[ART]
TIFI
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TEMPLETON
INSTITUTIONAL
FUNDS, INC.
MAY 1, 1997
AS AMENDED NOVEMBER 1, 1997
PROSPECTUS
This prospectus is not an offering of the securities herein described in any
state, jurisdiction or country in which the offering is not authorized. No sales
representative, dealer or other person is authorized to give any information or
make any representations other than those contained in this prospectus. Further
information may be obtained from Distributors.
PRINCIPAL UNDERWRITER:
Franklin Templeton Distributors, Inc.
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, Florida 33733-8030
INSTITUTIONAL SERVICES AND FUND
INFORMATION: 800-321-8563
ZTIFI P 11/97
<PAGE>
PROSPECTUS
LOGO
Templeton Institutional Funds, Inc.
MAY 1, 1997
as amended November 1, 1997
GROWTH SERIES
FOREIGN EQUITY SERIES
EMERGING MARKETS SERIES
EMERGING FIXED INCOME MARKETS SERIES
LOGO
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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 INVOLVE 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. THE EMERGING FIXED INCOME MARKETS SERIES MAY INVEST A SUBSTANTIAL
PORTION OF ITS ASSETS IN HIGH-YIELD, HIGH RISK DEBT INSTRUMENTS THAT ARE
PREDOMINANTLY SPECULATIVE. SEE "WHAT ARE THE FUNDS' POTENTIAL RISKS?"
The Company has a Statement of Additional Information ("SAI") dated May 1, 1997,
as amended November 1, 1997, which may be further amended from time to time. It
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 their address.
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.
<PAGE>
TEMPLETON
INSTITUTIONAL
FUNDS, INC.
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May 1, 1997
as amended November 1, 1997
WHEN READING THIS PROSPECTUS, YOU WILL SEE CERTAIN TERMS BEGINNING WITH CAPITAL
LETTERS. THIS MEANS THE TERM IS EXPLAINED IN OUR GLOSSARY SECTION.
TABLE OF CONTENTS
ABOUT THE FUND
Expense Summary...................................................... 1
Financial Highlights................................................. 2
How Do the Funds Invest Their Assets?................................ 6
What Are the Funds' Potential Risks?................................. 17
Who Manages the Funds?............................................... 20
How Do the Funds Measure Performance?................................ 22
How Is the Company Organized?........................................ 23
How Taxation Affects You and the Funds............................... 23
ABOUT YOUR ACCOUNT
How Do I Buy Shares?................................................. 24
May I Exchange Shares for Shares of Another Fund?.................... 26
How Do I Sell Shares?................................................ 27
What Distributions Might I Receive from the Funds?................... 28
Transaction Procedures and Special Requirements...................... 28
Services to Help You Manage Your Account............................. 31
GLOSSARY
Useful Terms and Definitions......................................... 33
Appendix............................................................. 35
Corporate Bond Ratings............................................... 35
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, Florida 33733-8030
1-800/DIAL BEN
<PAGE>
ABOUT THE FUND
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 for the fiscal year ended December 31,
1996. For Emerging Fixed Income Markets Series, the table is based on estimated
expenses, after fee reductions and expense limitations, for the current fiscal
year. The Funds' 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>
EMERGING
FIXED
FOREIGN EMERGING INCOME
GROWTH EQUITY MARKETS MARKETS
SERIES SERIES SERIES SERIES
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees (after fee reduction)*................... 0.70% 0.70% 1.25% 0.55%
Other Expenses........................................... 0.17% 0.17% 0.31% 0.70%
Total Fund Operating Expenses (after fee reduction)*..... 0.87% 0.87% 1.56% 1.25%
</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............................................ $ 9 $ 28 $ 48 $ 107
FOREIGN EQUITY SERIES.................................... $ 9 $ 28 $ 48 $ 107
EMERGING MARKETS SERIES.................................. $ 16 $ 49 $ 85 $ 186
EMERGING FIXED INCOME MARKETS SERIES..................... $ 13 $ 40 $ 69 $ 151
</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 pay 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 MANAGERS AND FT SERVICES 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% OF AVERAGE NET ASSETS FOR GROWTH SERIES, 1% OF AVERAGE NET ASSETS FOR
FOREIGN EQUITY SERIES, 1.6% OF AVERAGE NET ASSETS FOR EMERGING MARKETS SERIES,
AND 1.25% OF AVERAGE NET ASSETS FOR EMERGING FIXED INCOME MARKETS SERIES THROUGH
APRIL 30, 1998. IF THESE FEE REDUCTIONS ARE INSUFFICIENT TO SO LIMIT THE FUNDS'
EXPENSES, FT SERVICES HAS AGREED TO MAKE CERTAIN PAYMENTS TO REDUCE THE FUNDS'
EXPENSES. AFTER APRIL 30, 1998, THESE AGREEMENTS MAY END AT ANY TIME UPON NOTICE
TO THE BOARD. THESE VOLUNTARY AGREEMENTS DID NOT RESULT IN ANY FEE REDUCTIONS
FOR GROWTH SERIES, FOREIGN EQUITY SERIES AND EMERGING MARKETS SERIES FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1996. IF THIS VOLUNTARY AGREEMENT WERE NOT IN
EFFECT FOR EMERGING FIXED INCOME MARKETS SERIES, THE FUND'S "MANAGEMENT FEE" AND
ESTIMATED "TOTAL FUND OPERATING EXPENSES" WOULD BE 0.70% AND 1.40%,
RESPECTIVELY.
<PAGE>
FINANCIAL HIGHLIGHTS
These tables summarize the Funds' financial history. The information for Growth
Series, Foreign Equity Series and Emerging Markets Series has been audited by
McGladrey & Pullen, LLP, the Funds' independent auditors for the periods
indicated in their reports which appear in the Funds' Annual Reports to
Shareholders for the fiscal year ended December 31, 1996; the information for
Emerging Fixed Income Markets Series has not been audited. The Annual Reports to
Shareholders also include more information about the Funds' performance. For a
free copy, please call Fund Information.
<TABLE>
<CAPTION>
GROWTH SERIES
PERIOD FROM MAY 3,
1993 (COMMENCEMENT
YEAR ENDED DECEMBER 31 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 $ 11.86 $ 10.94 $ 11.80 $10.00
---------- --------- -------- -----------
Income from investment operations:
Net investment income .30 .27 .20 .06
Net realized and unrealized gain (loss) 2.32 1.62 (.36) 1.94
--------- ------- --------- ---------
Total from investment operations 2.62 1.89 (.16) 2.00
--------- ------- -------- ----------
Distributions:
Dividends from net investment income (.29) (.27) (.20) (.05)
Dividends from net realized gains (.74) (.70) (.50) (.15)
Amount in excess of net realized gains (.04) -- -- --
---------- --------- --------- ---------
Total Distributions (1.07) (.97) (.70) (.20)
--------- --------- --------- ---------
Change in net asset value 1.55 .92 (.86) 1.80
--------- --------- --------- ---------
Net asset value, end of period $ 13.41 $ 11.86 $ 10.94 $ 11.80
========= ========= ========= =========
Total Return1 22.57% 17.59% (1.32)% 20.04%
Ratios/supplemental data
Net assets, end of period (000) $268,158 $226,963 $194,059 $184,013
Ratio of expenses to average net assets .87% .88% .95% 1.00%/2/
Ratio of net investment income to average net assets 2.34% 2.28% 1.69% 1.19%/2/
Portfolio turnover rate 15.61% 30.20% 17.23% 17.32%
Average commission rate paid (per share) $ .0242
</TABLE>
/1/Not annualized for periods less than one year.
/2/Annualized.
<PAGE>
FOREIGN EQUITY SERIES
<TABLE>
<CAPTION>
Period from
October 18, 1990
(commencement of
operations)to
YEAR ENDED DECEMBER 31 December 31,
1996 1995 1994 19931 19921 1991 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 $ 14.04 $12.86 $13.32 $10.05 $ 10.63 $ 10.16 $10.00
------- ------ ------ ------ ------- ------- ------
Income from investment operations:
Net investment income .45 .31 .20 .23 .27 .31 .12
Net realized and unrealized gain (loss) 2.54 1.35 (.16) 3.19 (.41) 1.30 .04
---- ---- - ---- ---- - ---- -------- ---
Total from investment operations 2.99 1.66 .04 3.42 (.14) 1.61 16
---- ---- --- ---- ---- -------- - --
Distributions:
Dividends from net investment income (.45) (.31) (.19) (.09) (.24) (.44)
Amount in excess of net investment (.02) -- -- -- -- -- --
income
Distributions from net realized gains (.14) (.17) (.31) (.06) (.20) (.70)
Amount in excess of net realized gains (.08) -- -- -- -- --
---- -- ---- -- -- --------- --
--
Total distributions (.69) (.48) (.50) (.15) (.44) (1.14)
---- ---- ---- ---- ---- --------
Change in net asset value 2.30 1.18 (.46) 3.27 (.58) .47 .16
---- ---- ---- ---- ---- ------ ---
Net asset value, end of period $16.34 $14.04 $12.86 $13.32 $ 10.05 $ 10.63 $10.16
====== ====== ====== ====== ======= ======= ======
Total Return2 21.58% 13.00% 0.24% 34.03% (1.33)% 16.13% 1.60%
Ratios/supplemental data
Net assets, end of period (000) $2,857,591 $1,817,883 $1,093,227 $ 407,970 $ 566 $ 1,181 $ 1,015
Ratio of expenses to average net assets 0.87% 0.88% 0.95% 1.03% 8.82% 9.15% 9.24%3
Ratio of expenses, net of reimbursement, to 0.87% 0.88% 0.95% 1.00% 1.00% 1.00% 1.00%3
average net assets
Ratio of net investment income to average 3.20% 2.70% 2.03% 1.73% 2.38% 2.47% 5.77%3
net assets
Portfolio turnover rate 7.39% 20.87% 7.90% 42.79% 8.45% 76.16% 0.00%
Average commission rate paid (per share) $ .0021
</TABLE>
1BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.
2NOT ANNUALIZED FOR PERIODS LESS THAN ONE YEAR.
3ANNUALIZED.
<PAGE>
EMERGING MARKETS SERIES
<TABLE>
<CAPTION>
Period from May 3,
1993 (commencement
YEAR ENDED DECEMBER 31, 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 $ 10.75 $ 11.21 $ 13.22 $ 10.00
------------ -------------- ------------- ---------
Income from investment operations:
Net investment income .15 .19 .17 .04
Net realized and unrealized gain (loss) 1.86 (.34) (1.65) 3.25
------------- -------------- -------------- ---------
Total from investment operations 2.01 (.15) (1.48) 3.29
------------- ------------- -------------- ---------
Distributions:
Dividends from net investment income (.15) (.17) (.17) (.04)
Dividends from net realized gains (.16) (.14) (.36) (.03)
------------ ------------ ------------- ----------
Total Distributions (.31) (.31) (.53) (.07)
------------ ------------ ------------- ----------
Change in net asset value for the period 1.70 (.46) (2.01) 3.22
------------- ------------ ------------- ----------
Net asset value, end of period $ 12.45 $ 10.75 $ 11.21 $ 13.22
============ ============ ============= ==========
Total Return/1/ 18.86% (1.23)% (11.39)% 32.93%
Ratios/supplemental data
Net assets, end of period (000) $ 1,565,537 $ 798.515 $ 582,878 $ 422,433
Ratio of expenses to average net assets 1.56% 1.52% 1.66% 1.60%\2\
Ratio of expenses, net of reimbursement, to
average net assets 1.56% 1.52% 1.60% 1.60%\2\
Ratio of net investment income to average net
assets 1.56% 2.00% 1.59% 0.91%\2\
Portfolio turnover rate 7.92% 13.47% 12.51% 9.42%
Average commission rate paid (per share) $ 0.0019
</TABLE>
/1/ NOT ANNUALIZED FOR PERIODS LESS THAN ONE YEAR.
/2/ ANNUALIZED.
<PAGE>
EMERGING FIXED INCOME MARKETS SERIES
<TABLE>
<CAPTION>
JUNE 4, 1997
(COMMENCEMENT OF
OPERATIONS) TO
SEPTEMBER 30, 1997
(UNAUDITED)
<S> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $ 10.00
--------------
Income from investment operations:
Net investment income .21
Net realized and unrealized gain (loss) .51
Total from investment operations .72
--------------
Net asset value, end of period $ 10.72
Total Return/1/ 7.20%
Ratios/supplemental data
Net assets, end of period (000) $ 2,144
Ratio of expenses to average net assets 6.42%/2/
Ratio of expenses, net of waiver, to average net assets 1.25%/2/
Ratio of net investment income to average net assets 6.40%/2/
Portfolio turnover rate 111.57%
</TABLE>
/1/NOT ANNUALIZED FOR PERIODS LESS THAN ONE YEAR.
/2/ANNUALIZED.
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.
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 may
change them without shareholder 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 (excluding warrants
acquired in units or attached to securities), 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 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. Growth Series may enter into forward foreign currency contracts
and may purchase and write put and call options on foreign currencies. 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 foreign 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 (excluding
warrants acquired in units or attached to securities), 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 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. Foreign Equity Series may
enter into forward foreign currency contracts and may purchase and write put and
call options on foreign currencies. 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. Emerging Markets Series will, at all times except
during defensive periods, maintain investments in at least three countries
having emerging markets. 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, which may be in the process of
developing more market-oriented economies, may experience relatively high rates
of economic growth. Other countries, 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 (excluding
warrants acquired in units or attached to securities), and up to 15% 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 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. Emerging
Markets Series may enter into forward foreign currency contracts and may
purchase and write put and call options on foreign currencies. 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 "fixed income" or
debt obligations of sovereign or sovereign-related entities of emerging market
countries, as well as debt obligations of emerging market companies. For
purposes of this restriction, the Fund uses the term "fixed income" generically
to mean debt obligations of all types, including debt obligations which pay a
variable or floating rate of interest as well as a fixed rate of interest. 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. Debt securities
issued in emerging markets are generally rated below investment grade.
Consequently, the Fund anticipates that a substantial percentage of its assets
may be invested in higher risk, lower quality debt securities, commonly known as
"junk bonds." These investments are speculative in nature. See "Debt Securities"
in this section and "What Are the Funds' Potential Risks?"
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 (excluding warrants acquired in units or attached to securities), and
up to 15% 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 invest in debt securities
rated below BBB by S&P or Baa by Moody's (or unrated debt securities determined
by the Fund's Investment Manager to be of comparable quality). Emerging Fixed
Income Markets Series may borrow up to one-third of the value of its total
assets 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. Emerging Fixed Income Markets Series may
enter into forward foreign currency contracts and may purchase and write put and
call options on foreign currencies. 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. Emerging Fixed Income Markets Series may enter into swap
agreements as discussed below, provided that the Fund will not enter into an
agreement with any single party if the amount owed or to be received under any
existing contracts with that party would exceed 5% of the Fund's assets.
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 MARKETS 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 include Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands,
New Zealand, Norway, Spain, Sweden, Switzerland, the United Kingdom, and the
United States. 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, restructured
external debt such as Brady Bonds as well as restructured external debt that has
not undergone a Brady-style debt exchange, or other types of instruments
structured or denominated as bonds. Issuers of debt securities may include the
U.S. government, its agencies or instrumentalities; a foreign sovereign
government, its agencies or instrumentalities; supra-national organizations;
U.S. or foreign corporations; and U.S. or foreign banks, savings and loan
associations, and bank holding companies.
Debt securities purchased by the Funds may be rated C or better 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 (or 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 different level of investment in high risk, lower
quality debt securities would be consistent with the interests of the Funds and
their shareholders. Debt securities rated C by Moody's are the lowest rated
class of bonds and may be regarded as having extremely poor prospects of ever
attaining any real investment standing. Debt securities rated C by S&P are
typically subordinated to senior debt which is vulnerable to default and is
dependent on favorable conditions to meet timely payment of interest and
repayment of principal.
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, Bolivia, Brazil,
Bulgaria, Costa Rica, the Dominican Republic, Ecuador, Jordan, Mexico, Nigeria,
Panama, Peru, the Philippines, Poland, 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 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.
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
have been 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 considered
speculative.
LOAN PARTICIPATIONS AND ASSIGNMENTS. Emerging Fixed Income Markets Series may
invest in fixed and floating rate loans ("Loans") arranged through private
negotiations between a sovereign, sovereign-related or corporate entity 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 its Investment Manager 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. Because the right of
payment of subordinated structured investments is subordinated to the right of
payment of another class, subordinated structured investments bear an increased
risk of non-payment or decreased payments in the event of a decrease in the cash
flow of the underlying securities. 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 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 AND DIVERSIFICATION. 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). Under
normal circumstances, each Fund will invest at least 65% of its assets in
issuers domiciled in at least three different nations (one of which may be the
United States). Each Fund, except Emerging Fixed Income Markets Series, may
invest no more than 5% of its total assets in securities issued by any one
company or government, exclusive of U.S. government securities.
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 its ability to dispose of the underlying
security and might incur a loss if the value of the security declines, as well
as incur disposition costs in liquidating the security.
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, to meet redemption
requests, to pay expenses or for other temporary needs. 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 the
current market value of the securities loaned. 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. 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 to attempt to "lock" in gains or avoid
losses, or if otherwise deemed advisable by the Investment Manager.
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, and therefore there could be an unrealized loss at
the time of delivery. In addition, while an issuer of when-issued securities has
made a commitment to issue the securities as of a specified future date, there
can be no assurance that the securities will be issued and that the trade will
settle. In the event settlement does not occur, any appreciation in the value of
the when-issued security would be lost, including the amount of any appreciation
"locked" in by the sale of an appreciated security prior to settlement. 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 net 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
the Investment Manager 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. The Investment Manager 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 AND OPEN-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 400% and 500%. 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. Growth Series' and Foreign Equity Series' policy is not to
invest more than 10% of net assets, at the time of purchase, in illiquid
securities. Emerging Markets Series' and Emerging Fixed Income Markets Series'
policy is not to invest more than 15% of 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 Managers, 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
Managers 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.
OTHER POLICIES AND RESTRICTIONS. Each Fund has a number of additional investment
restrictions that limit its activities to some extent. Some of these
restrictions may only be changed with shareholder approval. For a list of these
restrictions and more information about each Fund's investment policies, please
see "How Do the Funds Invest Their Assets?" and "Investment Restrictions" in the
SAI.
Each Fund's policies and restrictions discussed in this prospectus and in the
SAI are considered at the time the Fund makes an investment. The Funds are
generally not required to sell a security because of a change in circumstances.
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.
FOREIGN INVESTMENTS. 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. 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 U.S. Foreign companies are not generally subject to
uniform accounting or financial reporting standards, and auditing practices and
requirements may not be comparable to those applicable to U.S. companies. The
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. 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.
Brokerage commissions, custodial services, and other costs relating to
investment in foreign countries are generally more expensive than in the U.S.
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.
In many foreign countries there is less government supervision and regulation of
business and industry practices, stock exchanges, brokers and listed companies
than in the U.S. There is an increased risk, therefore, of uninsured loss due to
lost, stolen, or counterfeit stock certificates. In addition, the foreign
securities markets of many of the countries in which the Funds may invest may
also be smaller, less liquid, and subject to greater price volatility than those
in the U.S. For a discussion of special risks, see "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.
On July 1, 1997, Hong Kong reverted to the sovereignty of China. As with any
major political transfer of power, this could result in political, social,
economic, market or other developments in Hong Kong, China or other countries
that could affect the value of a Fund's investments.
FOREIGN CURRENCY EXCHANGE. 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.
SMALL COMPANY STOCKS. 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--A NON-DIVERSIFIED FUND. 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.
HIGH-RISK DEBT SECURITIES. 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.
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.
Based upon the monthly weighted average ratings of debt securities held by
Emerging Fixed Income Markets Series during the period from commencement of
operations (June 4,1997) to September 30, 1997, the Series had 100% of its total
assets invested in debt securities that received a rating from Moody's and/or S
& P, and 0% of its total assets invested in debt securities that were not so
rated. Emerging Fixed Income Markets Series had the following weighted average
percentages of its total assets invested in rated securities: AAA and/or Aaa:
10.6%, BBB and/or Baa: 3.6%, BB and/or Ba: 58.0%, and B: 27.8%.
LEVERAGE. 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.
FUTURES CONTRACTS AND RELATED OPTIONS. 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
("TAML"). The Investment Manager of Emerging Fixed Income Markets Series is
Templeton Global Bond Managers ("TGBM"), a division of TICI. The Investment
Managers manage the Funds' assets and make their investment decisions. TICI and
TAML 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 $212 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, Korea, Luxembourg,
Poland, Russia, Singapore, South Africa, Taiwan, United Kingdom, U.S., and
Vietnam. Please see "Investment Management and Other Services" and
"Miscellaneous Information" in the SAI for information on securities
transactions and a summary of the Funds' Code of Ethics.
PORTFOLIO MANAGEMENT. The lead portfolio manager for Growth Series and Foreign
Equity Series since 1996 is Gary P. Motyl, an executive vice president of TICI.
Mr. Motyl holds a BS degree in finance from Lehigh University and an MBA in
finance from Pace University. He is a Chartered Financial Analyst. Prior to
joining the Templeton organization in 1981, Mr. Motyl worked from 1974 to 1979
as a security analyst with Standard & Poor's Corporation and as a research
analyst and portfolio manager from 1979 to 1981 with Landmark First National
Bank, where he had responsibility for equity research and managed several
pension and profit-sharing plans. Mark Beveridge, Gary R. Clemons and Edward
Ramos exercise secondary portfolio management responsibilities with respect to
Growth Series and Foreign Equity Series. Mr. Beveridge is a senior vice
president of TICI. 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 with
research responsibilities for appliances and household durables, industrial
components, waste management and business and public services. He also has
market coverage of Argentina. Mr. Clemons is a senior vice president of TICI. He
holds a BS degree from the University of Nevada-Reno and an MBA with emphases in
finance and investment banking from the University of Wisconsin-Madison. He
joined TICI 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 industry and country
coverage of Columbia, Peru, Sweden and Norway. Mr. Ramos is vice president of
TICI. He holds a BS in finance from Lehigh University and an MBA with emphases
in finance, accounting and international business from The Columbia Graduate
School of Business. Prior to joining the Templeton organization in 1993, Mr.
Ramos worked as assistant to the chief investment officer of Prudential Equity
Management Association. He is currently a portfolio manager and research analyst
with responsibility for the merchandising, finance and brokerage service
industries as well as country coverage of Turkey, Egypt and Israel.
The lead portfolio manager for Emerging Markets Series since its inception is
Dr. J. Mark Mobius. Dr. Mobius is managing director of TAML. In addition, Dr.
Mobius serves as a director and/or officer of many of the funds in the Franklin
Templeton Group of Funds and many investment advisory subsidiaries of Resources.
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. Mr. Lam holds a BA in Accounting from Rutgers
University. Prior to joining the Templeton organization in 1987, he worked as an
auditor with two international accounting firms in Hong Kong: Deloitte Haskins &
Sells CPA and KPMG Peat Marwick CPA. Mr. Wu is a director of TAML. He holds a
BSS in economics from the University of Hong Kong and an MBA in Finance from the
University of Oregon. Prior to joining the Templeton organization in 1987, Mr.
Wu worked as an investment analyst, specializing in Hong Kong companies, with
Vickers da Costa.
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 Constitution Capital Management of
Boston. Prior to that, Mr. Devlin was a bond trader and research analyst for the
Bank of New England. Mr. Devlin currently directs investment strategies in both
the developed and emerging fixed income markets. He also manages numerous
Franklin Templeton mutual funds as well as corporate pension accounts. 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 Vestcor Partners
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, 0.70%; Growth Series, 0.70%; Emerging Markets Series, 1.25%. 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 April 30, 1998, these agreements
may end at any time upon notice to the Board. Total expenses of the Funds during
the fiscal year ended December 31, 1996, including fees paid to the Investment
Managers, were as follows: Foreign Equity Series, 0.87%; Growth Series, 0.87%;
Emerging Markets Series, 1.56%. Emerging Fixed Income Markets Series had not
commenced operations as of December 31, 1996.
Emerging Fixed Income Markets Series pays its own operating expenses. These
expenses include the Investment Manager's management fees; taxes, if any;
custodian, legal, and auditing fees; the fees and expenses of Board members who
are not members of, affiliated with, or interested persons of the Investment
Manager; fees of any personnel not affiliated with the Investment Manager;
insurance premiums; trade association dues; expenses of obtaining quotations for
calculating the Fund's Net Asset Value; and printing and other expenses that are
not expressly assumed by the Investment Manager. Under its management agreement,
the Fund pays the Investment Manager a management fee equal on an annual basis
to 0.70% of its average daily net assets. The fee is computed at the close of
business on the last business day of each month.
PORTFOLIO TRANSACTIONS. The Investment Managers try to obtain the best execution
on all transactions. If an Investment Manager believes more than one broker or
dealer can provide the best execution, it may consider research and related
services and the sale of shares of a Fund, 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 Administrator 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. Total return is the change 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. 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. As of September 30, 1997, Princeton
Theological Seminary owned 61% of the outstanding shares of Growth Series; and
Templeton Global Investors, Inc. owned 100% of the outstanding shares of
Emerging Fixed Income Markets Series.
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. The Company or a
Fund may hold special meetings, however, for matters requiring shareholder
approval. 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. In certain
circumstances, we are required to help you communicate with other shareholders
about the removal of a Board member.
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 is treated as a separate entity for federal income tax purposes. 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. If a Fund experiences losses
from certain investments or positions denominated in foreign currency, the
ordinary income distributable to you may decrease and amounts distributed to you
may constitute a non-taxable return of capital. If a distribution is treated as
a return of capital, your tax basis in your Fund shares will be reduced by a
like amount (to the extent of such basis), and any excess of the distribution
over your tax basis in your Fund shares will be treated as capital gain.
Similarly, certain foreign currency gains realized by a Fund may increase the
amount of ordinary income distributable to you.
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.
<PAGE>
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 Templeton Group of Funds;
(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 of Funds. 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.
(d) Service agents and broker dealers who have entered into an agreement with
Distributors may purchase shares of the Funds for clients of associated
registered investment advisors participating in fee-based programs until
May 31, 1997. After this date, additional purchases of a Fund may be made
only for clients who already own or hold shares of that Fund.
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 of Funds, 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 of Funds
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 at 1-800/321-8563 or 1-415/312-3600 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 to 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 Funds 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
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
Institutional Services 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.
METHOD STEPS TO FOLLOW
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
o 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."
o Trust Company IRA or 403(b) retirement plan accounts may exchange shares as
described above. Restrictions may apply to other types of retirement plans.
Please contact our Retirement Plans Department for information on exchanges
within these plans.
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
o 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.
<PAGE>
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.
METHOD STEPS TO FOLLOW
- -------------------------------------------------------------------------------
BY MAIL 1. Send us written instructions signed by all
account owners. If you would like
your redemption proceeds wired to a bank
account, other than the bank account
previously designated, your instructions
should include:
o The Federal Reserve ABA routing number
o The name, address and telephone number of
the bank where you want the proceeds sent
o Your bank account number
o If you are using a savings and loan or
credit union, the name of the corresponding
bank and the account number
2. Include any outstanding share certificates
for the shares you are selling
3. Provide a signature guarantee
4. Corporate, partnership and trust accounts
may need to send additional documents.
Accounts under court jurisdiction may have
other requirements.
- -------------------------------------------------------------------------------
BY PHONE Call Institutional Services at 1-800/321-8563. If
(Only available if you have you would like your redemption proceeds wired to
completed and sent the a bank account, you must complete the
Institutional Telephone Institutional Telephone Privileges Agreement.
Privileges Agreement.)
Telephone requests will be accepted:
o If you have filed an Institutional Telephone
Privileges Agreement.
o If the redemption is to be sent to the address
of record.
o If the redemption is to be sent via previously
designated wiring instructions.
- ------------------------------------------------------------------------------
If you redeem your shares by mail or by phone, we will send your redemption
check within seven days after we receive your request in proper form. If you
would like the check to be sent to an address other than the address of record
or to be made payable to someone other than the registered owners on the
account, send us written instructions signed by all account owners, with a
signature guarantee. We are not able to pay out cash in the form of currency.
The wiring of redemption proceeds is a service that we make available whenever
possible for redemption requests of $1,000 or more. If we receive your request
in proper form before 4:00 p.m. Eastern time, your wire payment will be sent the
next business day. For requests received in proper form after 4:00 p.m. Eastern
time, the payment will be sent the second business day. By offering this service
to you, the Funds are not bound to meet any redemption request in less than the
seven day period prescribed by law. Neither the Funds nor their agents shall be
liable to you or any other person if, for any reason, a redemption request by
wire is not processed as described in this section.
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 FUNDS?
Each Fund intends to pay a dividend at least annually representing substantially
all of the Fund's net investment income and 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:
o Your name,
o The Fund's name,
o Your account number,
o A description of the request,
o The dollar amount or number of shares,
o For exchanges, the name of the fund you're exchanging into
o A telephone number where we may reach you during the day, or in the evening
if preferred,
o The address the check is to be sent to if different from the address of
record, and
o 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. YOU SHOULD BE
ABLE TO OBTAIN A SIGNATURE GUARANTEE FROM A BANK, BROKER, CREDIT UNION, SAVINGS
ASSOCIATION, CLEARING AGENCY, OR SECURITIES EXCHANGE OR ASSOCIATION. A NOTARIZED
SIGNATURE IS NOT SUFFICIENT.
SHARE CERTIFICATES
We will credit your shares to your Fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate is
lost, stolen or destroyed, you may have to pay an insurance premium of up to 2%
of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the Fund if you want to
sell or exchange those shares. 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 over 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:
TYPE OF ACCOUNT DOCUMENTS REQUIRED
- -------------------------------------------------------------------------------
CORPORATION Corporation Resolution
- -------------------------------------------------------------------------------
PARTNERSHIP 1. The pages from the partnership agreement that
identify the general partners, or
2. A certification for a partnership agreement
- -------------------------------------------------------------------------------
TRUST 1. The pages from the trust document that identify the
trustees, or
2. A certification for trust
- -------------------------------------------------------------------------------
STREET OR NOMINEE ACCOUNTS. If you have Fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the shares
to the street or nominee name account of another Securities Dealer. Both dealers
must have an agreement with Distributors or we 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 a 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 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 application included with
this prospectus and indicate how you would like to receive your payments. You
may choose to direct your payments to buy the same class of shares of another
Franklin Templeton Fund or have the money sent directly to you, to another
person, or to a checking account. 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.
<PAGE>
TELEFACTS
From a touch-tone phone, you may call our TeleFACTS system (day or night) at
1-800/247-1753 to:
o obtain information about your account;
o obtain price and performance information about any Franklin Templeton Fund;
and
o request duplicate statements and deposit slips for your account.
You will need the Funds' code numbers to use TeleFACTS. The Funds' codes are:
453, for Emerging Fixed Income Markets Series; 454, for Foreign Equity Series;
455, for Growth Series; and 456, for Emerging Markets Series.
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
o 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.
o Financial reports of the Funds 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 a 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, a Fund may not be able to offer these services directly to
you. Please contact your investment representative.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Investor Services
at 100 Fountain Parkway, PO Box 33030, St. Petersburg, FL 33733-8030. The Funds
and Distributors are also located at this address. TICI and TGBM are located at
500 East Broward Boulevard, Ft. Lauderdale, FL 33394-3091. TAML is located at
Two Exchange Square, Hong Kong. You may also contact us by phone at one of the
numbers listed below.
<TABLE>
<CAPTION>
HOURS OF OPERATION (EASTERN TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
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.
<PAGE>
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 Funds 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 Funds' principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Directors."
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Franklin Government Securities Trust, Templeton Capital Accumulator Fund
Inc., Templeton Variable Annuity Fund, and Templeton Variable Products Series
Fund.
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries.
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds and the Templeton Group of Funds.
FT SERVICES - Franklin Templeton Services, Inc., the Funds' administrator.
INVESTMENT MANAGER - A Fund's investment manager: Templeton Investment Counsel,
Inc. ("TICI") for Growth Series and Foreign Equity Series; Templeton Asset
Management Ltd. - Hong Kong Branch ("TAML") 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 The 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 Funds. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TELEFACTS - Franklin Templeton's automated customer servicing system.
TAML - Templeton Asset Management Ltd. - Hong Kong branch, the investment
manager for Emerging Markets Series.
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.
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 Funds and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.
<PAGE>
APPENDIX
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 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 represent 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 C rating is reserved for income bonds on which no interest
is being paid.
D - Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
PLUS (+) OR MINUS (-): The ratings from `AA' to `CCC' may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
<PAGE>
INSTRUCTIONS AND IMPORTANT NOTICE
SUBSTITUTE W-9 INSTRUCTIONS INFORMATION
GENERAL. Backup withholding is not an additional tax. Rather, the tax liability
of persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the IRS.
OBTAINING A NUMBER. If you do not have a Social Security Number/Taxpayer
Identification Number or you do not know your SSN/TIN, you must obtain Form SS-5
or Form SS-4 from your local Social Security or IRS office and apply for one. If
you have checked the "Awaiting TIN" box and signed the certification,
withholding will apply to payments relating to your account unless you provide a
certified TIN within 60 days.
WHAT SSN/TIN TO GIVE. Please refer to the following guidelines:
<TABLE>
<CAPTION>
ACCOUNT TYPE GIVE SSN OF ACCOUNT TYPE GIVE EMPLOYER ID # OF
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
o Individual Individual o Trust, Estate, or Trust, Estate, or
Pension Plan Pension Plan Trust
Trust
- ------------------------------------------------------------------------------------------------------------
o Joint Individual Owner who will o Corporation, Corporation,
be paying tax or Partnership, or Partnership, or
first-named other other organization
individual organization
- ------------------------------------------------------------------------------------------------------------
o Unif. Gift/ Minor o Broker nominee Broker nominee
Transfer to Minor
- ------------------------------------------------------------------------------------------------------------
o Sole Proprietor Owner of
business
- ------------------------------------------------------------------------------------------------------------
o Legal Guardian Ward, Minor,
or Incompetent
- ------------------------------------------------------------------------------------------------------------
</TABLE>
EXEMPT RECIPIENTS. Please provide your TIN and check the "Exempt Recipient" box
if you are an exempt recipient. Exempt recipients include:
A corporation A real estate investment trust
A financial institution A common trust fund operated
by a bank under section 584(a)
An organization exempt from An exempt charitable remainder
tax under section 501(a), or an trust or a non-exempt trust
individual retirement plan described in section 4947(a)(1)
A registered dealer in securities An entity registered at all times
or commodities registered in under the Investment Company
the U.S. or a U.S. possession Act of 1940
IRS PENALTIES. If you do not supply us with your SSN/TIN, you will be subject to
an IRS $50 penalty unless your failure is due to reasonable cause and not
willful neglect. If you fail to report certain income on your federal income tax
return, you will be treated as negligent and subject to an IRS 20% penalty on
any underpayment of tax attributable to such negligence, unless there was
reasonable cause for the resulting underpayment and you acted in good faith. If
you falsify information on this form or make any other false statement resulting
in no backup withholding on an account which should be subject to backup
withholding, you may be subject to an IRS $500 penalty and certain criminal
penalties including fines and imprisonment.
SUBSTITUTE W-8 INSTRUCTIONS INFORMATION
EXEMPT FOREIGN PERSON. Check the "Exempt Foreign Person" box if you qualify as a
non-resident alien or foreign entity that is not subject to certain U.S.
information return reporting or to backup withholding rules. Dividends paid to
your account may be subject to withholding of up to 30%. You are an "Exempt
Foreign Person" if you are not (1) a citizen or resident of the U.S., or (2) a
U.S. corporation, partnership, estate, or trust. In the case of an individual,
an "Exempt Foreign Person" is one who has been physically present in the U.S.
for less than 31 days during the current calendar year. An individual who is
physically present in the U.S. for at least 31 days during the current calendar
year will still be treated as an "Exempt Foreign Person," provided that the
total number of days physically present in the current calendar year and the two
preceding calendar years does not exceed 183 days (counting all of the days in
the current calendar year, only one-third of the days in the first preceding
calendar year and only one-sixth of the days in the second preceding calendar
year). In addition, lawful permanent residents or green card holders may not be
treated as "Exempt Foreign Persons." If you are an individual or an entity, you
must not now be, or at this time expect to be, engaged in a U.S. trade or
business with respect to which any gain derived from transactions effected by
the Fund/Payer during the calendar year is effectively connected to the U.S. (or
your transactions are exempt from U.S. taxes under a tax treaty).
PERMANENT ADDRESS. The Shareholder Application must contain your permanent
address if you are an "Exempt Foreign Person." If you are an individual, provide
your permanent address. If you are a partnership or corporation, provide the
address of your principal office. If you are an estate or trust, provide the
address of your permanent residence or the principal office of any fiduciary.
NOTICE OF CHANGE IN STATUS. If you become a U.S. citizen or resident after you
have provided certification of your foreign status, or if you cease to be an
"Exempt Foreign Person," you must notify the Fund/Payer within 30 days of your
change in status. Reporting will then begin on the account(s) listed, and backup
withholding may also begin unless you certify to the Fund/Payer that (1) the tax
payer identification number you have given is correct, and (2) the Internal
Revenue Service has not notified you that you are subject to backup withholding
because you failed to report certain interest or dividend income. You may use
Form W-9, "Payer's Request for Taxpayer Identification Number and
Certification," to make these certifications. If an account is no longer active,
you do not have to notify a Fund/Payer or broker of your change in status unless
you also have another account with the same Fund/Payer that is still active. If
you receive interest from more than one Fund/Payer or have dealings with more
than one broker or barter exchange, file a certificate with each. If you have
more than one account with the same Fund/Payer, the Fund/Payer may require you
to file a separate certificate for each account.
WHEN TO FILE. File these certifications with the Fund before a payment is made
to you, unless you have already done this in either of the two preceding
calendar years.
HOW OFTEN YOU MUST FILE. This certificate generally remains in effect for three
calendar years. A Fund/Payer or broker, however, may require that a new
certificate be filed each time a payment is made. On joint accounts for which
each joint owner is a foreign person, each must provide a certification of
foreign status.
<PAGE>
RESOLUTION SUPPORTING AUTHORITY OF CORPORATE/ASSOCIATION
SHAREHOLDER
- -------------------------------------------------------------------------------
INSTRUCTION:
It will be necessary for corporate/association shareholders to provide a
certified copy of a resolution or other certificate of authority supporting the
authority of designated officers of the corporation/association to issue oral
and written instruction on behalf of the corporation/association for the
purchase, sale (redemption), transfer and/or exchange of Franklin Templeton Fund
shares. You may use the following form of resolution or you may prefer to use
your own.
CERTIFIED COPY OF RESOLUTION (Corporation or Association)
The undersigned hereby certifies and affirms that he/she is the duly elected
of
Title Corporate Name
a organized under the laws of the State of
Type of Organization
and that the following is a true and correct copy
State
of a resolution adopted by the Board of Directors by unanimus written consent
(a copy of which is attached) or at a meeting duly called and held on ,19 .
"RESOLVED that
Name of Corporation/Association
(the "Company") is authorized to invest the Company's assets in one or more
investment companies (mutual funds) whose shares are distributed by
Franklin/Templeton Distributors, Inc. ("Distributors"). Each such
investment company, or series thereof, is referred to as a "Franklin
Templeton Fund" or "Fund."
FURTHER RESOLVED, that any (enter number) of the
following officers of this Company (acting alone, if one, or acting
together, if more than one) is/are authorized to issue oral or written
instructions (including the signing of drafts in the case of draft
accessed money fund accounts) on behalf of the Company for the purchase,
sale (redemption), transfer and/or exchange of Fund shares and to execute
any Fund application(s) and agreements pertaining to Fund shares
registered or to be registered to the Company (referred to as a "Company
Instruction"); and, that this authority shall continue until
Franklin/Templeton Investor Services, Inc. ("Investor Services") receives
written notice of revocation or amendment delivered by registered mail.
The Company's officers authorized to act on behalf of the Company under
this resolution are (enter officers titles only):
(referred to as the "Authorized Officers").
FURTHER RESOLVED, that Investor Services may rely on the most recently
provided incumbency certificate delivered by the Company to Investor
Services to identify those individuals who are the incumbent Authorized
Officers and that Investor Services shall have no independent duty to
determine if there has been any change in the individuals serving as
incumbent Authorized Officers.
FURTHER RESOLVED, that the Company ("Indemnitor") undertakes and agrees to
indemnify and hold harmless Distributors, each affiliate of Distributors,
each Franklin Templeton fund and their officers, employees and agents
(referred to hereafter collectively as the "Indemnitees") from and against
any and all liability, loss, suits, claims, costs, damages and expenses of
whatever amount and whatever nature (including without limitation
reasonable attorneys' fees, whether for consultation and advice or
representation in litigation at both the trial and appellate level) any
Indemnitee may sustain or incur by reason of, in consequence of, or
arising from or in connection with any action taken or not taken by an
Indemnitee in good faith reliance on a Company Instruction given as
authorized under this resolution."
The undersigned further certifies that the below named persons, whose signatures
appear opposite their names, are the incumbent Authorized Officers (as that term
is defined in the above resolution) who have been duly elected to the office
identified beside their name(s) (attach additional list if necessary).
X
Name/title (please print or type)
Signature
X
Name/title (please print or type)
Signature
X
Name/title (please print or type)
Signature
X
Name/title (please print or type)
Signature
Certified from minutes
X
- -------------------------------------------------------------------------------
Signature
- ------------------------------------------------------------------------------
Name/title (please print or type)
CORPORATE SEAL (if appropriate)
<PAGE>
FRANKLIN TEMPLETON GROUP OF FUNDS
LITERATURE REQUEST ~ Call 1-800/DIAL BEN (1-800/342-5236) today for a free
descriptive brochure and prospectus on any of the funds listed below. The
prospectus contains more complete information, including fees, charges and
expenses, and should be read carefully before investing or sending money.
<TABLE>
<S> <C> <C>
GLOBAL GROWTH Franklin Growth Fund FOR CORPORATIONS:
Franklin Global Health Care Fund Franklin MidCap Growth Fund
Franklin Templeton Japan Fund Franklin Small Cap Growth Fund Franklin Corporate Qualified
Templeton Developing Markets Trust Mutual Discovery Fund Dividend Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies GROWTH AND INCOME FRANKLIN FUNDS SEEKING TAX-FREE
Fund INCOME
Templeton Global Infrastructure Fund Franklin Asset Allocation Fund
Templeton Global Opportunities Trust Franklin Balance Sheet Investment Federal Intermediate-Term Tax-Free
Templeton Global Real Estate Fund Fund Income Fund
Templeton Global Smaller Companies Franklin Convertible Securities Fund Federal Tax-Free Income Fund
Fund Franklin Equity Income Fund High Yield Tax-Free Income Fund
Templeton Greater European Fund Franklin Income Fund Insured Tax-Free Income Fund
Templeton Growth Fund Franklin MicroCap Value Fund Puerto Rico Tax-Free Income Fund
Templeton Latin America Fund Franklin Natural Resources Fund Tax-Exempt Money Fund
Templeton Pacific Growth Fund Franklin Real Estate Securities Fund
Templeton World Fund Franklin Rising Dividends Fund FRANKLIN STATE-SPECIFIC FUNDS
Franklin Strategic Income Fund SEEKING TAX-FREE INCOME
GLOBAL GROWTH AND INCOME Franklin Utilities Fund
Franklin Value Fund Alabama
Franklin Global Utilities Fund Mutual Beacon Fund Arizona*
Franklin Templeton German Government Mutual Financial Services Fund Arkansas**
Bond Fund Mutual Qualified Fund California*
Franklin Templeton Global Currency Mutual Shares Fund Colorado
Fund Templeton American Trust, Inc. Connecticut
Mutual European Fund Florida*
Templeton Global Bond Fund FUND ALLOCATOR SERIES Georgia
Templeton Growth and Income Fund Hawaii**
Franklin Templeton Conservative Indiana
GLOBAL INCOME Target Fund Kentucky
Franklin Templeton Moderate Target Louisiana
Franklin Global Government Income Fund Maryland
Fund Franklin Templeton Growth Target Massachusetts***
Franklin Templeton Hard Currency Fund Fund Michigan*
Franklin Templeton High Income Minnesota***
Currency Fund INCOME Missouri
Templeton Americas Government New Jersey
Securities Fund Franklin Adjustable Rate Securities New York*
Fund North Carolina
GROWTH Franklin Adjustable U.S. Government Ohio***
Securities Fund Oregon
Franklin Biotechnology Discover Fund Franklin's AGE High Income Fund Pennsylvania
Franklin Blue Chip Fund Franklin Investment Grade Income Tennessee**
Franklin California Growth Fund Fund Texas
Franklin DynaTech Fund Franklin Short-Intermediate U.S. Virginia
Franklin Equity Fund Government Securities Fund Washington**
Franklin Gold Fund Franklin U.S.Government Securities
Fund VARIABLE ANNUITIES+
Franklin Money Fund
Franklin Federal Money Fund Franklin Valuemark*
Franklin Templeton Valuemark Income
Plus (an immediate annuity)
</TABLE>
*Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and/or a high yield
portfolio (CA) and a money market portfolio (CA and NY). **The fund may invest
up to 100% of its assets in bonds that pay interest subject to the federal
alternative minimum tax. ***Portfolio of insured municipal securities. +Franklin
Valuemark and Franklin Templeton Valuemark Income Plus are issued by Allianz
Life Insurance Company of North America or by its wholly owned subsidiary,
Preferred Life Insurance Company of New York, and distributed by NALAC Financial
Plans, LLC.
FGF 09/97 Printed on recycled paper.
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