/or Shareholder's instructions, provided
that:
(a) The Company shall notify FTIS in writing
promptly upon declaration of any such
dividend and/or distribution, and in any
event at least forty-eight (48) hours before
the record date;
(b) Such notification shall include the
declaration date, the record date, the
payable date, the rate, and, if applicable,
the reinvestment date and the reinvestment
price to be used; and
(c) Prior to the payable date, the Company shall
furnish FTIS with sufficient fully and
finally collected funds to make such
distribution.
o Prepare and file annual United States information returns of
dividends and capital gains distributions (Form 1099) and mail
payee copies to Shareholders; report and pay United States
income taxes withheld from distributions made to nonresidents
of the United States; and prepare and mail to Shareholders the
notice required by the U.S. Internal Revenue Code as to
realized capital gains distributed and/or retained, and their
proportionate share of any foreign taxes paid by the Company;
o Prepare transfer journals;
o Set up wire order trades on file;
o Receive payment for trades and update the trade file;
o Produce delinquency and other trade file reports;
o Provide dealer commission statements and payments thereof for
the Principal Underwriter;
o Sort and print Shareholder information by state, social code,
price break, etc.; and
o Mail promptly the Statement of Additional Information of the
Funds to each Shareholder who requests it, at no cost to the
Shareholder.
FUND ADMINISTRATION AGREEMENT BETWEEN
TEMPLETON INSTITUTIONAL FUNDS, INC.
AND
FRANKLIN TEMPLETON SERVICES, INC.
AGREEMENT dated as of October 1, 1996, as amended and restated
December 31, 1996 and , 1997, between Templeton Institutional
Funds, Inc. (the "Investment Company"), an investment company registered
under the Investment Company Act of 1940 ("1940 Act"), on behalf of Foreign
Equity Series, Growth Series, Emerging Markets Series, and Emerging Fixed
Income Markets Series, (each a "Fund"), separate series of the Investment
Company, and Franklin Templeton Services, Inc. ("FTS" or "Administrator").
In consideration of the mutual promises herein made, the
parties hereby agree as follows:
(1) The Administrator agrees, during the life of this Agreement, to
provide the following services to each Fund:
(a) providing office space, telephone, office equipment and
supplies for the Fund;
(b) providing trading desk facilities for the Fund, unless
these facilities are provided by the Fund's investment adviser;
(c) authorizing expenditures and approving bills for payment
on behalf of the Fund;
(d) supervising preparation of periodic reports to
shareholders, notices of dividends, capital gains distributions and tax credits;
and attending to routine correspondence and other communications with individual
shareholders when asked to do so by the Fund's shareholder servicing agent or
other agents of the Fund;
(e) coordinating the daily pricing of the Fund's investment
portfolio, including collecting quotations from pricing services engaged by the
Fund; providing fund accounting services, including preparing and supervising
publication of daily net asset value quotations, periodic earnings reports and
other financial data; and coordinating trade settlements;
(f) monitoring relationships with organizations serving the
Fund, including custodians, transfer agents, public accounting firms, law firms,
printers and other third party service providers;
(g) supervising compliance by the Fund with recordkeeping
requirements under the federal securities laws, including the 1940 Act and the
rules and regulations thereunder, and under other applicable state and federal
laws; and maintaining books and records for the Fund (other than those
maintained by the custodian and transfer agent);
(h) preparing and filing of tax reports including the Fund's
income tax returns, and monitoring the Fund's compliance with subchapter M of
the Internal Revenue Code, as amended, and other applicable tax laws and
regulations;
(i) monitoring the Fund's compliance with: 1940 Act and other
federal securities laws, and rules and regulations thereunder; state and foreign
laws and regulations applicable to the operation of investment companies; the
Fund's investment objectives, policies and restrictions; and the Code of Ethics
and other policies adopted by the Investment Company's Board of Directors
("Board") or by the Fund's investment adviser and applicable to the Fund;
(j) providing executive, clerical and secretarial personnel
needed to carry out the above responsibilities;
(k) preparing and filing regulatory reports, including without
limitation Forms N-1A and N-SAR, proxy statements, information statements and
U.S. and foreign ownership reports; and
(l) providing support services incidental to carrying out
these duties.
Nothing in this Agreement shall obligate the Investment Company or any Fund to
pay any compensation to the officers of the Investment Company. Nothing in this
Agreement shall obligate FTS to pay for the services of third parties, including
attorneys, auditors, printers, pricing services or others, engaged directly by
the Fund to perform services on behalf of the Fund.
(2) The Investment Company agrees, during the life of this Agreement,
to pay to FTS as compensation for the foregoing a monthly fee equal on an annual
basis to 0.15% of the first $200 million of the average daily net assets of each
Fund during the month preceding each payment, reduced as follows: on such net
assets in excess of $200 million up to $700 million, a monthly fee equal on an
annual basis to 0.135%; on such net assets in excess of $700 million up to $1.2
billion, a monthly fee equal on an annual basis to 0.10%; and on such net assets
in excess of $1.2 billion, a monthly fee equal on an annual basis to 0.075%.
From time to time, FTS may waive all or a portion of its fees provided for
hereunder and such waiver shall be treated as a reduction in the purchase price
of its services. FTS shall be contractually bound hereunder by the terms of any
publicly announced waiver of its fee, or any limitation of each affected Fund's
expenses, as if such waiver or limitation were fully set forth herein.
(3) This Agreement shall remain in full force and effect through for
one year after its execution and thereafter from year to year to the extent
continuance is approved annually by the Board of the Investment Company.
(4) This Agreement may be terminated by the Investment Company at any
time on sixty (60) days' written notice without payment of penalty, provided
that such termination by the Investment Company shall be directed or approved by
the vote of a majority of the Board of the Investment Company in office at the
time or by the vote of a majority of the outstanding voting securities of the
Investment Company (as defined by the 1940 Act); and shall automatically and
immediately terminate in the event of its assignment (as defined by the 1940
Act).
(5) In the absence of willful misfeasance, bad faith or gross
negligence on the part of FTS, or of reckless disregard of its duties and
obligations hereunder, FTS shall not be subject to liability for any act or
omission in the course of, or connected with, rendering services hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their duly authorized officers.
FRANKLIN TEMPLETON SERVICES, INC.
By:
TEMPLETON INSTITUTIONAL FUNDS, INC.
By:
MCGLADREY & PULLEN, LLP
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the reference to our firm under the caption
"Financial Highlights" in Post-Effective Amendment No. 10 to the Registration
Statement on Form N-N1A, File No. 33-25779 of Templeton Institutional Funds,
Inc.
/s/MCGLADREY & PULLEN, LLP
McGladrey & Pullen, LLP
New York, New York
February 12, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The schedule contains summary financial information extracted from the
Templeton Institutional Funds, Inc. Growth Series June 30, 1996 semi-annual
report and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000865722
<NAME> TEMPLETON FOREIGN EQUITY SERIES
<SERIES>
<NUMBER> 1
<NAME> TEMPLETON INSTITUTIONAL FUNDS, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 2149443953
<INVESTMENTS-AT-VALUE> 2406678450
<RECEIVABLES> 70348506
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2477026956
<PAYABLE-FOR-SECURITIES> 11653950
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2621025
<TOTAL-LIABILITIES> 14274975
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2142885799
<SHARES-COMMON-STOCK> 159475465
<SHARES-COMMON-PRIOR> 129496379
<ACCUMULATED-NII-CURRENT> 48543340
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14088345
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 257234497
<NET-ASSETS> 2462751981
<DIVIDEND-INCOME> 50613754
<INTEREST-INCOME> 7857357
<OTHER-INCOME> 0
<EXPENSES-NET> 9306374
<NET-INVESTMENT-INCOME> 49164737
<REALIZED-GAINS-CURRENT> 18619308
<APPREC-INCREASE-CURRENT> 139286831
<NET-CHANGE-FROM-OPS> 207070876
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1378309)
<DISTRIBUTIONS-OF-GAINS> (6900736)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 35467341<F1>
<NUMBER-OF-SHARES-REDEEMED> (6070718)
<SHARES-REINVESTED> 582463
<NET-CHANGE-IN-ASSETS> 644868674
<ACCUMULATED-NII-PRIOR> 756912
<ACCUMULATED-GAINS-PRIOR> 2369773
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7463667
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9306374
<AVERAGE-NET-ASSETS> 2145961854
<PER-SHARE-NAV-BEGIN> 14.04
<PER-SHARE-NII> .31
<PER-SHARE-GAIN-APPREC> 1.15
<PER-SHARE-DIVIDEND> (.01)
<PER-SHARE-DISTRIBUTIONS> (.05)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.44
<EXPENSE-RATIO> .87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Number of shares sold includes 1,243,044 shares issued on the merger of
Foreign Equity (South Africa Free) Series into Foreign Equity Series.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The schedule contains summary financial information extracted from the
Templeton Institutional Funds, Inc. Growth Series June 30, 1996 semi-annual
report and is qualified to its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000865722
<NAME> TIFI GROWTH SERIES
<SERIES>
<NUMBER> 4
<NAME> TEMPLETON INSTITUTIONAL FUNDS, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 198885181
<INVESTMENTS-AT-VALUE> 235889198
<RECEIVABLES> 1360284
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 2638
<TOTAL-ASSETS> 237252120
<PAYABLE-FOR-SECURITIES> 379088
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 513322
<TOTAL-LIABILITIES> 892410
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 190232261
<SHARES-COMMON-STOCK> 18253508
<SHARES-COMMON-PRIOR> 19141240
<ACCUMULATED-NII-CURRENT> 3769208
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5354224
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 37004017
<NET-ASSETS> 236359710
<DIVIDEND-INCOME> 4416910
<INTEREST-INCOME> 341904
<OTHER-INCOME> 0
<EXPENSES-NET> 989606
<NET-INVESTMENT-INCOME> 3769208
<REALIZED-GAINS-CURRENT> 7305646
<APPREC-INCREASE-CURRENT> 11386741
<NET-CHANGE-FROM-OPS> 22461595
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (2376355)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1106066
<NUMBER-OF-SHARES-REDEEMED> (2187226)
<SHARES-REINVESTED> 193428
<NET-CHANGE-IN-ASSETS> 9396701
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 424933
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 792886
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 989606
<AVERAGE-NET-ASSETS> 227798438
<PER-SHARE-NAV-BEGIN> 11.86
<PER-SHARE-NII> .21
<PER-SHARE-GAIN-APPREC> 1.02
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.14)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.95
<EXPENSE-RATIO> .87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
TEMPLETON INSTITUTIONAL EMERGING MARKETS SERIES JUNE 30, 1996 SEMI-ANNUAL
REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000865722
<NAME> TEMPLETON INSTITUTIONAL EMERGING MARKETS SERIES
<SERIES>
<NUMBER> 2
<NAME> TIFI EMERGING MARKETS SERIES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 1259901846
<INVESTMENTS-AT-VALUE> 1318238483
<RECEIVABLES> 10108396
<ASSETS-OTHER> 7691
<OTHER-ITEMS-ASSETS> 237537
<TOTAL-ASSETS> 1328502107
<PAYABLE-FOR-SECURITIES> 11376056
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2009194
<TOTAL-LIABILITIES> 13385250
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1237421709
<SHARES-COMMON-STOCK> 107563190
<SHARES-COMMON-PRIOR> 74261758
<ACCUMULATED-NII-CURRENT> 15190083
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4168428
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 58336637
<NET-ASSETS> 1315116857
<DIVIDEND-INCOME> 17580260
<INTEREST-INCOME> 5101042
<OTHER-INCOME> 0
<EXPENSES-NET> 8196172
<NET-INVESTMENT-INCOME> 14485130
<REALIZED-GAINS-CURRENT> 5651109
<APPREC-INCREASE-CURRENT> 106830281
<NET-CHANGE-FROM-OPS> 126966520
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (433339)
<DISTRIBUTIONS-OF-GAINS> (2166047)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 35281428
<NUMBER-OF-SHARES-REDEEMED> (2194855)
<SHARES-REINVESTED> 214859
<NET-CHANGE-IN-ASSETS> 516601793
<ACCUMULATED-NII-PRIOR> 1138292
<ACCUMULATED-GAINS-PRIOR> 683366
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6704909
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8196172
<AVERAGE-NET-ASSETS> 1079131870
<PER-SHARE-NAV-BEGIN> 10.75
<PER-SHARE-NII> .13
<PER-SHARE-GAIN-APPREC> 1.38
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.01)
<RETURNS-OF-CAPITAL> (.02)
<PER-SHARE-NAV-END> 12.23
<EXPENSE-RATIO> 1.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
